Yinka Shonibare MBE, "The Age of Enlightenment-Adam Smith" (2008)
OK, Nick, I’ll take the bait. . .
Mainstream economists cite Adam Smith’s Wealth of Nations as the founding text of modern economics. But, as I’ve mentioned before, while they often cite the Wealth of Nations, they rarely read it, and they certainly don’t read it in conjunction with Smith’s other great book of moral philosophy, the Theory of Moral Sentiments.
That’s an error Amartya Sen sets out to correct—in his most recent “Manifesto” and as far back as his lectures On Ethics and Economics. Sen reads Smith against the grain of contemporary mainstream economic thought, both inside the academy (in the form of neoclassical economics, which is used to celebrate free-market capitalism) and outside (for example, the views of right-wing politicians and bankers, who rail against any and all government interventions into markets).
And, for the most part, Sen gets Smith right: It’s important to read the Wealth of Nations in conjunction with and against the background of the Theory of Moral Sentiments. Capitalist markets operate not only on the basis of self-interest but other motives, such as humanity, justice, generosity, and public spirit. Smith was in favor of government programs, such as free public education and poverty relief (after discussing, in some detail, the mind-numbing drudgery of factory work), and suspicious of capitalists’ arguments that their projects were always in the public interest. He was opposed to colonial restrictions (although not against the civilizing mission, for the rest of the planet outside Western Europe, of capitalist markets). And so on.
That’s why Sen finds Smith’s vision to have “a remarkably current ring.” Capitalist markets need trust and sympathy, in addition to self-interest; capitalist markets are based on and, in turn, create class divisions, and do not represent an Eden of equality. It’s a testament to how much toward the authoritarian Right mainstream economic thought has moved—in terms both of celebrating free markets and of attempting to eliminate all other forms of economic theory—that Sen’s Smith appears downright progressive.
But, as Nick notes, there is much that is missing from or overlooked within Smith’s attack on mercantilism and celebration of the rise of commercial capitalism. And much that Marx was critical of when he read Smith in the British Museum and started to write Capital.
Let me mention two such criticisms. First, he took issue with the idea that there was a natural and universal “propensity to truck, barter, and exchange one thing for another.” Instead, Marx argued (especially in the section on commodity fetishism) that the set of characteristics that allowed human beings to engage in commodity exchange were a historical and social creation. There was nothing natural and universal about them.
Second, Marx criticized Smith’s theory of value. While Marx engaged Smith (and classical political economy generally) on the basis of the labor theory of value (which of course neoclassical economists rejected, in the late-nineteenth century), he showed that the adding-up theory of value (according to which wages, profits, and rents could be explained as the rewards to separate factors of production, labor, capital, and land, which the neoclassicals kept) could not explain the origin of profits as surplus-value. Once Marx distinguished labor from labor power, he was able to demonstrate that wages came from necessary labor and the rest, profits and rent, from surplus labor. Capitalists appropriated surplus-value (some of which they retained as profits, the rest being distributed to landlords) for doing nothing. Literally. That became the basis of Marx’s theory of capitalist exploitation.
In general terms, Marx started his analysis where Smith left off, with the wealth of nations. Here are the first two sentences of Capital:
The wealth of those societies in which the capitalist mode of production prevails, presents itself as “an immense accumulation of commodities,” its unit being a single commodity. Our investigation must therefore begin with the analysis of a commodity.
That’s the problem with Sen’s economic manifesto. He stops with Smith instead of starting there; he attempts to apply Smith to our times instead of developing a critique of Smith for our times. He wants to add trust and sympathy to unbridled capitalism, and not to take the next step—of understanding capital as an exploitative social relationship, and of abolishing it.
P.S. And, Nick, you’re absolutely right about Krugman: he sees epistemic closure within mainstream economics but not of mainstream economics. Krugman and other saltwater economists wouldn’t recognize heterodox economics if it bit them on the nose, and they certainly don’t raise a hand to include heterodox economists in the larger debate.