1.1 A Worldly View

Adam Smith’s father-like contributions to economics in The Wealth of Nations(1776) have been challenged, beginning from at least the 1950 publication of Joseph Schumpeter’s History of Economic Analysis. The most negative view, surprisingly, has come from the free-market Austrian-School economist Murray Rothbard, who concluded:

•	Smith was not the founder of economics (“a science which existed since the medieval scholastics and, in its modern form, since Richard Cantillon”);
•	Smith “originated nothing that was true, and that whatever he originated was wrong”;
•	Smith “was a shameless plagiarist, acknowledging little or nothing and stealing large chunks, for example, from Cantillon” (Rothbard, 1995: 435).

Schumpeter concluded that “the Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776” (184). But Schumpeter’s “cold and realistic eye” (Rothbard: 437) also saw in Smith what Rothbard did not: “Though the Wealth of Nations contained no really novel ideas and though it cannot rank with Newton’s Principia or Darwin’s Origin as an intellectual achievement, it is a great performance all the same and fully deserved its success” (185).

Conversely, Ronald Coase has called Wealth of Nations “the most important book on economics ever written, a work of genius” (1976a: 78). He added: “With its interrelated themes, its careful observations on economic life, and its powerful ideas—clearly expressed and beautifully illustrated—it cannot fail to work its magic. But the very richness of the book means that each of us will see it in a somewhat different way” (ibid.: 75).

For many—free-market economists and otherwise—Smith was a genius, andWealth of Nations was the greatest single work ever written in the social sciences. To them, Smith’s achievement combined systematic analysis with analytical realism (Clark, 65), “plain common sense” (Schumpeter: 185), and multi-disciplinary knowledge. It created an intuitively appealing description of market behavior and offered important findings and advice for public-policy debate. In Schumpeter’s view, Smith’s “very limitations” made the book what it turned out to be. “Had he been more brilliant, he would have not been taken so seriously. Had he dug more deeply, had he unearthed more recondite truth, had he used difficult and ingenious methods, he would not have been understood…. He was effective not only by virtue of what he gave but also by virtue of what he failed to give” (185).

T. D. Campbell observed that Smith’s “first criterion of a good scientific theory is that it should connect, or render more coherent, a large number of apparently dissimilar phenomena” (234). In The Theory of Moral Sentiments, Smith’s concept of direct sympathy, for example, explains “not only ordinary moral judgments, but the respect for authority, which lies at the root of political obedience, the motives which explain men’s efforts to achieve wealth and power beyond the requirements of bodily comfort and safety, the basis of family affection and patriotism, and the entire content of the civil and criminal law” (ibid.).

From this perspective, Smith’s multi-disciplinary approach was critical. His “remarkable range of subjects” included “economics and history; law and government; language and the arts, not to mention essays on astronomy, ancient logics and metaphysics” (Campbell and Skinner: 1). Smith also incorporated sociology in Theory of Moral Sentiments. “Smith was preoccupied,” explained Liah Greenfeld, “with … the constitution of society, the mechanisms of social integration, or, as it is often called, the problem of order—the all-important question of how separate individuals come to transcend themselves and constitute aggregate entities which give the impression of unity, and how they develop moral, that is, social (contributing to social integration) sentiments” (29).

F. A. Hayek warned his colleagues, “If you know only economics and nothing else, you will be a bane to mankind, good, perhaps, for writing articles for other economists to read, but for nothing else” (1944: 141). Adam Smith would surely agree. Compared to the natural-science litmus test, does it work? the Smith/Hayek North Star for social scientists would be: does it logically elucidate the workings of the world?

While Smith can be considered the father of economics and “the most famous of all economists” (Schumpeter: 181), economics did not truly become a science until the 1870s when the cost- or labor-theory of value, a precept of Smith’s classical school of economics, was overthrown. The marginalist revolutionrecognized that value was not based on the cost of production but on a person’s subjective estimation of what a particular (marginal) unit of a good or service was worth at a particular time and place. Fallacies and misplaced emphasis would continue to plague economics after this time, but the logic of human action would develop around the concept of individual valuation at the margin. The same marginal principle would be true for political decision-making, the subject of chapter 5, “The Business of Politics.”