VALUES AND CLASSICAL POLITICAL ECONOMY Emma Rothschild - UC

VALUES AND CLASSICAL POLITICAL ECONOMY
Emma Rothschild

Classical political economy has been criticised, from the outset, as an enemy
of human values. "The heart of flint that has disgraced the beginning of the
nineteenth century", the English radical William Godwin wrote in 1820, was the
characteristic, in particular, of "as many of us as studied the questions of political
economy." Political economy, he wrote in his extended response to Malthus's
Essay on Population, is inimical to "all the ramifications of social existence"; it
sees the world as a cold and cruel scene, or as "a city under the severe visitation of
a pestilence." To read the Wealth of Nations, Godwin said, is to feel "a painful
contraction of the heart." "Adam Smith's book is the code, or confession of faith, of
this system; a tedious and hard-hearted book", the poet Robert Southey wrote in
1812: "pluck the wings of his intellect, strip him of the down and plumage of his
virtues, and behold in the brute, denuded, pitiable animal, the man of the
manufacturing system!"

The "administration of things has been perfected at the expense of the
administration of men," the French conservative L.G.A. de Bonald wrote of the

1

governments of the new nineteenth century, and Adam Smith's work was "the bible
of this material and materialist doctrine". The "onesideness" of the new political
science was for the German economist Adam Müller a repudiation of the "feeling
of community," in the interest of private property. Adam Smith and his followers
conceived of the state as a "useful enterprise," and not as an object of reverence: as
a wilde Ehe, a "wild marriage," or a relationship without commitment. The
"systems of political economy of Adam Smith and his disciples" were "disastrous",
Bonald wrote; "war, plague and famine cannot destroy the force of public society,"
Bonald wrote in his observations on the Wealth of Nations, but "a book is enough
to overturn it." The effect of materialist doctrines, for Felicite de Lamennais, was
to transform society into an anarchy of interests and desires, in which individuals
would be more terrifying to each other than the "cayman of the Ganges and the
tiger of Zara."

These criticisms have endured, in various forms, over the past two centuries.
The assertion, at its most general, is a tripartite critique. Political economy, it is
suggested, has, in the first place, put forward a false understanding of individual
human beings, as uniquely self-interested and calculating, without virtue or values.
It has in the second place, in its criticisms of the state, reduced the capacity of
societies to act collectively, in the spirit of solidarity, community, sympathy and

2

other human values. It has in the third place, and most insidiously, had the effect of
changing human nature itself; of contributing, over time, to the transformation of
society into a materialist wasteland of competitive individuals.

These criticisms are astonishingly resilient, and they have many intriguing
characteristics, including their capacity to appeal to both the historical "left" and
the historical "right." They are in most respects a travesty of the political economy
of the great eighteenth-century founders of economic thought, including Adam
Smith himself. Smith wrote extensively in the Wealth of Nations about the
complexity of economic sentiments, and his other great work, the Theory of Moral
Sentiments, begins with a celebrated statement of the limits of a narrow view of
self-interest: "How selfish soever man may be supposed, there are evidently some
principles in his nature, which interest him in the fortune of others, and render their
happiness necessary to him, though he derives nothing from it except the pleasure
of seeing it."

Even David Hume, who more than Smith has been a hero of modern
conservatism, considered that "a too great disproportion among the citizens
weakens any state. Every person, if possible, ought to enjoy the fruits of his labour,
in a full possession of all the necessaries, and many of the conveniences of life. No
one can doubt, but such an equality is most suitable to human nature." Even

3

A.R.J.Turgot, who more than Smith is the founder of modern laissez-faire
economic policy, wrote of the postulate of universal self-interest that "in the sense
that this proposition is true, it is childish, and a metaphysical abstraction from
which there is no practical result to be drawn, because it is then equivalent to
saying that 'man only desires that which he desires.' If [the suggestion is of] a
reflective, calculated interest by which man compares himself to others and prefers
himself, then it is false that even the most corrupt men behave according to this
principle."

I have written elsewhere about the reality and the myth of early political
economy, and I do not want to go further into this today. What I do want to talk
about is the arguments of the early critics of political economy, and in particular
about the conditions that these critics saw as antonyms to self-interested economic
theory; as political economy with values. One of these antonyms, surprisingly
enough, was the political economy of empire, and the theorist I want to talk about
had a connection of this university.

William Julius Mickle was a distinguished Scottish poet, who became
famous, in 1776, as the author of a new verse translation into English of the great
epic, Os Lusiados, by Camoes. He lived in Portugal in the late 1770s and early
1780s. His introduction to the translation is gloriously admiring of Coimbra, in

4

which Camoes, he wrote, learned "An intimacy with the classics, equal to that of a
Scaliger, but directed by the taste of a Milton or a Pope." He is also admiring of
what might be described as the Portuguese model of early empire, which he
described as the "first commercial empire of the modern world;" "this held up as a
mirror to England." "The transactions of the Portuguese in India are peculiarly the
wars and negociations of commerce, and therefore offer instructions to every
trading country, which are not to be found in the campaigns of a Caesar or a
Marlborough." The Coimbra passage in Book III of Os Lusiados is heroic, in
Mickle's translation, with its evocation of mercantile, political and scholarly
wisdom:

"The rocks on every shore/
Resound the dashing of the merchant-oar./
Wise laws are form'd, and constitutions weigh'd./
And the deep-rooted base of Empire laid.../
Coimbra shines Minerva's proud abode/
And... beholds another dear-loved Athens rise."

5

It was in a very long introduction to the second edition of The Lusiad,
published in 1778, that Mickle became the first sustained critic, in print, of Adam
Smith, or at least of the Wealth of Nations, which was itself first published in 1776.
In the introduction, and in a pamphlet expanding upon it, published the following
year, in 1779, Mickle outlines a large part of the subsequent critiques of political
economy. Smith's error, for Mickle, was to have sought the abolition of the East
India Company, and to have promoted a system of "voluntary, unconnected
settlers," and a "free trade with Asia." He describes Smith's theory of a "free trade
with India," in particular, as a "Chaos of Confusion," or the "plan, that Government
should leave every subject to the course of his own industry." Smith was
completely ignorant, in Mickle's account, of the insecurity of the commerce with
the Indies. His prospect of voluntary or independent or purely economic settlers
included "not one idea of Indian jealousy and hatred of Europeans," Mickle wrote;
"it is, according to the Doctor, as safe to settle in, and trade with India, as to take a
counting-house near London-bridge, or to buy a peck of peas at Covent-Garden."

The early criticisms of political economy were addressed, implicitly or
explicitly, in the nineteenth-century epics of the history of economic thought,
which were also delineations of the territory of economic life. They were implicit,
too, in the other nineteenth-century epic, of virtuous empire. Even in the most

6

civilized societies, in these historical stories, there were imperfections to be
reformed (as in the semi-economic semi-political institutions of the army, the navy,
the Parliamentary boroughs, and the East India Company.) In uncivilized societies,
or the societies which John Stuart Mill described as existing in a condition of
infancy, or "nonage," there were no conditions, by contrast, for economic freedom;
there was only empire, or the far-off prospect of improvement. Political economy
was itself a source of virtue, in civilized or commercial societies. It was a Christian
way of thinking, and the foundation of consistent customs, or norms, of civilized
competition, and enlightened self-interest.

Long-distance commerce, in the terms of Mickle's and others' early
criticisms of Smith, required at least one of several possible types of political
order. There was the order provided by the sovereigns of the countries in which the
commerce took place; the order provided by the mercantile corporations
themselves, including the East India Company and the other merchant-sovereigns;
the order provided by the sovereigns of the merchants' own countries, which was
the recourse of empire, in a military and political sense; or the order provided by as
yet uninvented institutions which would transcend the frontiers of existing political
societies. The theorists of free trade were opposed to both corporate and imperial
power, as their critics observed. They were in the position, thereby, of abandoning

7

European settlers to the protection of jealous local sovereigns, or of visionary
political projects. These were disputes over the theory of political economy, and
over the politics of race.

But there are more abstract questions raised by Smith's writings on long-
distance commerce which are of interest, and even of importance to our own
twenty-first century times, and to contemporary political choices. For Smith's
arguments about free trade and regulation, in their eighteenth-century setting of
overseas connections, raise four very grave difficulties; to do with the political
conditions for free trade, the morality of long-distance relationships, the uses of
money in politics, and the values of commercial societies. All of these difficulties
have to do, in turn, with a fundamental tension in Smith's own system of freedom:
that on the one hand, there are political, legal, historical and perhaps also
psychological conditions for the flourishing of free commerce; and on the other
hand, that the institutional circumstances of these conditions are either obscure or
unfree or both, and nowhere more so than in respect of commerce that crosses
political and legal frontiers.

The first difficulty has to do with the political conditions for the flourishing
of free trade, and in particular with those conditions which necessarily involve the
political institutions of more than one society, because the trade itself extends

8

across the frontiers of societies, or states. Smith believed that long-distance
commerce was the source of increases in opulence, and that "order and good
government" -- the "equal and impartial administration of justice," "the liberty of
every individual, the sense which he has of his own security" -- was the most
important condition of such opulence. But long-distance commerce required at
least one of three sorts of "order," if it was to be tolerably secure. The first was the
order which is provided, in distant societies, by the political institutions of those
societies themselves; this was the policy of the English East India Company before
the 1760s, and it was the recourse of Smith's friends among the French
Economists, who recommended French merchants trading with the East Indies to
the protection of the "Indian princes." The second was the order provided by the
sovereigns of the merchants' own society; this was the recourse of empire, in a
military and political sense. The third was the order provided by institutions which
transcend the frontiers of existing political societies; this was the utopia of an
oceanic government, or a world assembly, with which so many eighteenth-century
figures, including Smith, were so intrigued.

The poet William Julius Mickle's criticism of Smith was a work of the
moment, full of misrepresentations and misquotations. But it pointed to a serious
difficulty in Smith's system, which was that he did not choose any of these three

9

possible orders. He was respectful of the "Mahometan government" of Bengal,
without being prepared to confide to it the orderliness of British commerce. He was
in favour of an expansion of the role of the British sovereign in India, without
considering the extent to which this would bring with it all the ills of empire which
he elsewhere denounced; the American system, as Mickle pointed out. It would
lead to political conflicts as in the North American colonies, or to "something
exceedingly like the Portugese plan," of a hostile country "governed by the troops
and officers of a distant sovereign," and thereby to "human caprice and arbitrary
power" ("their governors carried to India the image of the court of Lisbon...")
Smith was intrigued by systems of government across frontiers, but identified them
as no more than utopias. It is interesting that the very first extended debate about
free trade after the publication of the Wealth of Nations was in fact the debate
which Mickle entered, over a "free trade with India." It was not a debate in which
Smith was in any evident sense the victor.

The second difficulty of Smith's system is more profound. Smith was an
eloquent critic of the ills of empire, including the ills of slavery in which so many
of his friends were inculpated. There is a passage in the Theory of Moral
Sentiments to which Smith's early critics objected, which is an example of Smith's
own philosophical method of sympathy; of seeing moral choices with the eyes of

10

other people, or "changing places in fancy." So is the passage in the Wealth of
Nations in which he inverts a celebrated eulogy to commerce by the French writer
the abbé Raynal; "to the natives however, both of the East and West Indies, all the
commercial benefits... have been sunk and lost." There is no question in the case of
Smith, unlike in the case of David Hume, that the universal human nature to which
he alludes so frequently is the human nature of all individual human beings,
including the individuals whom he describes as "natives," or "savages."

But Smith's system of seeing oneself in other people's eyes, or from other
positions, or in other situations is not, in any straightforward sense, a system which
has room for extremely distant and different people. There are passages, certainly,
which have been taken to indicate that Smith in his many references to "other
people," including people who see our sentiments "at a certain distance from us,"
intended to extend the universe of reflection to persons who are very unlike
"ourselves." Smith was himself highly conscious of the difficulty of sympathizing
with or even observing very dissimilar people; as in his observations on the
different senses in which a man might sympathize with a woman in "child-bed," or
on the "man of humanity in Europe," who hears the terrible news of an earthquake
which destroys the empire of China. But the system of sympathy cannot easily be
both a system of continuing conversation and a system which includes very distant

11

individuals. This is the problem of who it is we see in the many mirrors of the self.
It is a problem which is particularly poignant if Smith is set in his own world of
friendship, in the new British empire.

The third problem goes to the heart of Smith's own system of laissez-faire,
or his violent attack on the commercial system of Great Britain. Smith's critique of
government regulation turns in general on the uses of money in politics, and in
particular on the uses of money to buy the political regulation of complicated
institutions; including ideas and information about regulation. The class of
merchants, or men who live by profit, is distinguished, in Smith's description, by
their superior understanding, including, but not confined to, their understanding of
their own interests. They are sometimes deluded about these interests, and their
interests only infrequently correspond to the interests of the society, or of an
eventual larger global society. But they are effective in pursuing what they take to
be their interests; on occasion by intimidating the legislature, and on occasion by
persuading with ideas, or intellectual systems.

Smith's critique of regulation is quite general, in the sense that he identifies
the political uses of money in local and domestic as well as long-distance disputes.
But it arose in the most intense form in respect of the regulation of long-distance
commerce. For it was the regulation of the East India Company that was an

12

enduring object of political discussion in England over the period in which Smith
was completing the first edition of the Wealth of Nations -- more so, at least until
well 1774, than the conflict with the North American colonies -- and it was the
East India Company, and its own advisers, who were the best-informed experts on
East Indian affairs. "Whenever the legislature attempts to regulate the differences
between masters and their workmen, its counsellors are always the masters," Smith
wrote of domestic disputes, and the counsellors of the legislature in East Indian
regulation were the factions of the East India Company. The Company was itself a
"fluctuating democratic" society of traders, in a contemporary description. But its
advisers, like the advisers of the politically connected monopolies of modern
societies, included the eminent theorists of the times: Sir James Steuart, Adam
Ferguson, and Smith himself.

Smith's critique of the influence of "masters" on the policy of Europe is
extraordinarily harsh. Their theories were the outcome, in general, of the "private
interests and prejudices of particular orders of men," elaborated into vast systems
of the "general welfare of the society." The sophistry of merchants was such that
they were highly successful in persuading other people -- legislators, princes, the
endlessly imposed upon country gentlemen -- that their own private interests were
identical with "the general interest of the whole." The policies they supported were

13

inspired by "mean rapacity", by the "monopolizing spirit", and by "impertinent
jealousy". They had increased in political power in England to the point where,
"like an overgrown standing army, they have become formidable to the
government, and upon many occasions intimidate the legislature." The member of
parliament who attempted to oppose them was subjected to the "most infamous
abuse and detraction", arising from the "insolent outrage of furious and
disappointed monopolists." The "sneaking arts of underling tradesmen" were
expressed with "all the passionate confidence of interested falsehood." This was
the consequence of money in politics, and in particular in the politics of long-
distance commerce.

The fourth and final difficulty is the most elusive, and perhaps also the most
important. For it has to do with the values of a commercial society, or the mildness
and moderation on which Smith's system depended, even more than on the political
institutions of security of property, and of the equal and impartial administration of
justice. These interior virtues, too, have been rediscovered in the early twenty-first-
century period of economic self-inquiry (over the future of political economy, and
the future of capitalism), and they were at the heart of Smith's theory. Smith, like
Hume, was a dispassionate observer of private interests and prejudices. But he
expected that the ordinary exchanges of commerce and conversation would have

14

the consequence, over time, of changing and improving individual dispositions.
The relations between buyers and sellers, or masters and servants, would become
less violent. Even the relations between societies, or between distant individuals,
would be less warlike. There would be less heroism, and more kindness.

The benign expectations of Smith and the other philosophers of the
enlightenment were the subject, even in their own lifetimes, of bitter criticism. The
French economists' policies of deregulation, which Smith celebrated in the 1770s,
were likely to have the consequence, in the description of their critics, of
emancipating dangerous and disorderly young men, and of endangering the moral
foundations of social order. Less than a generation later, after the French
Revolution and after Smith's own death, "Smithian" policies of freedom of
commerce were incculpated in the even more momentous charge of having
contributed to violence and revolution, by destroying respect for social institutions.
Competition and the pursuit of self-interest made individuals more rather than less
vicious; more terrifying to each other, in the description of Lamennais, than the
"cayman of the Ganges and the tiger of Zara." The only recourse, for Smith's early-
nineteenth-century critics, was a re-regulation of society, and an end to moral as
well as economic laissez-faire; an inculcation of religion, obedience, and respect
for the established order.

15

The awkwardness of Smith's expectations about the values of commercial
societies were particularly evident in respect of long-distance commerce and
conquest. Holland was a sombre and prudent society, in Smith's description, where
it was "unfashionable not to be a man of business;" while in the East Indies, the
Dutch were experts in the "arts of oppression," and in the "perfectly destructive"
system of colonial violence. Smith's and Hume's confidence in the mildness of
commercial society was founded, or so it seemed to their critics, on the
relationships of trust, and the repeated exchanges, of Glasgow and Edinburgh
merchants; who were also, in their overseas commerce, merchants in sugar and
slaves.

But the conflict between commercial and other virtues was far more general,
in the view of Smith's early critics. The free exchanges of commerce required good
rules, including rules of competition and rules for the security of property, and they
also required good values, or good norms; the disposition of merchants to compete
by mild and moderate means, and for economic rather than political advantage.
The profound difficulty of the "Smithian" system was that the course of free
commerce -- and the celebration of the virtues of self-interest -- had the effect, over
time, of reducing respect for rules, and changing the norms of competition. The

16

commercial society was founded on uncommercial values, and its tendency,
eventually, was to consume its own foundations.

The tensions in early twenty-first-century ideologies of capitalism are a
reflection, still, of these post-revolutionary disputes. For the political coalition
between enthusiasts of laissez-faire and of traditional conservative values is as
insecure, now, as it was in Adam Smith's own time. So too is the distinction
between "good" regulations, to be respected, and "bad" regulations, to be
disregarded, and eventually destroyed. So, even, is the distinction between freedom
of commerce and freedom of values.

One failure of contemporary economic thought -- to return to the uses and
misuses of Adam Smith -- is to have paid relatively little attention to Smith's
criticisms of masters and merchants, and of the politics of money. The mid-
twentieth-century revival of laissez-faire economics was in substantial part a
revival of the old-fashioned critique of regulation, or of the process by which
economic regulations were influenced by the self-interest of the regulating
institutions. In Smith's own terms, when the legislature attempted to regulate
economic exchanges, its counsellors were the regulatory agencies. But after more
than a generation of free-market reforms, the critique of regulation, or of regulatory
capture, is almost invisible. The counsellors are now the "masters," or the

17

industries to be regulated, and there is very little conservative economic theory, as
yet, of the politics of financial and industrial lobbies. The coalition between
support for laissez-faire and support for established (economic) power is insecure,
once again.

There is a more serious failure, as well. Of the four enduring difficulties of
Adam Smith's system of freedom of commerce -- to do with the political
conditions for free exchange, the morality of long-distance relationships, the uses
of money in politics, and the values of commercial societies -- it is the final
difficulty, to do with values and how they change over time, which is the most
troublesome. It is insidious for liberal as well as conservative thought, because it
poses the question of the inculcation of values, and of psychological as well as
economic interference, or intervention. It is connected to the uses of money in
politics, because one of the ways in which money is used, as Adam Smith
described, is to influence ideas and values. It is the most serious of all the problems
which Smith has left to his followers, in respect of economic thought, and in
respect, too of the future of the commercial system.

18