Adam Smith and the “rich country–poor country” debate: eighteenth-century views on economic progress and international trade

Despite his emphasis on economic development, Adam Smith did not participate in the contemporary “rich country–poor country” debate. Some see the absenteeism as a deficiency, while others assume that Smith propounds a theory of uneven development and agrees with the divergence argument. In this article, Smith's own theory is expounded and related to the contentious points of the “rich country–poor country” debate. It is concluded that Smith's theory does not fit easily into the categories of this debate. He rather takes up a third position, being neither a proponent of pure convergence nor of pure divergence.     

Adam Smith's “tolerable administration of justice” and the Wealth of Nations

Adam Smith argues that a country’s income depends on its labor productivity, which in turn hinges on the division of labor. But why are some countries able to take advantage of the division of labor and become rich, while others fail to do so and remain poor? Smith describes how the security of property rights, through a “tolerable administration of justice,” allows investment and exchange to take place, bringing about economic progress. Recent empirical work on economic development has supported Smith’s emphasis on a country’s political “institutions,” particularly the judiciary, in determining its national income.     

Sraffa: the theoretical world of the ‘old classical economists’ *

Sraffa's mature work is seen here as a re-discovery and resumption of the ‘submerged and forgotten’ approach of the ‘old classical economists from Adam Smith to Ricardo’. Wages determined by broad economic and social forces entail there product prices determined independently of demand and supply functions. Some main questions raised for the modern economists by this radical reorientation of economic theory are then considered in order to conclude that it is aginst that background that Sraffa's mature work should be set with its three main contributions, of a rediscovery of the approach, of a complete and transparent solution of the problems of price determination it raises, and of its application to the critique of neoclassical theory. Among several developments originating from Sraffa's seminal work, two are singled out for mention: (i) the possibility of deficiencies of aggregate demand in the long period no less than in the short one; this follows naturally from the abandonment of the neoclassical theory of distribution, of which the role of the interset rate in equilibrating savings and investment is a corollary; (ii) the question of the distribution of the surplus between wages and profits in a modern economy where wages are no longer confined to subsistence.     

Tooke's approach to explaining prices

This paper examines the method of analysis and theoretical approach Thomas Tooke (1774–1858) employed in his empirical study of English prices. It is shown that Tooke adopted the “long period method” formulated by Adam Smith to analyse a capitalist society. It is shown that like most nineteenth-century classical economists, Tooke adopted a modified version of Adam Smith's “adding-up” approach to normal prices and distribution which incoporated Ricardo's theory of rent. The paper shows that based on this approach, Tooke explained short-run fluctuations in prices be reference to factors that disrupted the adjustment of supply to the “effectual” demand for commodities.     

The Spending Multiplier in the Medium Run

Most of the discussion about fiscal stimulus focuses on the multiplier of government spending on impact. In this paper we shift the focus to the multiplier at the end, i.e., to the period in which a deficit spending program terminates. We show that recent time‐series analyses and neoclassical as well new Keynesian business cycle models predict that the multiplier turns negative before spending expires. This means that aggregate output at the time of expiry of fiscal stimulus is lower than it could be without deficit spending. Here, we show why this phenomenon is a general outcome of mainstream business cycle theory and explain the underlying mechanism. Using phase diagram analysis, we prove that the aggregate capital stock at the time of expiry of fiscal stimulus is lower than it would be without a deficit spending program. This fact explains why aggregate output is below its laissez faire level as well.     

Reconciling the Invisible Hand and innovation

It is generally agreed that Adam Smith invoked the Invisible Hand to send the message to posterity that a free-market economy is the best form of economic organization. Strictly speaking, the Invisible Hand of Adam Smith is a conjecture about the virtues of a free-market economy. There are three claims in this paper concerning the interpretation of the Invisible Hand conjecture. First, the neoclassical interpretation engenders a conceptual confusion – identified here as the ‘double paradox’ of the Invisible Hand. Second, the interpretation of Adam Smith's conjecture on the beneficial effects of the free-market economy cannot – and should not – be confined to the production and consumption of existing products. Failure to distinguish the Invisible Hand Theorem from the Invisible Hand Doctrine distorts thinking about Adam Smith's message, creating the misconception that the Invisible Hand passage excludes business innovation. Third, the central message conveyed by Invisible Hand is to be read in the context of modern evolutionary economics.     

The nature and limits of Gary Becker’s theory of racial discrimination

To what extent does Gary Becker’s model of discrimination capture “the essence of prejudice and discrimination”? After providing a general outline of Becker’s original model and summarizing some subsequent developments, this paper takes a critical perspective on the model to suggest that the absence of imperfect information in his approach unhelpfully limits its explanatory power. Instead, an approach that allows for the possibility of genuine error and draws on Adam Smith’s analysis of the impact of markets on one’s moral sense offers a deeper, more realistic understanding of what it means for people to express their prejudice (or not) through their choices.     

Adam Smith: From Propriety and Sentiments to Property and Wealth

“Why return to Adam Smith?” Because we learn that he had fresh-for-today insights, derived from a modeling perspective that was never part of economic analysis. Smith wrote two classics: The Theory of Moral Sentiments (1759; hereafter Sentiments); and An Inquiry into the Nature and Causes of the Wealth of Nations (1776; hereafter Wealth). In Sentiments it is argued that human sociability in close-knit groups is governed by the “propriety and fitness” of conduct based on sympathy. This non-utilitarian model provides new insights into the results of 2-person experimental “trust” and other games that defied the predictions of traditional game theory in the 1980s and 90s, and offers testable new predictions. Moreover, Smith shows how the civil order of “property” grew naturally out of the rules of propriety. Property together with what I call Smith's Discovery Axiom then enabled his break-through in Wealth that defined the liberal intellectual and practical foundation of two centuries of Western economic growth.     

Famine: Adam Smith and Foucauldian Political Economy

It is often assumed that the attitudes of the early political economists, such as Smith, to issues of scarcity and famine were dogmatically laissez‐faire. This view has been given fresh impetus by Michel Foucault's recently published lectures on the history of political economy. The article challenges this view. By examining Smith's texts and analyzing the way that Smith was received by critics in the century following the publication of the Wealth of Nations, the article argues that contemporary interpretations of Smith's views on scarcity and famine must be nuanced.     

Pragmatism to Dogmatism: The Laissez Faire Myth and the Disabling of the American Fisc

The authors argue that the recent upsurge in anti-tax sentiment has its roots evolving social conditions and adherence to the laissez faire myth. Content analysis reveals that political anti-tax rhetoric increased in the late 1970s and early 1980s, a time of social distress in the US. This increased political attention provided a rhetorical punctuation whereby a substantial portion of Americans moved toward a much more dogmatic adherence to the laissez faire myth. The result has been to convert the laissez faire myth into a disabling myth that severely limits open discussion of fiscal issues and reduces the options in public finance decisions.     

Japanese Consumption,External Disequilibrium and their Statistical Measurement

Georgescu-Roegen's work is usually divided into two categories, his earlier work on consumer and production theory and his later concern with entropy and bioeconomics beginning with his 1966 introductory essay to his collected theoretical papers published in the volume Analytical Economics. Most economists usually praise his earlier work on pure theory and ignore his later work which is highly critical of neoclassical economics. Those economists sympathetic to his later work usually take the position that he “saw the light” and gave up neoclassical theory some time in the 1960s to turn his attention to the issues of resource scarcity and social institutions. It is argued here that there is an unbroken path running from Georgescu's work in pure theory in the 1930s, 1940s, and 1950s, through his writings on peasant economies in the 1960s, leading to his preoccupation with entropy and bioeconomics in the last 25 years of his life. That common thread is his preoccupation with “valuation.” The choices our species makes about resource use and the distribution of economic output depends upon our valuation framework. Georgescu-Roegen's work begins in the 1930s with a critical examination of the difficulties with the hedonistic valuation framework of neoclassical economics, moves in the 1960s to the conflict between social and hedonistic valuation, and culminates in the 1970s and 1980s with his examination of the conflict between individual, social, and environmental values. This paper traces the evolution of Georgescu-Roegen's thought about valuation and the environmental and social policy recommendations which arise out of his bioeconomic framework.     

The sceptic as an economist's philosopher? Humean utility as a positive principle

Whereas in philosophy David Hume was long regarded as a negative thinker to be criticized rather than read, many thinkers interested in social and economic theory from Adam Smith onwards found key concepts, distinctions and problems as developed by Hume useful and inspiring. This applies not only to his seminal contributions to technical problems in economics. It is argued that the way in which Hume employed ‘utility as a positive principle’ (most notably in his ‘experimental’ moral theory) is of pivotal importance in this context. It allows for:

a. distinguishing between internal motifs and external circumstances and constraints; and for

b. making explicit the abstract logic of social interaction structures, mechanisms and processes.

Both are necessary conditions for employing the logic of social situations and mechanisms in the explanation of social institutions and economic processes. It moreover prepares the ground for the use of simplified or cartoon-like models of individual agency in economic and social theory, but also for its critique. On this basis, Hume's influence on various strands of social and economic thought, but also the specific differences with regard to more ‘rationalistic’ approaches (such as Hobbesianism or important versions of neoclassical economics) can be assessed more clearly.     

Adam Smith on lotteries: an interpretation and formal restatement

The paper concerns a neglected aspect of the Wealth of Nations (with the notable exception of D. Levy 1999 Levy, D. M. 1999. “Adam Smith’s Katallactic Model of Gambling: Approbation from the Spectator.” Journal of the History of Economic Thought 21 (1): 81–91. doi:10.1017/S1053837200002868.[Crossref] , [Google Scholar]), dealing directly with decision under risk. In a few pages from book I, chapter 10, Adam Smith explicitly named “lotteries” various objects of choice (possible occupations, or investment opportunities, for instance) and provided an analysis which standard expected utility glasses would hardly fit. Taking this into account allows a better understanding of the part played by typical characters like the “projector” or the “sober man”, in such matters as Smith’s conception of entrepreneurship or of the credit market. The use of some modern concepts in decision analysis (inverse stochastic dominance, rank dependent utility, prudence toward risk), is a means to show the existence, in Smith’s work, of an original theory from decision under risk, where his analysis of lotteries in the Wealth of Nations is consistent with statements from his moral philosophy on asymmetric sensitivity to gains and losses and to the regulating part played by the impartial spectator.     

Keynes against Kalecki on economic method

In the past twenty years, there has been considerable debate on the “coherence” of post Keynesian economics, in view of post Keynesian economists’ ambitions to develop a paradigmatic alternative to neoclassical economics. Given the growing importance of methodological aspects in this discussion, this article addresses the differences of approach to economic theory between the fathers of the two most important strands in post Keynesian economics. We thus focus on Keynes’s criticism of Kalecki’s theory of the business cycle and the tensions between Keynes’s logical approach and Kaleki’s formal modeling. We show that in criticizing Kalecki’s theory, Keynes made use of the same methodological criticism (based on detecting logical fallacies in reasoning) he had employed to attack both the classical theory and contemporary “pseudo-mathematical” models. After illustrating these fundamental differences between Keynes and Kalecki about the proper way of doing economics, we draw some conclusions on the possible future evolution of post Keynesian economics.     

Authority versus freedom in Quesnay's thought

Although Quesnay is usually regarded alongside Adam Smith as one of the founders of economic liberalism, there are conflicting interpretations of the extent to which Quesnay was committed to the principle of economic freedom. This paper maintains that the source of ‘ambiguity’ in Quensay's thought can be traced to his instrumentalist logic, which accommodates government action and government restraint - not as ideological axioms, but as utilitarian means to a specified end. It therefore helps to bring into sharper relief the essential differences between Quesnay and Smith regarding the relative position of freedom versus authority in an ideal economy.     

In defence of Adam Smith's theory of value

Abstract

This paper defends Adam Smith against his critics on his ‘additive’ theory of value as well as his theory of ‘falling rate of profits’. It argues that Adam Smith did not forget the raw materials, and so forth, in his resolution of the price into wages, profits, and rent, and that the constraint binding on the total income was also taken into account by treating rent as the residual. It further argues that there is no fallacy of composition in Smith's explanation for the ‘falling rate of profits’. It was explained on the basis of rising real wages and the farmers’ inability to shift the burden of the rise in wages from profit to rent in the context of a growing economy.     

Why should Austrian economists be pluralists?

Peter Boettke (2007) argues that economists need not act pluralistically in order for pluralism to thrive in the marketplace of economic ideas. From a market process perspective, Boettke sees intellectual diversity and openness as catallactic outputs, not inputs—emergent by-products of academic specialization and trade. To expect individual scholars to behave in a pluralistic manner is unnecessary and “completely inappropriate” since it detracts from their central task: “to commit themselves to an approach and pursue it doggedly, even in the face of great doubt and resistance by one’s peers” (Boettke 2007). This paper proposes a Smithian revision of Boettke’s position. The author argues that scholarly pluralism is best understood as a constitutional rule of academic life—a virtue ethic that promotes learning and intellectual freedom by mitigating tyranny and autarky in the republic of science. Drawing from the writings of Adam Smith, Friedrich Hayek, Deirdre McCloskey, Bruce Caldwell, James Buchanan, Don Lavoie, and Boettke himself, the author argues that scholarly pluralism has been, and continues to be, a necessary condition for the flourishing of Austrian economists as free, responsible, efficacious thinkers.     

Vernon Smith's Explanation of Moral Sentiments

This paper is a comment on Vernon Smith's paper, Adam Smith: from propriety and sentiments to property and wealth. This paper argues that while Vernon Smith is correct in his analysis that Adam Smith's theory of human nature, as expressed in The Theory of Moral Sentiments, provides a much more accurate model of behavior than does that of utility maximization, Vernon Smith's analysis can be much enriched by including a more complete explanation of Adam Smith's model of human behavior to include an analysis of prudence, justice, beneficence, and self-command.     

Jeremy Bentham and Adam Smith on the usury laws: a ‘Smithian’ reply to Bentham and a new problem

Adam Smith justified the contemporary usury laws and was severely criticised by Bentham and most modern writers with the important exception of J.M. Keynes. We argue that pace Bentham, Smith did not intend to preclude loan financing of all ‘risky’ ventures and give a ‘monopoly’ to safe investments and did not neglect the potential emergence of black credit markets. Yet Smith ought to have modified his position independently of Bentham's criticism, considering a marked rise in the rate at which governments borrowed in the late 1770s.     

Adam Smith's Conceptualization of Power,Markets, and Politics

This paper argues that Adam Smith is a/the "founding father figure" of modern social/political economy as well as economics. Smith wrote extensively and insightfully on the subject of power , and thereby class and stratafication in society. This paper explicates four main types of power relations in Smith's analysis, notably drawing on the Wealth of Nations : wealth power, monopoly power, employer power, and political power. Smith's focus on power helps to differentiate his broader vision and rich discourse from that of many contemporary neoclassical writers and sharpens our appreciation for his contributions to social and political economy.