Tag Archives: Adam Smith

Classical Economics and Methodology

On Classical Economics

The methodological question at issues during the classical period were very similar to those that were late to agitate neoclassical and modern economists. The controversies in classical methodology included:

  1. Abstractions versus “reality
  2. Varying concepts of causation
  3. The role of mathematics
  4. The “scientific” claim of economics, and
  5. The practical relevance of classical economics

Adam Smith’s Methodology

Adam Smith’s Methodology was eclectic. The empirical, the theoretical, the institutional, the philosophical, and the dynamic were all intermingled. His definitions shifted, sometimes on the same page, and, in the course of developing his classic work, he drifted back and forth between difference conceptions of “value,” “rent,” and “real.” But, despite the numerous ambiguities in The Wealth of Nations commented on by Smith’s classical successors, as well as by the late scholars, he moved easily around the pitfalls without disaster, being sufficiently consistent during any given chain of reasoning to avoid errors in logic.

David Ricardo’s Methodology

With Ricardo economic took a major step toward abstract models, rigid an artificial definitions, syllogistic reasoning – and the direct application of the results to policy. The historical and institutional, and the empirical faded into the background, and explicit social philosophy shrank into a few passing remarks. Comparative static became the dominant – though usually implicit – approach. Ricardo declared: “I put these immediate and temporary effects quite aside, and fix my whole attention on the permanent state of things which will result from them.” Not only Ricardo, but also his disciples and popularizers, reasoned in comparative static terms – and they automatically interpreted the theories of others in comparative static terms as well.

References:

1. Sowell, Thomas. On Classical Economics. New Haven: Yale UP, 2006. Print. 79-80.

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Adam Smith on Justice and Social Policy

In the Wealth of Nations justice takes on new dimensions imposed by the necessity of articulating a sound set of principles as the basis for social policy. Justice functions on an intergroup or interclass level as well as the interpersonal level. The concept of the spectator (involving the psychological process of sympathy) is appropriate to individual moral development, but not to social policy. The meaning appropriate to social policy is impartial treatment which implies equality before the law; no individual or group is to be awarded special privileges or forced to endure special restraints: “To hurt in any degree the interest of any one order of citizens for no other purpose but to promote that of some other, is evidently contrary to that justice and equality of treatment which the sovereign owes to all the different orders of his subjects.”

The elimination of preferences and restraints which is the “simple and obvious system of natural liberty and natural justice” is the main policy theme of the Wealth of Nations. If one had to choose a single passage from the Wealth of Nations which expresses its policy intent most adequately, it would not be the invisible hand passage, which is so persistently misunderstood, but the following passage: “All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.” The system of natural liberty and natural justice can only be understood as the contradiction of the systems either of preference or of restraint. The whole point of Books III and IV of the Wealth of Nations is to understand the demands of impartiality in the social order. Smith was very explicit about this organization in the Introduction to the Wealth of Nations. He points out that “the policy of some nations has given extraordinary encouragement to the industry of the country; that of others to the industry of towns. Scarce any nation has dealt equally and impartially with every sort of industry.”

References:

  1. Campbell, William F. “Adam Smith’s Theory of Justice, Prudence, and Beneficence.” The American Economic Review 57.2, Papers and Proceedings of the Seventy-ninth Annual Meeting of the American Economic Association (1967): 571-77.

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