Shoddy Historical Revisionism of Adam Smith

J acob Soll’s Free Market: The History of an Idea is a revisionist account of free-market thought from ancient Rome to the 21st century. It contains plenty of interesting historical material. The overall argument is an attempt to refocus our understanding of the market away from “free market economics” toward “a democratically oriented philosophy,” “one which accepts that the state is embedded in the market and vice versa.” At its core, this argument rests on profound mischaracterization of Adam Smith.

For Soll, the Roman statesman Cicero is the originator of free-market thought: “Cicero,” he writes, “anticipated a central tenet of Adam Smith’s later market thought: if elite, educated men focused on agriculture and exchanged goods righteously and ethically, then the market would work on its own and produce wealth, and the republic would prosper.” In contrast, to understand economic growth and industrialization, Soll argues that mercantilist thinkers — above all Jean-Baptiste Colbert, the famous minister of Louis XIV — have been neglected. It was Colbert and other mercantilists, such as Edward Misselden, Thomas Mun, and Antonio Serra, who were the heralds of modern mixed economies.

Smith, in this account, advocated a traditionalist agrarian order, incapable of understanding how manufacturing could transform a society. According to Soll, “Smith believed that trade would only flourish in a society where agriculture was dominant, under a landowning, governing elite that could limit the interests of merchants and promote learning and Stoic virtue.”

Soll believes that Smith’s economics was a form of physiocracy — a school of economic thought developed in France in the 1750s. According to Soll, Smith held that “farm labor was the source of all wealth and that the surplus of agricultural goods was the basis of industrial wealth production. Industry did not produce wealth; it only spread the value of surplus farm products.”

In contrast to the mercantilists who sought to encourage industry, Soll claims, “Smith insisted that merchants and manufacturers were economically ‘sterile’: ‘The labor of artificers and manufacturers,’ he asserted, ‘never adds anything to the value of the whole annual amount of the rude produce of the land.’” Smith furthermore, we are told, was a supporter of empire and slavery and was not even a consistent critic of mercantilism. Rather, his vision “was Colbertist in that it sought protectionism and empire to aid internal development and to keep investment capital within the nation.”

Now it is true that many of the mercantilist writers were more insightful than they are given credit for and that the common claim that Smith was the founder of economics is an exaggeration. Different interpretations of Smith, moreover, should be welcomed. He was a complex and subtle thinker; he wrote in an age when esoteric writing was practiced; and serious scholars disagree about a range of issues, including the nature of his beliefs about religion. Soll’s account, however, isn’t within the range of scholarly opinions on Smith. Indeed, if the real Smith resembled the second-rate physiocrat Soll depicts, it would be a wonder if anyone bothered to read him today.

A small amount of digging establishes that Soll’s version of Smith is mistaken. Soll’s physiocratic Smith is drawn from book 4, chapter 11 of the Wealth of Nations. There Smith describes the physiocratic system and contrasts it to the mercantile system that he associates with Colbert. Smith is very clear, however, that he is summarizing the views of François Quesnay, a French physiocratic economist, not his own views. Indeed, Smith says (only a few paragraphs down from the lines that Soll quotes): “The capital error of this system, however, seems to lie in its representing the class of artificers, manufacturers, and merchants as altogether barren and unproductive. The following observations may serve to show the impropriety of this representation.”

Smith was pointing out the flaws in both the mercantile system of Colbert and the agrarian-centered analysis of Quesnay, not endorsing their conclusions.

Then Soll neglects Smith’s actual views on economic development as laid out in the opening chapters of the Wealth of Nations. There Smith depicts specialization through the division of labor, not agriculture, as the driver of economic growth.

He celebrates, as products of the division of labor, “the miner, the builder of the furnace for smelting ore, the feller of timber, . . . the brick-marker, the brick-layer , . . . the mill-wright, the forger, the smith.” Far from denigrating towns in favor of the countryside, he notes that “there are some sorts of industry, even of the lowest kind, which can be carried on no where but in a great town.” Chapter 4 of book 3 is titled “How the Commerce of the Towns Contributed to the Improvement of the Country.” Smith did believe that prosperity based on trade was more precarious than that founded on agriculture, but he nowhere makes the argument Soll attributes to him.

Finally, Soll is unable to explain one of Smith’s central ideas: that of unplanned coordination. Smith famously used the term “invisible hand” only in a few places (and not always to mean the same thing). But he expressed again and again the idea that the adjustment of prices brings out economic coordination — the meeting of supply and demand — and it was this striking idea that was so stimulating for subsequent economists.

Soll frequently uses the term “equilibrium,” but he does so loosely, invoking its ordinary-language meaning rather than what it has come to mean in the discipline of economics. He writes, for example, that “the leaders of society had to create economic equilibrium by politically supporting the agricultural sector” and that this was so that these leaders could “emulate the virtue of Cicero’s Rome.” (Note, however, that the reference he gives for this point says no such thing — a not infrequent occurrence in this book.)

By reducing Smith’s groundbreaking notion of a dynamic yet coordinated and orderly marketplace to the older, Stoic notion of a providential order, Soll (despite his protestations to the contrary) reduces Smith and the economists who followed him to ideologues. Unfortunately, Free Market has little insight into either how free markets function or how economists have understood them.