welcome to www.mathsclubs.com aka ineteconomics blog-

i would like to co-blog on what only maths can do

for example only

5 maths designs what futures next generations of a place are locked into -at least that was my fathers lifetime work

4 what apps and open ecosystems are coded

3 whether any (alumni of a) world class system designer/ facilitator integrates whole truth transparently for all or excludes some either all the time or exponentially over time

2 whether architecture or engineering or science is safe and humanly conscious -prove that if a scientist says everything is now known in his silo then he's either not modeling micro enough or not connecting other disciplines - einetein and von neumann

1 explore recursively where human calculations can do creation that computers never can (turing)

0 verify what minimum golden rules unite all sustainable faiths (or cultural heroes) in joy of next generation aligned with natures evolutionary rules

00 clarify where lawyers and other professionals/politicians are causing terror and fear and greed and separation by claiming a monopoly over judgement that is less and less true to future possibilities caused by an era's greatest changes

at least i think i am right in saying so- but would be happy to learn where i am overclaiming for maths

chris.macrae@yahoo.co.uk dc text 240 316 8157

Sunday, April 10, 2016

tragic-comic what was known about system quarter millennium ago

Adam Smith:
Science and Human Nature

University of Glasgow
Glasgow, Scotland

Abstract: The paper opens with a quotation from Professor Muhammad
Yunus objecting to the one-dimensional representation of human
nature which is common in modern economics. The bulk of the paper
is concerned with Adam Smith and his system of social science which
consists of three major parts, mainly – ethics, history and economics.
Implications of Smith’s position on human nature are indeed multidimensional.
In conclusion, it is pointed out that Smith’s separation
of ethics, history and economics made it possible through later
generations to regard economics as a separate autonomous discipline.
This paved the way for the kind of development of which Prof Yunus
was the critic.
Keywords: system of social science, human nature, jurisprudence,
moral philosophy, economic liberalism, allocative mechanism
1 Prof Skinner is a Fellow of the British Academy. He has published a number of
articles, mainly concerned with 18th century topics. He has edited Sir James Steuart’s
Principles (1966, 1998) and Smith’s Wealth of Nations 1970, 1999 (Penguin Books).
He has co-edited the Wealth of Nations 1975 (with R H Campbell and W B Todd)
published by Oxford at the Clarendon Press. He is the author of A System of Social
Science: Papers Relating to Adam Smith (1979, 1996). The substance of Sections II
– VI in this paper has appeared in a number of locations, most recently in The Royal
Bank of Scotland Review Number 166, June 1990 Pp3-15 25

IN a notable passage, Nobel Peace Laureate Muhammad Yunus once
remarked that the economists’ view of ‘human nature’ was ‘one
dimensional’. Yunus contended that ‘People are not one-dimensional
entities; they are exceedingly multi-dimensional. Their emotions, beliefs,
priorities and behaviour patterns can best be compared to the millions
of shades we can produce from the three primary colours.’ (Yunus 2007,
p19; cf Pp21 and 290) This article is about Adam Smith, but it is hoped
that in expounding the elements of his system it will be possible to
illustrate the point that Smith would have had every sympathy with
Professor Yunus’s rejection.

In what follows, Smith’s system will be expounded in terms of the
order of argument which he is known to have employed as a lecturer;
namely, ethics, jurisprudence and economics. But it will be convenient
to begin with his treatment and knowledge of the literature of science.

Section I: The Literature of Science
It should be recalled that each separate component of Smith’s system
represents scientific work in the style of Newton, contributing to a greater
whole which was conceived in the same image. Smith’s scientific
aspirations were real, as was his consciousness of the methodological
tensions which may arise in the course of such work.

Smith’s interest in mathematics dates from his time as a student in
Glasgow (Stewart, 1.7). He also appears to have maintained a general
interest in the natural and biological sciences, facts which are attested
by his purchases for the University Library (Scott 1937, p182) and for his
own collection (Mizuta 2000). Smith’s ‘Letter to the Authors of Edinburgh
Review’(1756), where he warned against any undue preoccupation with
Scottish literature, affords evidence of wide reading in the physical
sciences, and also contains references to contemporary work in the
French Encyclopedie as well as to the productions of Buffon, Daubenton
and Reaumur. DD Raphael has argued that the Letter owes much to
Hume. (TMS, 10, 11)

The essay on astronomy, which dates from the same period (it is
known to have been written before 1758 and may well date from the
Oxford period) indicates that Smith was familiar with classical as well as
with more modern sources, such as Galileo, Kepler and Tycho Brahe, a
salutary reminder that an eighteenth century philosopher could work
close to the frontiers of knowledge in a number of fields.

But Smith was also interested in science as a form of communication,
arguing in the LRBL (see Abbreviations) that the way in which this type
of discourse is organised should reflect its purpose as well as a judgement
as to the psychological characteristics of the audience to be addressed.
In a Lecture delivered on 24 January 1763 Smith noted that didactic
or scientific writing could have one of two aims: either to ‘lay down a
proposition and prove this, by the different arguments that lead to that
conclusion’ or to deliver a system in any science. In the latter case Smith
advocated what he called the Newtonian method, whereby we ‘lay down
certain principles known or proved in the beginning, from whence we
account for the several phenomena, connecting all together by the same
Chain’. (LRBL, ii.133) Two points are to be noted. First, Smith makes it
clear that Descartes rather than Newton was the first to use this method
of exposition, even although the former was now perceived to be the
author of ‘one of the most entertaining Romances that have ever been
wrote’. (LRBL, ii.134; Letter 5) Secondly, his reference to the pleasure to
be derived from the ‘Newtonian method’ (LRBL, ii, 134) draws attention
to the problem of scientific motivation, a theme which was to be
developed in the ‘Astronomy’ where Smith considered those principles
‘which lead and direct philosophical enquiry’.

Smith made extensive use of mechanistic analogies, sometimes
derived from Newton, seeing in the universe ‘a great machine’ wherein
we may observe ‘means adjusted with the nicest artifice to the ends which
they are intended to produce’. (TMS, II.ii.3.5) In the same way he noted
that ‘Human society, when we contemplate it in a certain abstract and
philosophical light, appears like a great, an immense machine’, (TMS,
VII.ii.1.2) a position which leads quite naturally to a distinction between
efficient and final causes, (TMS, II.ii.3.5) which is not inconsistent with
the form of Deism associated with Newton himself. It is also striking that
so sympathetic a thinker as Smith should have extended the mechanistic
analogy to systems of thought.

Systems in many respects resemble machines, a machine is a little
system created to perform, as well as to connect together, in reality,
those different movements and effects which the artist has occasion
for. A system is an Imaginary machine invented to connect together in
the fancy those different movements and effects which are already in
reality performed. (Astronomy, IV.19)

Each part of Smith’s contribution is in effect an ‘imaginary’ machine
which conforms closely to his own stated rules for the organisation of
scientific discourse. All disclose Smith’s perception of the ‘beauty of a
systematical arrangement of different observations connected by a few
common principles’. (WN, V.i.f.25) The whole reveals much as to Smith’s
drives as a thinker, and throws an important light on his own marked
(subjective) preference for system, coherence and order.

Section II: Ethics, Jurisprudence and Economics
Smith’s teaching from the Chair of Moral Philosophy (1752-64) was
divided into four parts. It is known that he lectured on natural theology,
ethics, jurisprudence, and economics in that order and in a style which
confirms his debt to his old teacher, Francis Hutcheson, under whom he
studied between 1737 and 1740. It is also clear that the lectures on ethics
formed the basis of The Theory of Moral Sentiments (TMS) and that the
subjects covered in the last part of the course were further to be developed
in The Wealth of Nations (WN).

Adam Smith had a very definite research programme in mind from
an early date; a point to which he made reference in the concluding
passages of the first edition of the Theory of Moral Sentiments (TMS). The point
was also repeated in the advertisement to the sixth and last edition of
the work (1790) where Smith indicated that his two great works were
two parts of a plan which he hoped to complete by giving ‘an account of
the general principles of law and government, and of the different
revolutions which they had undergone in the different ages and periods
of society.’

Smith did not live to complete his plan partly as a result of his
appointment, in 1778, as Commissioner of Customs. But the shape of
the study may well be reflected in the Lectures on Jurisprudence (1896,

The three parts of Smith’s great plan are highly systematic; each
discloses a debt to contemporary scientific work especially in the fields
of biology and Newtonian physics, all are interdependent.

The TMS, which builds upon the analyses of Hutcheson and David
Hume is primarily concerned with the way in which we form moral
judgements. It was also designed to explain the emergence, by natural
as district from artificial means, of those barriers which control our selfregarding
and un-social passions. The argument gives prominence to
the emergence of general rules of conduct, based upon experience, which
include the rules of law. The analysis also confirms that accepted standards
of behaviour are related to environment and that they may vary in different
societies at the same point in time and in a given society over time.

The lectures on jurisprudence on the other hand, help to explain
the emergence of government and its changing structure in terms of an
analysis which features the use of four distinct types of socio-economic
environment; the celebrated stages of hunting, pasture, agriculture and
commerce. Smith’s work on ethics was closely linked with the economic
analysis which was to follow. For example, if Smith gave prominence to
the role of self-interest in this context, auditors of his lecture course and
readers of the TMS would be aware that the basic drive to better our
condition was subject to a process of moral scrutiny. It would also be
appreciated that economic aspirations had a social reference in the sense
that it is chiefly from a regard ‘to the sentiments of mankind, that we
pursue riches and avoid poverty’. (TMS, I.iii.2.1) Later in the book the
position was further clarified when Smith noted that we tend to approve
the means as well as the ends of ambition: ‘Hence . . . that eminent
esteem with which all men naturally regard a steady perseverance in the
practice of frugality, industry, and application’. (TMS, IV.2.8)

The lectures on jurisprudence helped Smith to specify the nature of
the system of positive law which might be expected in the stage of
commerce and also threw some light on the form of government which
might conform to it together with the political pressures to which it may
be subject.

The treatment of jurisprudence is also important in that it helps to
explain the origins of the modern economy and the emergence of an
institutional structure where all goods and services command a price. It
is in this context that ‘Every man . . . Lives by exchanging, or becomes in
some measure a merchant’ (WN,’I.iv.1); a position which leads to Smith’s
famous judgement that:

‘It is not from the benevolence of the butcher, the brewer, or the baker
that we expect our dinner, but from their regard to their own interest.
We address ourselves, not to their humanity but to their self-love, and
never talk to them of our own necessities but of their advantages.
Nobody but a beggar chooses to depend chiefly upon the benevolence
of his fellow Citizens. Even the beggar does not depend upon it
entirely.’ (WN, I.ii.2)

Economic Analysis and Economic Liberalism
As far as the purely economic analysis is concerned, it is sufficient to be
reminded that in The Wealth of Nations the theory of price and allocation
was developed in terms of a model which made due allowance for distinct
factors of production (land, labour, capital) and for the appropriate forms
of return (rent, wages, profit). This point, now so obvious, was an
innovation of genius by Smith and permitted him to develop an analysis
of the allocative mechanism which ran in terms of inter-related
adjustments in both factor and commodity markets. The resulting version
of general interdependence also allowed Smith to move from the
discussion of ‘micro’ to that of ‘macro’ economic issues, and to develop
a model of the ‘circular flow’ which relies heavily on the distinction,
already established by the contemporary French economists, between
fixed and circulating capital.

But these terms, which were applied to the activities of individual
undertakers, were transformed in their meaning by their application to
society at large. Working in terms of period analysis where all magnitudes
are dated, Smith in effect represented the working of the economic
process as series of activities and transactions which linked the main
socio-economic groups (proprietors, capitalists, and wage-labour) and
productive sectors. In Smith’s terms, current purchases in effect withdrew
consumption and investment goods from the circulating capital of society;
goods which were in turn replaced by virtue of productive activity in the
same time period.

We should note in this context that Smith was greatly influenced by
a specific model of the economy which he came across during a visit to
Paris in 1766. The model was designed to explain the operation of an
economic system treated as an organism. It was first produced by Francois
Quesnay, a medical doctor, and developed by A R J Turgot. (Meek 1962,
1973) The significance of the analogy of the circulation of the blood
would not be lost on Smith – and nor would be the link with William
Harvey, a distinguished member of the medical school of Padua and a
notable exponent of a methodological approach which held that ‘the
way to understand something is to take it apart, in deed or in thought,
ascertain the nature of its parts and then re-assemble it – resolve and
recompose it.’ (Watkins 1965, p52)

Looked at from one point of view, the analysis taken as a whole
provides one of the most dramatic examples of the doctrine of
‘unintended social outcomes’, or the working of the ‘invisible hand’.
Adam Smith: Science and Human Nature – EMERITUS PROF ANDREW SKINNER

The individual entrepreneur, seeking the most efficient allocation of
resources, contributes to overall economic efficiency; the merchant’s
reaction to price signals helps to ensure that the allocation of resources
accurately reflects the structure of consumer preferences; the drive to
better our condition contributes to economic growth. Looked at from
another perspective, the work can be seen to have resulted in a great
conceptual system linking together logically separate, yet inter-related,
problems such as price, allocation, distribution, macro-statics and macrodynamics.

If such a theory enabled Smith to isolate the causes of economic
growth with the emphasis now on the supply side, it was also informed
throughout by what Terence Hutchison has described as the ‘powerfully
fascinating idea and assumption of beneficent self-adjustments and selfequilibration’.
(Hutchison 1988, p68)

Smith’s prescriptions, with regard to economic policy, followed
directly on this analysis. In a system which depended on the efforts of
individuals, if it was to function efficiently, Smith argued that the sovereign
should discharge himself from a duty:
‘in the attempting to perform which he must always be exposed to
innumerable delusions, and for the proper performance of which
no‘human wisdom or knowledge could ever be sufficient, the duty of
superintending the industry of private people, and of directing it
towards the employments most suitable to the interest of the society.’
(WN, IV.ix.51)

In a further passage Smith drew attention to that ‘security which the
laws in Great Britain give to every man that he shall enjoy the fruits of
his own labour’ and attributed the country’s contemporary performance
to the fact that the ‘natural effort to every individual to better his own
condition, when suffered to exert itself with freedom and security, is so
powerful a principle, that it is alone, and without any assistance, not
only capable of carrying on the society to wealth and prosperity, but of
surmounting a hundred impertinent obstructions with which the folly
of human laws too often encumbers its operations’. (WN,’IV.v.b.43) But
within this general frame, Smith’s views on economic and social policy
were often subtle, surprising and illuminating.

Section III: Mercantilism and America
It will come as no surprise to find so much of The Wealth of Nations
devoted to a very violent attack on what Smith called the mercantile
system, ‘a system which was best understood in our own country and in
our own times.’ (WN, IV.2) As Smith describes it, the system was based
upon regulation in the interests of a positive balance of trade. In intention
such a policy was restrictive and therefore liable to that ‘general objection
which may be made to all the different expedients of the mercantile
system; the objection of forcing some part of the industry of the country
into a channel less advantageous than that in which it would run of its
own accord.’ (WN, IV,v.a.24)

Smith’s treatment of the Colonial relationship with America, the
centrepiece of British policy, provides an interesting and often topical

On Smith’s account, the Regulating Acts of Trade and Navigation in
effect confined the American Colonies to primary products while Great
Britain concentrated on more refined manufactures – with trade carried
on in British ships. The net result was a subtle system of complementary
markets which benefited both parties. Smith perceived, however, that
the policy was fundamentally flawed in the sense that the relationship
could not in the long-run be sustained.

The problem as Smith saw it lay in the fact that the rates of growth in
the two countries would be different. Such differences could be explained
in a number of ways. As Smith argued, there were differences in
institutional arrangements, factor endowments and in the degree of
maturity of the two economies. But in practice he placed most emphasis
on the fact that the Regulating Acts would themselves cause significant
variations in performance.

In the case of America, Smith contended that the fact that the country
was confined to primary products created the optimal conditions for
growth in an undeveloped economy. While he believed that these
restrictions were a ‘manifest violation of one of the most sacred rights of
mankind’ he also pointed out that the restrictions were unlikely to be
burdensome in the ‘present state of improvement’ of the colonies. (WN,
IV.vii.b.44) But in the longer run, the potential for economic growth in
America must come into conflict with current policy and require or force
a change.

In the case of Great Britain, Smith emphasised that the rate of growth
was attributable to Britain’s concentration on manufactured products
and on the fact that she had become increasingly dependent on the distant
trade with America as distinct from developing European links. But above
all else he emphasised the point that the whole burden of the costs of
maintaining the Empire fell upon the British economy with consequent
effects on public debt and on the level of taxation.

Smith’s solution was dramatic but entirely consistent with the general
tenor of his critique of the mercantile system. He recommended that
Britain should dismantle the Regulating Acts of Trade and Navigation
and create a single, gigantic, free trade area – an Atlantic Economic
Community. Smith advocated the creation of a single state with a
harmonised system of taxation possessing all the advantages, as he saw
them, of a common language and culture.

In passages which remind us of Smith’s interest in constitutional
and political issues, he pointed out that such a solution would require
Great Britain to admit American deputies to the House of Commons,
prompting the thought that:
‘in the course of little or more than a century, perhaps, the produce of
American might exceed that of British taxation. The seat of empire
would then naturally remove itself to that part of the empire which
contributed most to the general defence and support of the whole’
(WN, IV.vii.c.70): Philadelphia rather than London.’

By 1776 the opportunity, as he saw it, had been lost and military
defeat was the most likely outcome:
‘The plan which, if it would be executed, would certainly tend most to
the prosperity, to the splendour, and to the duration of the empire, if
you except here and there a solitary philosopher like myself, seem
scarce to have a single advocate.’ (Corr, 382.)

But even here Smith contemplated the loss of America with
equanimity, believing as he did that Great Britain had opportunities to
exploit in Europe – and that trade with America would resume in due
course, provided always that a more liberal policy was adopted.

Domestic Policy
Smith’s treatment of domestic policy shows evidence of the same preoccupation
with an environment which would best release individual
effort and maximise both incentive and efficiency. For example, he
recommended that the statutes of apprenticeship and the privileges of
corporations be repealed on the ground that they adversely affect the
working of the allocative mechanism. In the same chapter Smith pointed
to barriers to the movement of labour represented by the Poor Laws and
Laws of Settlement. (cf WN, I.x.c; IV.ii.42)

Smith’s basic objection was to positions of privilege, such as
monopoly powers, as being both unjust and impolitic; unjust in that a
position of monopoly is a position of unfair advantage and impolitic in
that the prices of goods so controlled are ‘upon every occasion the highest
that can be got’. But at the same time Smith advocated a series of policies
– all catalogued by Jacob Viner (1927) – which range from government
control of the coinage to regulation of mortgages and the legal
enforcement of contracts.

Four broad areas of intervention recommended by Smith are of
particular interest, in the sense that they involve issues of general
principle. First, he advised governments that, where they were faced
with taxes imposed by their competitors in trade, retaliation could be in
order especially if such an action had the effect of ensuring the ‘repeal
of the high duties or prohibitions complained of ’. (cf Winch 1983, p509)

Secondly, Smith advocated the use of taxation, not simply as a means of
raising revenue, but as a means of controlling certain activities, and of
compensating for what would now be known as a defective telescopic
faculty, i.e. a failure to perceive our long-run interest, (cf WN, V.ii.g.4;
V.ii.k.50; V/ii.g.12) commonly now referred to as ‘short-termism’.
Smith was also well aware that the modern version of the ‘circular
flow’ depended on paper money and on credit; in effect a system of
‘dual circulation’ involving a complex of transactions linking producers
and merchants, dealers and consumers; (WN, II.ii.88) transactions that
would involve cash (at the level of the household) and credit (at the
level of the firm). It is in this context that Smith advocated control over
the rate of interest, set in such a way as to ensure that ‘sober people are
universally preferred, as borrowers, to prodigals and projectors’. (WN,
II.iv.15) He was also willing to regulate the small note issue in the interests
of a stable banking system.

Although Smith’s monetary analysis is not regarded as amongst the
Adam Smith: Science and Human Nature – EMERITUS PROF ANDREW SKINNER
strongest of his contributions, it should be remembered that he witnessed
the collapse of major banks in the 1770s (may even have been personally
a victim of one such) and was acutely aware of the problems generated
by a sophisticated credit structure. It was in this context that he articulated
a very general principle, namely, that ‘those exertions of the natural liberty
of a few individuals, which might endanger the security of the whole
society, are, and ought to be restrained by the laws of all governments;
of the most free, as well as of the most despotical’. (WN, II.ii.94)

Emphasis should be given, finally, to Smith’s contention that a major
responsibility of government must be the provision of certain public
works and institutions for facilitating the commerce of the society which
were ‘of such a nature, that the profit could never repay the expence to
any individual or small number of individuals, and which it, therefore,
cannot be expected that any individual or small number of individuals
should erect or maintain’ (WN,’V,i.c.1). In short, he was concerned to
point out that the state would have to organise services or public works
which the profit motive alone could not guarantee.

The examples of public works which Smith provided include such
items as roads, bridges, canals and harbours – all thoroughly in keeping
with the conditions of the time and with Smith’s emphasis on the
importance of transport as a contribution to the effective operation of
the market and to the process of economic growth.

The theme is continued in his treatment of another important service,
namely education; a subject which is developed in the course of Smith’s
discussion of the social and psychological costs of economic growth.

Section IV: Education – The Costs of Economic Growth
It will be recalled that for Smith moral judgement depends on our capacity
for acts of imaginative sympathy and that such acts can only take place
within the context of some social group. (TMS, III.i.3) However, Smith
also observed that these mechanisms might break down in the context
of the modern economy, due in part to the size of some manufacturing
units and of the cities which housed them.

If the problems of solitude and isolation consequent on the growth
of cities explain Smith’s first group of points, a related trend in the shape
of the division of labour helps to account for the second. In discussing
this important source of economic benefit (which is emphasised to an
extraordinary degree in The Wealth of Nations) Smith noticed that it
could involve costs. Or, as Smith put it in one of the most famous passages
in his major work:
‘In the progress of the division of labour, the employment of the far
greater part of those who live by labour, that is, of the great body of the
people, comes to be confined to a few very simple operations; frequently
to one or two. But the understandings of the greater part of men are
necessarily formed by their ordinary employments. The man whose whole
life is spent in performing a few simple operations, of which the effects
too are, perhaps, always the same or very nearly the same, has no occasion
to exert his understanding, or to exercise his invention in finding out
expedients for removing difficulties which never occur. He naturally loses,
therefore, the habit of such exertion, and generally becomes as stupid
and ignorant as it is possible for a human creature to become.’ (WN,

It is the fact that the ‘labouring poor, that is the great body of the
people’ must necessarily fall into the state outlined that makes it necessary
for government to intervene.

Smith’s justification for intervention is, as before, market failure, in
that the labouring poor, unlike those of rank and fortune, lack the leisure,
means, or (by virtue of their occupations) the inclination to provide
education for their children. (WN, V.i.f.53) In view of the nature and
scale of the problem, Smith’s programme seems rather limited, but he
did argue that the poor could be taught ‘the most essential parts of
education. . . to read, write, and account’ together with the ‘elementary
parts of geometry and mechanics’. (WN, V.i.f.54,55)

It is interesting to observe in this context that Smith was prepared to
go so far as to infringe the natural liberty of the subject, at least where
the latter is narrowly defined, in recommending that the ‘public can
impose upon almost the whole body of the people the necessity of
acquiring those most essential parts of education, by obliging every man
to undergo an examination or probation in them before he can obtain
the freedom in any corporation, or be allowed to set up any trade either
in a village or town corporate.’ (WN,V.i.f.57)

Distinct from the above, although connected with it, is Smith’s
concern with the decline of martial spirit which is the consequence of
the nature of the fourth, or commercial stage. In The Wealth of Nations
Smith seems to have had in mind the provision of some kind of military
education which he supported as a contribution to the well-being of the
individual. (WN, V,i.f.60)

Smith also sought to encourage an informed ‘middling rank’ and
suggested that government should act ‘by instituting some sort of
probation, even in the higher and more difficult sciences, to be undergone
by every person before he was permitted to exercise any liberal
profession, or before he could be received as a candidate for any
honourable office of trust or profit.’ (WN, V.i.g.14)

The Organisation of Public Services
Smith not only identified the various services which the state was expected
to provide; he also gave a great deal of attention to the forms of
organisation which would be needed to ensure and to induce efficient

In the discussion of defence, for example, he expressed a preference
for a standing army to a militia because the former would be more
specialised and therefore more efficient. (WN, V.i.a.14)

In the case of justice, Smith contended that the sovereign has the
duty ‘of protecting, as far as possible, every member of the society from
the injustice or oppression of every other member of it’. (WN,V.i.b.1)
Here he argued that effective provision of so central a service depended
crucially on a clear separation of the judicial from the executive power.
(WN, V.i.b.23)

As Alan Peacock (1975) has pointed out, Smith’s efficiency criteria
are distinguished from this basic issue of organisation, the argument
being, in effect, that the services provided by attorneys, clerks, or judges
should be paid for in such a way as to encourage productivity. Smith also
ascribed the ‘present admirable constitution of the courts of justice in
England’ to the use of a system of court fees which had served to
encourage competition between the courts of King’s of King’s Bench,
Chancery and Exchequer. (WN, V.i.b.20.21)

The theme was continued in the discussion of public works where
he suggested that the main problems to be addressed were those of
equity and efficiency.

With regard to equity, Smith argued that public works such as
highways, bridges, and canals should be paid for by those who use them
and in proportion to the wear and tear occasioned. He also defended
the principle of direct payment on the ground of efficiency. Only by this
means, he argued in a section of powerful present relevance, would it
be possible to ensure that services are provided where there is a
recognisable need; only in this way would it be possible to avoid building
roads through a desert for the sake of some private interest; or a great
bridge ‘thrown over a river at a place where nobody passes, or merely to
embellish the view from the windows of a neighbouring palace: things
which sometimes happen, in countries where works of this kind are
carried on by any other revenue than that which they themselves are
capable of affording.’ (WN, V.i.d.6)

Smith also tirelessly emphasised the point, already noticed in the
discussion of justice, namely, that in every trade and profession ‘the
exertion of the greater part of those who exercise it, is always in proportion
to the necessity they are under of making that exertion.’ (WN, V.i.f.4)

On this ground, for example, he approved of the expedient used in
France, whereby a construction engineer was made a present of tolls on
a canal for which he had been responsible, thus ensuring that it was in
his interest to keep the canal in good repair.

The ‘incentive’ argument is also eloquently developed in Smith’s
treatment of universities where he argued, notably in correspondence
with his old friend and colleague William Cullen, that degrees can be
likened to the statutes of apprenticeship (Corr, 177) and protested against
the idea of universities having a monopoly of higher education (Corr,
174) on the ground that this would inhibit private teachers (eg of
medicine) such as the Hunters, William Hewson and Sir William Fordyce.
In particular Smith objected to a situation where professors enjoyed
high incomes irrespective of competence or industry (WN, V.i.f.7): the
Oxford, rather than the Glasgow model. In the same context he argued
in favour of free movement of students between teachers and institutions
(WN, V.i.f.12,13) as a means of inducing teachers to provide appropriate

While it is impossible adequately to do justice to Smith’s treatment
of public finance in these few pages, some general principles do emerge
which may be of interest to the modern reader. In general, Smith believed
that the state should ensure that services are provided indirectly, rather
than centrally, that such services should be self-financing wherever
possible and especially that they should be so ‘structured as to engage
the motives and interests of those concerned’. (Rosenberg 1960, 68; cf
Ricketts 1978) Once again, the fundamental appeal is to self-love, even if
Smith did recognise that many services would be adequately performed
as much from a sense of moral obligation as monetary reward.

Section V: Liberty, Citizen and State
Lord Robbins once remarked that Smith bequeathed to his successors in
the classical school an opposition to conscious paternalism; a belief that
‘central authority was incompetent to decide on a proper distribution of
resources’. Above all Smith developed an important argument to the
effect that economic freedom ‘rested on a two-fold basis: belief in the
desirability of freedom of choice for the consumer and belief in the
effectiveness, in meeting this choice, of freedom on the part of producers’.
(1953, p12) If we add a dynamic dimension to this theme we have a true
reflection of Smith’s position; a position which helps to explain the
world’s continuing interest in his work.

Yet even given this, the list of government functions is, as we have
seen, quite impressive. It is also important to recall the need to distinguish
between the principles which justify intervention (which may be of
universal validity) and the specific agenda which Smith offered (and
which may reflect his understanding of the situation which he actually
confronted at the time of writing).

The principles which justify intervention are, after all, wide-ranging
in their implications. On Smith’s argument, the state should regulate
activity to compensate for the imperfect knowledge of individuals; it is
the state which must continuously scrutinise the relevance of particular
laws and institutions; the state which has a duty to regulate and control
the activities of individuals which might otherwise prove damaging to
the interests of society at large; it is the state which must make adequate
provision for public works and services (including education) in cases
where the profit motive is likely to prove inadequate. Such basic principles
are open to wide application notably in the circumstances of a modern

It is not difficult to find in Smith a liberal thinker: what is much more
difficult is to determine where a man of his principles would be found
today in the broad spectrum of opinion which the term embraces. On
the other hand it is ironically true that those modern authorities who
make use of his work in the context of policy may find themselves on
stronger ground. Smith did after all insist that where possible public
services should be responsive to need and that they should be so
structured as to induce people to deliver them efficiently. What is
unambiguously true is that Smith sought to establish an economic
environment or environments within which individual initiative would
flourish and by which it would be harnessed.

The last reference serves to remind us that there is a further dimension
to his work which is essentially moral and which is illustrated by his
concern with the social costs of economic growth. As we have seen, Smith
made much of the point that the division of labour could induce a form
of mental mutilation; a degree of ‘torpor’ which could render the
individual ‘incapable of bearing a part in any rational conversation’ or of
conceiving ‘any just judgement concerning many even of the ordinary
duties of private life.’ (WN, V.i.f.50)

Smith identified the possibility that measurable increases in economic
welfare might be offset by the psychological damage which they entail –
unless steps are taken to avoid this outcome through a programme of
compulsory education and the cultivation of the arts. (WN, V.i.g.15)

The implicit distinction is between negative and positive freedom
where the former may be described as freedom from restraint and the
latter as a ‘power of capacity of doing or enjoying something‘worth doing
or enjoying.’ (Green 1906, iii.370-71)

In passages which also recall his wider interests Smith drew attention
to the issue of education in a context which was essentially political. As
he put it, an ‘instructed and intelligent people‘. . . are always more decent
and orderly than an ignorant and stupid one. . . They are more disposed
to examine, and more capable of seeing through, the interested
complaints of faction and sedition.’ (WN, V.i.f.61)

This is not idle rhetoric. Smith’s historical analysis made him well
aware of the significance of the form of Government which had emerged
in Great Britain and sensitive to the fact that such a Government gave
scope to political ambition’– another competitive game with, as its object,
the ‘prizes which sometimes come from the wheel of the great state
lottery of British politics’. (WN,’IV.vii.c.75) He also recognised that the
same economic forces which had raised the House of Commons to what
he called a superior degree of influence (as compared to the House of
Lords) also made it a focal point for business and commercial interests.
He noted that such power could be used to disadvantage particular
groups (cf WN, I.x.c.61) and made the general point that the legislative
proposals emanating from commercial interests. . .
‘Ought always to be listened to with great precaution, and ought never
to be adopted till after having been long and carefully examined, not
only with the most scrupulous, but with the most suspicious attention.
It comes from the order of men, whose interest is never exactly the
same with that of the public, who have generally an interest to deceive
and even to oppress the public, and who accordingly have, upon many
occasions, both deceived and oppressed it.’ (WN, I.xi.10)

As Donald Winch has recently pointed out in an unpublished paper,
if Smith emphasised the importance of the pursuit of self interest within
the law, he was acutely aware of the problems presented by the pursuit
of collective self-interest and less confident of the result.

In this context he complained that Britain’s policy towards America
had been dictated by the ‘sneaking arts of underling tradesmen’ (Section
III) and noted, in a passage which may have caught the attention of
Napoleon, that:
‘To found a great empire for the sole purpose of raising up a people of
customers, may at first sight appear a project fit only for a nation of
shopkeepers. It is, however, a project altogether unfit for a nation of
shopkeepers; but extremely fit for a nation whose government is
influenced by shopkeepers.’ (WN, IV.vii.c.63)

In Smith’s view, the tragic (but sustainable) loss of opportunity in
America was to be explained in terms of the combination of collective
self-interest on the part of mercantile groups and political prejudice on
the part of the state and its citizens. Smith thus identified yet another
problem of modern relevance: that of government (as distinct from
market) failure.

Section VI: Some Observations
J S Mill, the archetypal economist, of a later period, is known to have
remarked that The Wealth of Nations is in many parts obsolete and in
all, imperfect’. Writing in 1926, Edwin Cannan observed:
Very little of Adam Smith’s scheme of economics has been left standing
by subsequent enquirers. No one now holds his theory of value, his
account of capital is seen to be hopelessly confused, and his theory of
distribution is explained as an ill-assorted union between his own
theory of prices and the Physiocratic fanciful Economic Table’. (1926,

In view of authoritative judgements such as these, it is perhaps
appropriate to ask what elements in his story should command the
attention of the modern historian or economist. A number of points
might be suggested.

First, there is the issue of scope. As we have seen, Smith’s approach
to the study of political economy was through the examination of history
and ethics. The historical analysis is important in that he set out to explain
the origins of the commercial stage. The ethical analysis is important to
the economist because it is here that Smith identifies the human values
which are appropriate to the modern situation. It is here that we confront
the emphasis on the desire for status (which is essentially Veblenesque)
and the qualities of mind which are necessary to attain this end: industry,
frugality, prudence.

But the TMS also reminds us that the pursuit of economic ends takes
place with a social context, and that men maximise their chances of
success by respecting the rights of others. In Smith’s sense of the term,
‘prudence’ is essentially rational self-love. In a famous passage from the
TMS (II.ii.2.1) Smith noted, with regard to the competitive individual,
‘In the race for wealth, and honours, and preferments, he may run as
hard as he can, and strain every nerve and muscle, in order to outstrip
all his competitors. But if he should justle, or throw down any of them,
the indulgence of the spectators is entirely at an end. It is a violation
of fair play, which they cannot admit of.’

Smith’s emphasis upon the fact that self-interested actions take place
within a social setting and that men are motivated (generally) by a desire
to be approved of by their fellows, raises some interesting questions of
continuing relevance. For example, in an argument which bears upon
the analysis of the TMS, Smith noted in effect that the rational individual
may be constrained in respect of economic activity or choices by the
reaction of the spectator of his conduct – a much more complex case
than that which more modern approaches may suggest. Smith made much
of the point in his discussion of Mandeville’s ‘licentious system’ which
supported the view that private vices were public benefits, in suggesting
that the gratification of desire should be consistent with observance of
the rules of propriety – as defined by the spectator, i.e. by an external
agency. In an interesting variant on this theme, Etzioni has recently noted
that we need to recognise ‘at least two irreducible sources of valuation
or utility: pleasure and morality’. (1988, 21-4; cf Oakley 2002)

Secondly, there is a series of issues which arise from Smith’s interest
in political economy as a system. The idea of a single all-embracing
conceptual system, whose parts should be mutually consistent, is not
easily attainable in an age where the division of labour has increased the
quantity of science through specialisation. Smith was aware of the division
of labour in different areas of sciences, and of the fact that specialisation
often led to systems of thought which were inconsistent with each other.
(Astronomy, IV, 35, 52, 67) But the division of labour within a branch of
science, eg economics, has led to a situation where sub-branches of a
single subject may be inconsistent with one another.

To take a third point, it may be noted that one of the most significant
features of Smith’s vision of the economic process lies in the fact that it
has a significant time dimension. For example, in dealing with the
problem of value in exchange, Smith made due allowance for the fact
that the process involves judgements with regard to the utility of the
commodities to be acquired, and the disutility involved in creasing the
goods to be exchanged. In the manner of his predecessors – Hutcheson,
Carmichael and Pufendorf – Smith was aware of the distinction between
utility (and disutility) anticipated and realised, and, therefore, of the
process of adjustment which would inevitably take place through time.

Smith’s theory of price, which allows for a wide range of changes in
taste, is also distinctive in that it allows for competition among and
between buyers and sellers, while presenting the allocative mechanism
as one which involves simultaneous and inter-related adjustments in both
factor and commodity markets.

As befits a writer who was concerned to address the problems of
change, and adjustment to change, Smith’s position was also distinctive
in that he was not directly concerned with the phenomenon of
equilibrium. For Smith the (supply) price was, as it were:
‘The central price, to which the prices of all commodities are
continually gravitating whatever may be the obstacles which hinder
them from settling in this centre of response and continuance, they
are constantly tending towards it.’ (WN, I.viii.15)

But perhaps the most intriguing feature of the macro model is to be
found in the way in which it was linked to the analytics of Book 1 and in
the way in which it was specified. As noted earlier, Smith argued that
incomes were generated as a result of productive activity, thus making it
possible for commodities to be withdrawn from the ‘circulating’ capital
of society. As he pointed out, the consumption goods withdrawn from
the existing stock may be used up in the present period, or added to the
stock reserved for immediate consumption; or used to replace more
durable goods which had reached the end of their lives in the current
period. In a similar manner, entrepreneurs and merchants may also add
to their stocks of materials, or to their holding of fixed capital, while
replacing the plant which had reached the end of its operational life. It
is equally obvious that entrepreneurs and merchants may add to, or
reduce their inventories in ways which will reflect the changed patterns
of demand for consumption and investment goods, and their past and
current levels of production. Variation in the level of inventories has
profound implications for the conventional theory of the allocative

Smith’s emphasis upon the point that different ‘goods’ have different
life-cycles also means that the pattern of purchase and replacement may
vary continuously as the economy moves through different time periods,
and in ways which reflect the various age profiles of particular products
as well as the pattern of demand for them. If Smith’s model of the circular
flow is to be seen as a spiral, rather than a circle, it soon becomes evident
that this spiral is likely to expand (and possibly contract) through time
at variable rates. This point does not seem to have attracted much

Mark Blaug has commented on Smith’s distinctive and sophisticated grasp
of the economic process and the need to distinguish this from his
contribution to particular areas of economic analysis. It has been argued
above that Smith’s approach to the study of political economy has some
distinctive features which deserve the attention of the modern student
of the discipline, but which do not seem to loom large in modern
teaching. But nor can it be said that the classical system which was to
follow Smith, adequately addressed his wider concerns. Indeed, it has
been pointed out that the early part of the nineteenth century saw the
emergence of political economy as a separate, autonomous discipline,
free of the earlier association with ethics and history. As Terence Hutchison
once remarked, Smith was led as if by an invisible hand to promote a
result which was no part of the original intention, thus paving the way
for the development which Professor Muhammad Yunus deplored.

Finally, Adam Smith would have had every happy feeling over Prof
Yunus’s untiring engagement in practically addressing the welfare of the
Adam Smith: Science and Human Nature – EMERITUS PROF ANDREW SKINNER
poorest. As Adam Smith said, ‘What improves the circumstances of the
greater part can never be regarded as an inconveniency to the whole.
No society can surely be flourishing and happy, of which by far the greater
part of the numbers are poor and miserable.’ (The Wealth of Nations
1776) 􀀀

References to Smith’s works employ the usages of the Glasgow
edition:’WN =’The Wealth of Nations; TMS = Theory of Moral
Sentiments; Astronomy = ‘The History of Astronomy’;’Essays on
Philosophical Subjects (EPS); Stewart = Dugald Stewart, ‘Account of
the Life and Writings of Adam Smith’; LJ (A) = Lectures on
Jurisprudence, Report dated 1762-63; LRBL = Lectures on Rhetoric
and Belles Letters; Corr = Correspondence of Adam Smith; EAS =
Essays on Adam Smith, ed A S Skinner and T Wilson (1975).
In the Glasgow edition, WN was edited by R H Campbell, A S Skinner
and W B Todd (1976); TMS by D D Raphael and A L Macfie (1976);
Corr, by E C Mossner and I S Ross (1977); EPS, by W P D Wightman
(1980); LJ (A) and LJ (B) by R L Meek, D D Raphael and P G Stein
(1978), and LRBL by J C Bryce (1983), Oxford University Press.

References to LJ and LRBL give volume and page number from the
MS. All other references provide section, chapter, and paragraph
number in order to facilitate the use of different editions. For example:
Stewart, I.12 = Dugald Stewart ‘Account’, Section I, Para 12.
TMS, I.i.5.5 = TMS, Part I, Section I, Chapter 5, Para 5.
WN, V. i.f.26 = WN, Book V, Chapter I, Section 6, Para 26.

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Jurisprudence of David Hume and Adam Smith, Cambridge.
Howell, W S (1975): Adam Smith’s Lectures on Rhetoric System, An
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Hutcheson, T (1988): Before Adam Smith, Oxford.
Macfie, A L (1967): ‘The Moral Justification of Free Enterprise, A Lay
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