Economists are quick to inform that modern economics was born in 1776 with the publication of Adam Smith’s tome, “An Inquiry into the Nature and Causes of the Wealth of Nations.” Unfortunately, they neglect to tell the story of the long stream of ideas that prompted Smith to write his tome. Let’s fix that.
Ideas about one aspect of economic life or another go back a few thousand years. By far the most common has been the notion that anything done for profit is greed. The notion has been asserted by all religions and legions of philosophers.
The story that leads to the Scotsman Adam Smith begins in 1651, with the publication of Leviathan by the Englishman Thomas Hobbes.
Hobbes wrote Leviathan troubled. Since the beginning of the Protestant Reformation in 1517, Europe had been awash in wars – between powers, religions, or blends of both. Hobbes knew the terror first hand. In 1641, with anti-royalist sentiment surging, the royalist Hobbes fled to Paris in fear for his life. The following year found England engulfed in civil war.
It seemed clear to Hobbes that we humans are a messed-up lot, dominated by passions we can’t control, quick to anger and prone to violence, especially when politics or religion are involved. How, Hobbes asked, can a decent society be built from such material?
His answer: a decent society is only possible if our fear of violent death is stronger than our propensity for violence. Otherwise, our lives are destined to be “solitary, poor, nasty, brutish and short.” From that, Hobbes constructed his idea of a social contract.
Ideas can shake the world. Leviathan shook the Western world. Its message was so grim, so pessimistic that Western political philosophers spent the next 150 years trying to refute it.
Another idea catching hold in 17th century Europe was the idea of interest – interest as in “to one’s advantage.” Commerce, too, was on the rise in areas not plagued by political and religious violence.
In commerce, acting in one’s interest was still widely condemned as greed. But some thinkers noticed that success in commerce requires planning and prudence. It requires behavior that is not impulsive, erratic or violent.
These thinkers turned back to Hobbes and his idea of countervailing passions. Could it be that the most effective way to restrain our violent passions is by unleashing our passion for money?
By the 1700s, many thought so. In England, Samuel Johnson wrote: “There are few ways in which a man can be more innocently employed than in getting money.” In France, Montesquieu wrote: “Wherever the ways of man are gentle, there is commerce; wherever there is commerce, the ways of man are gentle.” In Scotland, Adam Smith’s best friend, David Hume, amplified further.
Which brings us to Smith.
Smith changed the subject. Adam Smith was the first person to call attention to the reality that the vast mass of people in Europe and the world lived their lives in crushing poverty.
Smith doubted that our violent passions could be tamed, by commerce or anything else, and he was far from certain that commerce fostered civility. But Smith’s travels left him no doubt that the only way to raise the living standards of the mass of people who toil each day for a living was through commerce and productive enterprise.
“It is the great multiplication of the productions of all the different arts, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people,” wrote Smith.
With Adam Smith providing the moral argument for what we now call economic growth, modern economics was born.
Reg Murphy Center