George Mason University economics professor Daniel Klein has a new essay today at Law & Liberty setting the record straight on Adam Smith’s positions on trade and free markets. He is responding to Oren Cass of American Compass, who wrote in an essay that economists have been reading Smith wrong for years, and that the great proponent of free markets actually thought capitalism could only work well within national borders, not internationally.
As Stan Veuger replied, the modern economic arguments for the gains from international trade do not rest primarily upon Smith’s arguments anyway. The great foundational texts of economics, such as the Wealth of Nations, are used today as “sources of both inspiration (rarely) and rhetorical flourish (more frequently),” wrote Veuger.
Veuger is correct about that, but it is a shame that more economists don’t actually read Smith. His thought is very deep and rich with insights into human nature and sociality.
Fortunately, Klein has read Smith very closely, and he presents a bevy of evidence from Smith’s writing that gives a very different picture than the one Cass tried to draw.
Klein notes Smith’s attitude toward the relatively limited globalization that existed in the late 1700s:
The first chapter of Smith’s Wealth of Nations culminates in marvel and wonder: “How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world!”
That is one of three consecutive sentences ending with an exclamation point. Here, Smith imagines the worldwide activities flowing into the woolen coat enjoyed by “the most common artificer or day-labourer.” Beyond that chapter, there are only three exclamation points in Wealth of Nations. Smith, then, begins his work with a unique sense of marvel at how his theories do apply across national boundaries.
“[E]ach nation ought, not only to endeavour itself to excel, but from the love of mankind, to promote, instead of obstructing the excellence of its neighbours,” Smith wrote in The Theory of Moral Sentiments. His ethics are patterned after benevolent monotheism and a universalistic Imago Dei: “The all-wise Author of Nature,” he says, “has made man, if I may say so, the immediate judge of mankind; and has in this respect, as in many others, created him after his own image.” He calls the Chinese the “brethren” of Europeans.
It’s not just trade of physical items that Smith sees as beneficial between countries. He also recognized the benefit of foreign investment, though he was cautious about it at times. Smith’s thought is best understood as a series of presumptions, and presumptions have exceptions. Klein explains:
I do not mean to imply that Smith would not under any circumstances favor a restriction on foreign trade or investment. Smith considered arguments for making an exception to the principle of free trade, but, as Boudreaux explains, Smith himself tended to diminish those arguments. We cannot rule out that Smith might favor certain restrictions under certain circumstances, for polity reasons, perhaps because they would support political stability or national security, or simply because they would play a part in the crafty art of liberal politics. Smith strove to make governments less dishonest and illiberal, but knew that foreign countries had governments too. Smith’s friend Edmund Burke exemplified the virtuous pursuit of circumstantial liberal politics.
If Cass’s only points were that Smith is not a fundamentalist, and people who make him out to be are wrong, then Cass would be correct. But as Klein demonstrates, it goes much too far to say that Smith would support Cass’s idea of a “bounded market.” Klein concludes, “Cass might help liberalize any of the 10,000 commandments now obstructing gainful employment and honest living. Then Cass could justly invoke Adam Smith.”
For Klein’s full analysis and his numerous direct quotations from Smith’s work, read his whole essay here.