03 July 2024

Adam Smith's America

How a Scottish Philosopher Became an Icon of American Capitalism

Glory Liu
2022, Princeton University Press, 384 pages,
ISBN 9780691203812

Reviewer: Filippo Gaddo, Macro Advisory Partners

It is not surprising that we have experienced a revival of interest in the works of Adam Smith: last year was, after all, the 300th anniversary of the birth of the Scottish Philosopher. The reality, though, is that Adam Smith has never been far away from the thoughts of economists, politicians and policymakers whether they were willing to admit it or not. Most of the time it was not even Smith himself who was on their minds but more his political economy framework and Weltanschauung. What ebbed and flowed over time was the way Smith and his works were interpreted or used, and what parts of Smith’s work were getting more or less attention. When one uses him to justify free trade, the invisible hand of the market or the division of labour it is The Wealth of Nation that speaks whereas when we consider the ethics or morality of capitalism it is The Theory of Moral Sentiments that is reflected.

Despite his Scottish origins and work, it is in the US where we can see starkly these examples of the ebbing and flowing more than anywhere else. “Adam Smith’s America” by Glory Liu offers then a comprehensive exploration of how Adam Smith’s ideas have been interpreted, appropriated, and reimagined throughout American history. Liu’s work is not just a narrative of Smith’s influence but a critical examination of how his legacy has been shaped and reshaped to fit various political and economic agendas.

Liu demonstrates that Smith’s legacy in America is far more complex and nuanced than the simplistic “father of capitalism” label often attributed to him. The book is also more than a re-examination of Smith’s interpretation by American thinkers and politicians – it is a survey of American political economy thought over the almost 250 years since that fateful 1776 date.

In fact, one of the most valuable aspects of Liu’s book is its exploration of how Smith’s ideas about institutions have been interpreted over time. Liu traces the evolution of Smith’s reception in America from the founding era to the present day, revealing how different aspects of his thought have been emphasized or overlooked depending on the prevailing political and economic climate. This aspect of Smith’s thought has gained renewed attention in recent decades, particularly in discussions about economic development and the role of institutions in shaping market outcomes.

One of the key strengths of Liu’s work is her analysis of how politicians and thinkers across the political spectrum selectively interpreted Smith to support their own ideologies and views. In the early republic, Smith’s ideas on free trade were embraced by Jeffersonians to promote agrarian interests and limit federal power. Liu’s exploration of the founding era is particularly illuminating, revealing how Smithian ideas permeated the intellectual foundations of the new republic. She shows how figures like Thomas Jefferson, Alexander Hamilton, John Adams, and James Madison all admired Smith, with his influence evident in both their writing and statecraft.

Liu then illustrates how the balance between Smith’s focus on institutions, free trade, social policy, and ethics has shifted over time in American discourse. In the 19th century, the issue of trade emerged as “the primary interpretative lens through which American Politicians engaged with Smith”: free trade proponents saw themselves as disciples of Smith’s system and justified their policy “on the grounds of scientific validity and ostensible universality”, whilst their detractors “challenged those justificatory grounds” by historicising Smith’s importance”. Similarly, in the late 19th century, the debate around ‘Das Adam Smith Problem’ from Germany, where it started, moved to the US where it went from reconciling the concept of ‘sympathy’ – as described in the Theory of Moral Sentiments – and self-interest on a philosophical level to reconciling ethics and economics on a practical level. Smith’s moral philosophy and concerns about the social consequences of unrestrained capitalism were often downplayed in favour of his economic theories.

Starting in the late 19th century and then in the 20th century, Liu argues, the political right and left have each claimed Smith as their own. Conservatives have long championed Smith as an advocate of limited government and free markets, often citing his famous “invisible hand” metaphor. On the other hand, Liu demonstrates how progressives and those on the political left have at times invoked Smith’s moral philosophy and his concerns about the potential abuses of corporate power. She notes how some have highlighted Smith’s support for public education and infrastructure investment as evidence of his belief in a more active role for government than is often acknowledged by conservatives.

Liu dedicates the central part of the book to the examination of how the interpretation of Smith changed during the middle of the 20th century. She traces the rise of the Chicago School of economics and its influence on popularizing a more libertarian reading of Smith. However, her treatment of the Chicago School’s interpretation of Smith focuses heavily on George Stigler’s perspective, which viewed Smith’s work as primarily centred on self-interest. This characterization may not fully capture the nuanced views of other Chicago School economists like Ronald Coase and James Buchanan, who engaged more deeply with Smith’s moral philosophy.

Whilst the book also touches on more recent interpretations of Smith, for example the attempt in the 1970s and 1980s to disassociate him from the ‘Chicago-style’ and ‘liberal-capitalist’ tradition that the Chicago school had constructed around him, or the endeavour by neoconservatives in 1980s and 1990s to establish Smith’s significance as a moral philosopher and a moral theorist of capitalism, it fails to include the most recent contributions through the work of Vernon Smith or Deirdre McCloskey. Vernon Smith, a Nobel laureate in economics, has emphasized Smith’s insights into human behaviour and the role of institutions in shaping economic outcomes. His experimental approach to economics has helped to validate some of Smith’s theories about market behaviour and self-interest. McCloskey, on the other hand, has sought to reclaim Smith’s moral philosophy as an essential component of his economic thought. This is probably the only gap in the otherwise impressive – and at times overwhelming – recollections of authors, economists, writers and politicians who have engaged with Smith’s works and legacy.

In conclusion, “Adam Smith’s America” offers a rich and nuanced exploration of how one of the most influential thinkers in economic history has been understood and misunderstood in American political and intellectual discourse. Liu’s work serves as a valuable corrective to oversimplified narratives about Smith’s legacy, demonstrating how his complex ideas have been selectively interpreted and reinterpreted to serve various ideological ends. By tracing the evolution of Smith’s reception in America, Liu not only illuminates the changing nature of American economic and political thought but also invites readers to engage more deeply with Smith’s actual writings.