Adam Smith’s Bad History leads to Bad Economics

Guest Post by Donni Wang [author details at bottom of post]. Republished from The Economic Historian blog: “No Go from the Get Go: Adam Smith’s Bad History, Lessons from Ancient Greece, and the Need to Subsume Economics” – She is a historian, and argues here that a false history which portrays progression and progress actually seals off alternatives and choices which we could, and indeed need to, make today. Correcting Adam Smith’s views about history of mankind, using lessons from Ancient Greece, thus creates new possibilities for us today.

WORLDVIEWS THAT gain traction tend to be comprehensive in nature. They account for a wide range of phenomena that define the human condition, one of which being the changes that occur to society over time. This is true also for capitalism as an extensive body of thought. Although there is much emphasis placed on the modern epoch that features the rise of the industrial nation in the West, the weltanschauung of capitalism does supply a neat story of human development that extends back to earlier periods.

The obvious source for this narrative is to be found in the writing of Adam Smith.  Having been rightly credited as the father of capitalism, Smith has contributed much to the overall coherence of the market system by reinforcing it with a supportive philosophical foundation. In fact, his narrative of the past, which is still being circulated in contemporary textbooks and popular discourse, has not only rationalized the ascent of market forces in 18th century Europe, it also validated the major assumptions that undergird orthodox economic thinking today.

The historical account proffered by Smith, however, does not hold up even to the most basic test. A closer look at actual history, particularly that of Greek antiquity, renders the type of the human past constructed in service of modern economics untenable.  In fact, a careful analysis of the Greek experience yields a historical society that resoundingly rejected the current capitalist logic.  Furthermore, the ancient Greek case brings forth a different economic model, one that supplies a radical paradigm-shift at a time when the governing structural configuration of the last two hundred years appears increasingly incapable of dealing with escalating crises.

First, a very brief recap of Smith’s theory of the past. In The Wealth of Nations, Smith stated that human society had gone through four consecutive stages: the age of hunters, the age of pasturage, the age of agriculture, and the age of commerce, with each succeeding one more advanced than the previous.1 At the same time, Smith stressed that human beings have always been driven by self-interest, a powerful primordial force that remains operative throughout time.

Smith’s narrative performs two functions. First, it aligns all prior historical movements along a neat evolutionary path, so that the emerging commercial society which Smith presided over automatically gains affirmation. As Smith asserted, a huge gap exists between the “savage nations of hunters and fishers” and “civilized and thriving nations” of his time.2 Secondly, adherence to a universal conception of human nature ensures that economic and state policies that legitimize and reward self-interest reign supreme.

In fact, while Smith simultaneously expresses reservations about capitalism elsewhere — notably in The Theories of Moral Sentiments — those feelings are exclusively directed at the excesses and extremes of market forces, but not the general condition itself. As a result of these discursive features, readers of Smith would be prepared to accept governmental measures that compensate for economic volatility, such as regulation, welfare, and charity, but not any serious appraisal of the fundamental cornerstones of modern economics, such as private property, wage labor, and commercialization, which generate social disintegration in the first place. This idiosyncratic moral tale hinders the possibility that capitalism can be resisted and overthrown — as feudalism was — as it refuses to question the very core assumption that the individuals in pursuit of market-based material interest is the best vehicle for social progress.

This is not the place to dwell on the incredible stunt of both illustrating dramatic stagial change and insisting upon constant human nature at the same time. The current task is a simple one: to square Smith’s story against the knowledge about ancient Greece, one of the best documented, widely-known, and most relevant European cultures, according to both the standards of the 18th century and our time.

FIRST, TURNING ancient Greece into an agricultural society at the low end of a linear trajectory departs from other meaningful engagement with antiquity in Smith’s day. Back then, learned men became enamored with Greece and Rome because of the extraordinary cultural, artistic, and philosophical achievements of these two places. This fascination suggests a firm refusal to reduce the legacy of the ancients to the specifics of economic activity, and this anti-materialist approach opens the possibility of viewing history as moving in the direction of decline/fall, prompting a more critical evaluation of 18th English bourgeois society as well as its lingering ideology.

The details of Smith’s argument also betray a poor reading of the ancient texts. Drawing on the Homeric epics, Smith identified the prevalence of self-interest in antiquity by pointing out that the Trojan war “was not undertaken with a view to conquest but in revenge of goods that were carried off.”3 As all readers of the Homer are aware, the immediate cause of the war was the abduction of Helen by the Trojan prince Paris. That Paris was able to meet his lover in the first place owes to the fact that he was entertained as a guest-friend by Helen’s husband Menelaus. This tradition of hosting foreigners as guest-friends, called xenia, was an important custom in ancient Greece.  The cultural institution of xenia mandated the circulation of goods and objects for the purpose of cementing long-term social bonds.

In this light, the punitive expedition was prompted by Menelaus’ desire to seek redress for an errant act that violated the norms of cordial exchange, and the long-distance campaign was made possible by a prior oath of solidarity shared by the Greek princes who were peers to Menelaus. These motives, which grew out of strong expectation of reciprocity, could hardly be equated to the universal human propensity to truck, barter, and exchange. If anything, it can be argued that a trusting and mutually-beneficial relationship was so central that its breakdown led directly to violence and war.

Just as problematic is Smith’s generalization that all the disputes mentioned in the epics “were concerning some women, or oxen, cattle, or sheep or goats.”4 To be sure, the Greeks looted cities and competed for booty during their ten-year campaign, but Homer explicitly states that the heroes fought for undying glory (kleos). It is for this kleos that Achilles was willing to give up a long and prosperous life.

True, the Homeric warriors were no ascetics, and this glory they sought after very often had to manifest tangibly in the physical objects they won as rewards in the eye of the public. Nevertheless, kleosis fundamentally defined by its symbolic and interactive dimension, and its pursuit must be consciously aligned with the common goals of the community, a collective entity that determined what sort actions were praise-worthy or reprobative — in contrast to the invisible hand that is neither known nor needs to be taken into account by the individual.

If Smith’s overarching historical narrative seems reductive and problematic for his own time, it is even more so given what we have learned since then. Economically speaking, scholars now see Athens as the home to vibrant manufacturing, large public works, extensive long-distance trade, and diverse banking practices. In short, the city was far from being a simple farming society that Smith made it out to be. Furthermore, historians of recent years concluded that the Athenian society enjoyed relatively decent standards of living and was remarkably egalitarian, upsetting a simple image of civilization steadily marching from a primitive, impoverished state toward more advanced and progressive ones.5

Since the 19th century, ancient Greece has also become a symbol for democracy and freedom, inspiring many in the age of revolution to turn against the ancien regime. This tradition of drawing lessons of social justice and equality from ancient Greece rather than fixating on its level and amount of production remains strong. It is true that some of us moderns living in the 21st century could rightly fault the Athenians for having failed to include women, slaves, and foreigners in their democratic experiment.

This moral high ground, however, was not available to Adam Smith, for 18th century England was involved in the colonization of indigenous lands, enslavement of natives, and denial of equal rights to women. Furthermore, the industrial revolution in Smith’s time allowed appalling living conditions to afflict domestic citizens through precisely the type of division of labor that he marveled at in his writing.

IF WE are to reject the Smithian historical narrative, which legitimizes a certain notion of the 18th century commercial society that appealed to his class, then what kind of alternative can we envision when we consider the more nuanced dynamics of the ancient world? A new account of the Greeks that does more justice to their actual lived experience is given in Before the Market. This new historical study points to a different model of political economy that is diametrically opposed to the core structural logic of liberal capitalism.

This economic system called Olympianism, revolved around a specific understanding of human nature that was central to the world’s first and only direct democracy which took roots in Athens. According to the distinctive moral philosophy of Olympianism, it is natural for human beings to connect the wellbeing of the community with their own through acts of horizontal collaboration, mutual trust, and solidarity. This powerful paradigm, rendered in literary texts and conveyed by political practice, shifts the focus of historical gaze from material pursuits to civic deeds, and short-circuits the kind of linear, stagial story postulated by Enlightenment thinkers like Adam Smith.

By learning about other articulations of human nature and human potential, and by recognizing that history was highly contested and contingent rather than teleological, we are forced to take the experience of societies before us very seriously.6 The knowledge that we can live very differently through our own constructed notion of who we are is empowering as it brings moral responsibility and moral choice back in the crucial debate on what sort of economic system we ought to adopt.

About the Author

Donni Wang received her B.A. in Economics from U.C. Berkeley and her Ph.D. in Classics from Stanford University. Her first book, Before the Market: The Political Economy of Olympianism, came out in February 2018.  An excerpt of it can be downloaded from Her research interests revolve around a series of hard and urgent questions that are critical of both the market and the nation-state.  She currently lives in Berlin and hopes to expand her academic oeuvre as an independent scholar.  In her spare time, she writes popular history (most of which in Chinese), goes to ballet classes, and carries out her duties as a citizen of the emergent global democracy.

  1. yngso said:

    Let’s compare with the alternative, Socialism. Capitalism, in spite of its flaws, has revolutionised the world and reduced poverty greatly. Socialism has done the opposite, indeed the opposite of what its rhetoric promises.
    Capital is simply money put to work to create products, services and employment. It’s been financialised and perverted and is ready to crumble, but that’s not because of that young AOC thing.
    Lots of things will have to be reinvented in this century, and the econmy is one of them. Capitalism and Socialism will be left behind, good riddance!

  2. Rob Reno said:

    Red herring. Let’s compare with Democratic Socialism, not the boogy man raised to ignore what has worked.

    • yngso said:

      No, renaming it has been tried before, but that didn’t help. Even in China where private wealth is allowed, the Frankenstein growth monster they created is cracking.

      • Rob Reno said:

        Hogwash. Just another case of can’t tell the difference between Communism, Socialism, Democratic Socialism, and Rheumatism. You sound like just another ignorant American. I am American well with the thoughtlessly stereotypes and tropes trotted out conflating reality with self-deluded market s fundamentalism.

      • yngso said:

        You ignore history at your peril. That was only insults, no arguments.

      • Rob Reno said:

        Truth hurts. You clearly neither know history or lived outside the stereotypes in your own mind. You ignore history and reality and reveal will full ignorance equating and conflating the three. We have lived in many countries. Only blind fools say what you do.

      • Rob Reno said:

        BTW, an ignorant stereotype is not an argument, a simple truth and fact that eludes you. If you are so willfully ignorant that you think their is no difference between between the history of say, Denmark, Sweden, Nederland and Communist China or Vietnam etc. you are only revealing to everyone your own prejudiced stereotyped mind. Stop pretending you actually said something worthwhile, take you own phoney advice, read some actual history, travel, and cure the disease of your mind …. Wilful ignorance

      • yngso said:

        Still only insults, no arguments…yes Capitalism is failing, now tell us which kind of Socialism should replace it, and I’ll take it apart.

      • Rob Reno said:

        Feed your own mind. You were given a resource yet ask to be fed. That tells much about you.

      • yngso said:

        You have said nothing about me – you don’t know me – but a lot about yourself.
        The truth about all isms is that they need to get left in the 20th Century where their epic battles happened. In this century everything is changing, and we’re going to need new and rational systems.
        Yes, polarization is having a last fling, but we’re quickly finding out that it’s unsustainable. Consensus may sound boring, but when rational thought is used to find solutions, then that’s what works.

  3. Rob Reno said:

    Well acquainted … Meant to say

  4. Rob Reno said:

    The United States had higher levels of GDP (though not growth per head in the relevant period) than Sweden, but lagged far behind on most measures of welfare, such as life expectancy, infant mortality, inequality, education, paid holidays, and even median income, that is, the income of the middle person in the distribution. Measured properly, Gunnar Myrdal insisted, Swedish well-being was ‘vastly superior’ to the United States. Lindbeck would have to show that under his implied counterfactual, any miniscule economic advantage Sweden might have obtained by the removal of ‘distortions’ would not have been bought with higher unemployment, lower incomes, inferior social services, and less security. (The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn” by Avner Offer, Gabriel Söderberg,

    If modern capitalism is to survive it must face up squarely to its failures. One of the greatest threats to modern civilization is ignorance. I am not ashamed to be ignorant, for no one can know everything. The wise person has the common sense to know what they don’t know. To not even know what one does not know, to speak in platitudes and stereotypes as though one does, these are the habits of a foolish mediocre mind.

    America is now the architect of a form of Market Fundamentalism that has historical origins that the above book sheds light upon. So to does the subject of this post. Standing by silent while stereotypes are pawned off as informed argument (which they are not) is to assist this intellectual parrots who know not what they speak off. We cannot afford silence any longer for our children’s sake.

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