Adam Smith's Wealth of Nations after 240 Years: It Is still the Work of an Intellectual Giant Towering Heads and Shoulders Above the Benthamite Utilitarian Economists of the 18th, 19th, 20th and 21st Centuries
32 Pages Posted: 17 Nov 2017
Date Written: November 15, 2017
Adam Smith’s major intellectual breakthroughs in decision making under uncertainty, interval valued probability, imprecise probability, money, banking and credit, and economic growth are still not understood, much less appreciated or recognized, some 240 years after the publication of the first edition of The Wealth of Nations by economists in general. The reasons for this are not hard to discern. First, Adam Smith totally and completely rejected any kind of microeconomic theory based on utility maximization. Smith, like Aristotle before him and Keynes after him, rejected the claim that rationality is consistent with and illustrated by Max U thinking. Thus, economists who criticize Smith’s theory of value, such as George Stigler, a well known Benthamite Utilitarian economist, because it does not conform or reflect their own extremely narrow focus of the role of the calculus of probabilities in economic decision making, can be safely ignored. Stigler attempted, like so many economists have done, to reinterpret Smith, as he did with F. Knight, through the lens of Subjective Expected Utility (SEU) theory, which is the modern version of Benthamite Utilitarianism.
This leads to our second point. Smith was the first to recognize the impact and pervasive role that uncertainty played in decision making, life, taxation, government policy concerns, economic growth, as well as in issues involving banking, money and credit and the problems of deflation and inflation. This put Smith on a collision course with Jeremy Bentham and the economics profession, where uncertainty not only played no role at all, but could never play any role at all. In fact, uncertainty can’t even be admitted to exist by any utilitarian, because then it becomes impossible for any decision maker to calculate the odds that a particular action will lead to certain consequences that are very likely to be beneficial to the decision maker. Given that only consequences matter for utilitarians, and nothing else, for a utilitarian, then the fact that such consequences, and their probabilities, can’t be calculated using the mathematical laws of the probability calculus means that their ethical system has collapsed.
Third, Smith recognized, like Aristotle and Plato did before him and Keynes after him, the extreme importance of controlling the banking system in order to prevent some upper income class individuals, who Smith labelled as “projectors, imprudent risk takers and prodigals (Keynes’s rentiers and stock, real estate and money market speculators)” from leveraging their debt positions through the use of bank loans so as to try to earn a return without the production of any actual or physical consumption or investment good. The end result would be a series of financial panics and bubbles that would lead to deflation and inflation.
Smith’s ultimate goal in the Wealth of Nations was to create a virtuous middle class citizenry, what Smith called the “sober” people, that would use savings to promote investment in producer (capital) goods that would allow their businesses grow, thereby leading to and promoting economic growth for the benefit of all instead of the manipulation of financial capital for the speculative purposes of the few.
Keywords: Smith, Virtue Ethics, Uncertainty, Indeterminate Probability, Imprecise Probability, Benthamite Utilitarianism
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation