Adam Smith: What He Thought and Why It Matters

DATE: 6.30pm-7.30pm, 6th November 2018

VENUE: Millbank Tower, 21-24 Millbank, Westminster, SW1P 4RS

SPEAKER: Jesse Norman MP

EVENT CHAIR: Dr Alan Mendoza

Dr Alan Mendoza: Good evening, welcome to the Henry Jackson Society, I am Alan Mendoza the director and of course we’re delighted to have with us today Jesse Norman MP who is of course a transport minister by day but by night turns into an author extraordinaire. Jesse has had a stellar career, Oxford, masters, doctorate from UCL. He’s had a long history in ideas he ran projects in communist Eastern Europe, he has been at Barclays an honorary fellow in various places, governor of the national institute for economic and social research and a visiting fellow at Oxford. Today we are going to talk about his latest book, of course Edmund Burke was one of his great hits but today we are talking about Adam Smith: What he thought and why it matters and I think the position of these two ideas, or these two concepts, what did the man actually think but why it is relevant today sets this book out from some of its competitors in the field because it makes it contemporary whereas some are not. It is great that we have a serving senior politician with us to give his thoughts on one of the most important figures in our historic society but also how it relates today. So please do give Jesse a very warm welcome.

Jesse Norman MP: Well thank you very much indeed. Thank you ladies and gentlemen, thank you Alan for this magisterial introduction. No one can survive an introduction like that and ladies and gentlemen I’m not sure if I’ll be able to. But let me just say, this is a slightly unusual “inaudible” This has been a bad year for books about capitalism not perhaps surprisingly given that it is ten years after the catastrophe of the 2008 financial crisis. We’ve had Paul Colliers book ‘The Future of Capitalism’ and we’ve had Alan Greenspan’s book ‘Capitalism in America’ we’ve had Alan Twos on ‘Crashed: What actually happened in 2008’, but I’d like to suggest that actually what they really needed is a historical and intellectual grounding and hopefully my books have something to say. So let me just then talk for a few minutes about Adam Smith, about the times he lived in, about his ideas and then of course in particular about their contemporary relevance. Why we might care about it, why it really matters to know what Smith thought and to think again in our own time about the contemporary dilemmas and problems that we can use his ideas to solve. So Adam Smith himself I think doesn’t really need much introduction as he is by far the most influential and famous economist who ever lived. Whatever the basis you use, the citation analysis, the mentions in the popular press, whatever it might be, friends of yours down at the pub arguing, making points you know over a pint, Adam Smith comes first to their lips and in the former terms he is by far the most heavily cited economist of all time, vastly outpacing Marx, Keynes and Hayek who are the next three. Now Keynes, Marx and Hayek even adding them all together you wouldn’t get to the number of mentions that Adam Smith gets. But of course with this great celebrity and this great authority and the intellectual grip that he has exercised historically on people’s minds has come the pervasive tendency for people to take him to support whatever political or other cause they happen to espouse often without paying too much attention to what he thinks and often also without much regard for context. So if you look on the spectrum of politics on the right of the political spectrum you will find people claiming that Smith is at least a fair economist a libertarian, a man who believed in human greed, the power of selfishness and all the rest of it. If you look on the left of politics you ll see him denounced as the original founder of capitalism, as a market fundamentalist, as a defender of inequality and human greed and I want to suggest to you that neither of these two pictures is remotely accurate to Smith himself but that if we go back and inquire a little bit we think about what he said and reflect on it, we can come up with some incredibly powerful diagnoses and analyses and also some very interesting ideas that we can take forward into our contemporary world today. Smith himself, born in 1723 in Kirkcaldy in Scotland in Fife, the east coast of Scotland and died in 1790. So he spans the central years of the 18th century. Of course the 18th century is really par excellence the century in which Britain achieves its modernity. Not its industrial modernity, that doesn’t come … and arguably that is still coming now. We’re in the early stages of the industrial revolution, very early stages at the part I’m describing but its modernity politically and economically and this creates a bond between Smith, in my mind at least and Burke because Burke’s great move is to place a representative government and political parties and the duties of a representative, the MP as a representative at the centre of political thought. That’s the great move and it’s that move that sets us apart from China for example were they have one political party. It’s the existence of free political parties that is definitive in many ways of democracy and in Britain we had that in the 1760s. In countries around the world today you know they are still reaching for it and of course with that comes the capacity to change your government at a general election in favour of a government with a program that you more or less understand and therefore in some sense an empowering of the popular vote even if the basis of the popular vote is incredibly small as it was in the 1760s and remained In Britain arguably until the early 20th century. So that’s why Burke marks out political modernity but of course fascinatingly Smith I would argue marks the hinge of our economic modernity because with Smith comes the great foundational move that is to put markets at the centre of political economy as he would refer to it, as economics would have not been invented in the sense of how we think of it now, that’s very much a 19th century phenomenon and I trace the evolution of political economy into economics in the book. So you have these two figures that knew each other very well, they were close friends towards the end of their life, there is a lovely line of Smith where he says ‘Mr. Burke is the only man who thinks of economic subjects exactly as I do, without any communication having passed between us.’ And that’s not true actually, but it’s true enough for you to get a sense of the warmth between the two men. They didn’t agree about everything but there is a lot of overlap and I am happy to discuss in the questions of what might that overlap specifically be. Of course Smith comes from Kirkcaldy he goes to Glasgow University, he is educated as an undergraduate at Glasgow and then he goes to Oxford. He has a marvellous time at Glasgow and then he has a rotten time on a Snell-scholarship at Balliol College Oxford and there are members of the audience that … You will have to forgive me for sticking the stiletto into Balliol… You can identify them by their hearty laughter but when he was at Glasgow, Smith attributed the excellence to the fact that the students paid the teachers in order to teach them and he took the view that when he went to oxford that the appalling quality of the teaching and the very retrograde research Oxford at that  point having slumped into a very deep troupeau (??) of intellectual sloth and ineptitude, having had some glorious days in the medieval period was due to the fact that these dons were sustained by foundational settlements and endowments in their own colleges and were not paid by the students and therefore didn’t have that affinity, that feeling of being tuned to the needs of their students and that’s always the reason why I have regarded Balliol college as the home of student fees in the modern era and if you know anything about Balliol college you will know that it is a very left-wing college and it’s nice to repeat that whenever you possibly can, just to remind them of their true intellectual influence. So Smith as a rotten time at Oxford. Oxford is dull it’s very high-tory and it’s rather expensive and it’s rather anti-Scott and of course he is Scott, very interested in ideas and rather poor and also of course Presbyterian so it’s not a perfect overlap between the two of them by any means. He goes on from there back to Kirkcaldy, he spends a few years thinking and writing. He then becomes a professor at Glasgow, stays there, takes a 3 year sabbatical with the Duke of Buccleuch who is basically the greatest land-owner in Scotland at the time, who’s tutor he becomes in a manner of how Aristotle tutored the young Alexander the great, he then returns and broadly speaking lives in Kirkcaldy and ultimately Edinburgh and writes ‘The Wealth of Nations’ which is of course the book which he is best known for and in many ways the greatest book of social science ever written. So that’s Smith’s life, Smith’s life is this Sahara of barrowness in terms of its events, its excitement ladies and gentlemen, he does not live, he is a proto academic of a style all too familiar today only without the culture wars and aggro and he is also someone who is of a very modest and he has a personality which is very much attuned towards deep thought and deep reflection. And of course publishes two books ‘The Wealth of Nations’ in 1776 and ‘The Theory of Moral Sentiments’ in 1759 and the two books have sometimes been thought to be opposed to each other. So on one popular misreading Smith writes ‘The Theory of Moral Sentiments’ allegedly about a moral philosophy and human altruism and then he writes a book about economics and human greed and then even more ingeniously they identify the period where he goes to France as a moment of vault fax (??). He goes to France he meets the physiocrats, these flinty economists, the first school of economics in the world in France at the time including Dr. Quesnay and he absorbs their ideas and has a sudden realization and a conversion that everything he thought was wrong and what he suddenly needs to do is believe not in altruism but in greed and not in equality but in human inequality. And of course nothing could be further from the truth and the idea that comes from this is that there are two Smiths is hopelessly wrong for the same reason. So what you actually have is two ideas, two sets of ideas. One set of ideas across two books and two books that really bare quite clear relationship to each other. So ‘The Theory of Moral Sentiments’ and I’m really talking now about Smith’s ideas of course rather than his life. ‘The Theory of Moral Sentiments’ is a work of moral psychology, it’s not so much a work of moral philosophy. It’s a work of moral psychology. He tries to answer the questions ‘By what processes do human values and social norms emerge?’. Amazingly interesting contemporary question actually when you think about it. And he has a remarkably simple response to it. Now you could imagine in the middle of the 18th century an awful lot of the response historically would have been ‘Well it comes from divine grace.’ ‘It comes from the scriptures.’ ‘It comes from the empowered status of the king, possibly.’ ‘It comes from the embedded wisdom of the aristocracy.’  Whatever you might think of, any of those kinds of ideas and Smith says ‘No it comes from we ourselves.’ A demotic idea, human interaction alone generates these norms and values. And the specific way in which it does so is via what he says is the human desire, the human sympathy which for him is not an emotion it’s a capacity to be moved by the feelings of others and the experience of others its an innate psychological relation between two people or one person and a group of people and of course through sympathy we are able to realize the human desire not only to love but to be lovely. That is to say worthy of love in the eyes of others. So his view is very much then that what we have is human interacting with each other yearning to love and be lovely, yearning to stand out in the eyes of others earning their esteem, to earn their regards to do that publicly in a way that they not only are seen to be doing so but see others seeing them doing and seeing others seeing them wanting to be admired in turn. And this creates a framework of norms. I will spare you the full detail of the idea but it’s a remarkably simple and clever idea. And of course it doesn’t rely on external authority, it’s a naturalistic theory coming straight out of a consideration of human beings alone. It’s an Aristotelean idea and the genius of it is that by not relying on authority of any external kind it can become part of what he always thought of as in a way of foundation goal which is to realize the great enlightenment project of a science of man. An account of human behaviour and thought that does not rely on external forces or deus ex machina or a deus of any kind but just comes out of human interactions themselves with each other. That is also a view that he shares with his great intellectual mentor David Hume. And Hume plays.. if I was giving out an Oscar for best supporting actor in this book it would go to David Hume, who is absolutely fantastic. If ever there is a moment where the narrative might temporarily be in danger of flagging and I am pleased to say there is no such moment, it’s a rankly read from start to finish. One which I know you want to load up on, maybe not now but later because it’s the perfect gift for cousins and god-children and of course especially if they are at university studying any of the moral sciences where it gives maximum blagrability (persuasion?). But the joy of Hume is just an amazingly amusing and lively figure there is a fantastic moment when Hume…very quick recap on Hume’s’ life. So Hume is born in 1708, writes this marvellous work ‘The trees of human nature’ indisputably one of the two or three greatest works ever written English language, not particularly well understood. He says the book fell dead born from the press, that’s not true. It didn’t do as well as he would have liked, nothing could have done as well as he would have liked since he was enormously ambitious intellectually but he wasn’t daunted he just thought people weren’t really into philosophy, they weren’t ready for him philosophically. So he recast some of the ideas into the format of some essays, moral, political and literary and they were a pretty stonking success and had a lot of influence as well as a good number of sales. But he thought even that wasn’t quite good enough and he decided that he would ape the continental masters and write a history of England which he did in 6 volumes. An absolute smash hit, he sold enormous numbers of copies, moved out of his pokey room in the old town of Edinburgh into a large house on St. Andrews square and set up shop. And when he asked why he was doing so he replied that ‘I wanted to indulge my love of cooking for the remaining years of my life’ and that gives you a sense of what Hume was like. When his publisher said to him ‘Will you write us a 7th volume? Because I am desperate to sell more to this very eager and active public.’ He said ‘I will not write further.’ He said ‘I am too old, too fat, to lazy and too rich.’ I think that is a sentence every writer has been wanting to write to their publisher over many years. So that’s, that’s Hume. Hume has the idea in ‘The trees of human nature’ of a science of man and I see Smith’s thought nestling within that. You start with a theory of social psychology and then within that you can then specifically turn as he does to political economy to the question of not only how people are moved in their moral interactions with each other but what role economic incentives play in that as well, that is the other side of his thought. And those two go together and of course that’s interesting because it’s such a corrective to the current view within modern economics which is broadly speaking that markets function and perform in a similar ways. A general theory based on the workings of the foreign exchange market particularly focus on friction, the efficient market hypothesis, perfect information and the like and of course when you see Smith from that angle it is terribly tempting to believe that actually what he does is have a kind of black box theory, a mathematical theory in which everything is a matter of incentives to be recorded in spreadsheets and that’s really the sum total of the idea. Nothing could be further from the truth so from Smith’s point of view a market is embedded in human society and therefore mediated by human values, traditions, norms, history and above all trust. And if you cut those things out of the picture you will never get an accurate account of the way humans behave in markets or in any other context. So when you see ‘The Wealth of Nations’ what you’re seeing is a very deep and thoughtful meditation about humans in the context of markets but nestling within a much wider theory of human moral and cultural development. And it is a theory of development which I don’t think is an aspect that people miss. Smith’s theory is pre-Darwinian indeed we know it influenced Darwin, Darwin is a very keen reader of Smith and its pre-Darwinian no one reads either book much and they certainly don’t get past the first two books or ‘The Wealth of Nations’, if they ever make it to book three they will discover not merely the accounts of markets and the different factors of production you can find in the early part of ‘The Wealth of Nations’ but a theory of social development. And Smith has a theory of social development which goes from the initial hunter-gatherer stage through particle society, to agriculture and ultimately to what he calls ‘commercial society’. And what is so fascinating about that is because that has built into it a whole series of different aspects. One is changing people’s material status, also changing their human interaction with others so women coming into society more as a mark of a civilizing process interestingly for those who might think Smith is a misogynist but of course he gives you a different theory of the state. Instead of a kind of naïve view which says markets over here – state over there. It says public institutions over there, private institutions over there, often revealed in this amazingly innate phrase as well is the idea that the private sector makes the money and the public sector spends the money. I want you to never have any trouble with that view ever again ladies and gentlemen. Because of course not only isn’t it true it can’t be true. As Smith says: Property and government depend on each other and with a stronger government you will get a stronger defence and elaboration of different forms of private property. With a greater complexity of private property you get more elaborate markets, you get a more sophisticated society socially and especially economically. And so the capacity of the state to permit markets to flourish without intervening in them and to secure escalating forms of private property becomes the basis of social and economic growth of a modern commercial society. And that’s an amazingly interesting process of escalating evolution of a society which I think takes us miles beyond much of the thinking that has been done today even at the universities. So… and it is genuinely Darwinian in this amazingly interesting evolutionary sense because in each stage of society the best parts of society are taken forward and less good parts are left behind. So for Smith then it is of cardinal importance that he is living in Scotland as we look back on it because he wouldn’t have known that because Scotland is giving him the perfect grist to his mill. Scotland in the 1690s is a place which is an agrarian economy with great levels of poverty, there were several famines in the 1690s. They make a desperate act to break out of the economic bind by establishing a colony down Darien in Panama that is a total failure absorbing quarter of the circulating capital in the country and they need to get out of that fix, that English imposed fix that comes from the navigation act controlling trade and eventually they merge England and Scotland on remarkably equal terms in many ways. Scotland’s institutions are preserved in the act of union in 1707, meanwhile the Scottish economy re-adjusts to the shock but then takes off like a bird and Scotland is the ‘Asian Tigre’ of the late 18th and 19th century. The fastest enriching, fastest urbanizing society on Earth. And Smith is at the beginning of that, he can see it happening and he is thinking ‘why is this happening? What’s going on?’ answer is the emergence of commercial society and that is significant because you’re leaving feudalism behind, you’re leaving personal dependence on one man or woman on another in favour of a society in which as he says every man is himself a merchant and lives by exchanging, a much more presumptively equal society, a society which’s character we have in many ways preserved today. Now I want to talk about briefly, because I hope I have stimulated you enough, why all this matters. Well I have talked intellectually about why some of the ideas matter. So Smith is not a theorist of capitalism, that’s the first thing. Capitalism only comes to be in the middle of the 19th century as I define it at least because capitalism consists of open markets in my read at least and autonomous pools of capital, corporations. You don’t get those until the 1840s. In Smith’s time you have many of the defects of capitalism represented through the great charted trading companies for example the east Indian trading company which is in the process of founding the first British empire in India at the time and making a bit of a hash with it in many ways but you don’t have all the features you would see of a capitalist society in the 19th century. So Smith is not the founder of capitalism but he is a phenomenal theorist of capitalism. And of course by focusing on the social aspect on what we think of today commercial society he reminds us that capitalism is the wrong word to use. We’re thinking about commercial society in all of its ramifications, in all of human dealings with each other rather than it is now in a merely capitalistic sense. That’s one thing. The second thing is that Smith has an astonishing theory of crony capitalism which he develops in his own time which we can read directly into our contemporary dilemmas. Let me give you 3 examples: So one of them is the idea of rent-extraction. So if you think of rent extraction is the super competitive, the super normal returns you find in markets because people have managed to use the political system in many cases to engineer for themselves advantage over other people. Not competing in the market place, they are competing in Westminster and Whitehall. I see it every day in my job. Every day I’ve got people partitioning me to do something and they’re not partitioning me to … 99% of the time to, sometimes they are out of a genuine love for their fellow mandate (? Member?) because it can preserve something relevant and they think that’s a good thing, but that’s often what it’s about. So Smith understands rent-extraction and he is excoriating on the question of, whether or not as it were either people should be allowed to get together with each other and form monopolies and cartels, everyone knows that two or three people meet together to find a new scheme to rip-off the public, I paraphrase. But he is also excoriating about the overly close relationship between companies and business. The second thing I am responsible… The second idea that I just think we should focus on of Smith’s which is also remarkably interesting is the idea of asymmetries of information and power. So Smith …Markets are in general … Have you noticed I haven’t mentioned the words invisible hand so far? The reason for this is that Smith has no theory of an invisible hand, the expression occurs exactly once in ‘The Wealth of Nations’. It’s a very interesting idea which we have used to explain Smithian theories of markets. Smith has more than one theory of markets right. Smith has moments where he sounds like Keynes. You know, he understands that markets can get stuck in a rot. He has moments where he sounds like Thorstein Veblen and think about these ‘Veblen Goods’ get more valuable …Whose price rises with the luxury factor of them. So as soon as the price goes up that spurs demand. So Smith is a very subtle theorist of specific markets and he talks about harrowing and land and property and labour and corn and he is really very sophisticated on the standing of markets. So the second idea is asymmetries in information and power. You can get markets in which the insiders have much greater power than the outsiders and much greater capacity therefore to rip-off the outsiders in their own favour. And of course whats so fascinating in those days is that he sees this often in the context of masters and workers so much so that he says ‘Actually, if there is any legislation that prefers the interest of the workers to the interest of the masters that legislation should always be preferred.’ Fascinating, amazing idea from someone in the 1770s and a very egalitarian idea. Smith’s overall idea is a very egalitarian for reasons I can describe, again contrary to the caricature. So the second idea is asymmetries of information and power, where do we see that today? Look at some of the platforms now, Google, Apple, Facebook, and Amazon. They may have tremendous contemporary economic value, but it doesn’t take an enormous leap of imagination to think that asymmetry of information between the insiders and the outsiders could become very value extractive, very quickly. And without a lot of competition they would come into markets where the barrier to enter is extremely high. What you do from a competition policy standpoint of is a really interesting question. The European Union trying to meditate a form of taxation that they can apply to the platforms. There was one in the budget last week. And then finally, thirdly, the idea of a principle agent dilemma. A principle agent problem, so broadly speaking we pay these people to run our companies and then they run off with our money. And he again is very sophisticated on that he describes that in the case of large stock companies and he says it is not to be expected, people running a stock company can have the same level of attention for your wellbeing as you have for your own. So that again is the same problem we find everywhere. That’s three areas. Let me just leave you with one final example which I think is pretty pungent: In 1772 the Douglas Harren bank went spectacularly bust in Edinburgh, in Scotland, taking with it an enormous amount of Scottish capital. Scotland then rather undercapitalized and this has been part of the problem. They set up a bank in order to try and secure more access to capital and then over expanded and then blown up and the Duke of Buccleuch was one of the …had an unlimited liability as a shareholder was very badly affected and Smith spent some time trying to get the Duke out of the very large financial hole  that had been dug as a result. That bank, when it went bust gave Smith a ring-side seat on how the financial markets actually work and he was able to look not merely at the way in which the market for cutting bills of exchange which was the cause of the problem had elaborated but all the sociology and politics that had gone around it as people started to pretend that actually, you know that the growth of the bank was in everyone’s interest, it was a thoroughly good idea to continue and there was no such thing as boom and bust and all the rest of it ok? When the bank went bust he had a perfect case study that he added into ‘The Wealth of Nations’ and what was his result? Contrary to the idea that he was against state interventions, he was perfectly clear that there should be effective, not intrusive but effective regulation and specifically, as he described it, party walls to prevent a more general conflagration. And how we’d wish that our policy makers had not only that in mind but a better understanding of markets when they were supervising or failing to supervise our banking system in the run up to 2008. Thank you very much indeed.

Dr Alan Mendoza: Well there is so much in there Jesse, let me start with a couple of questions and then we will open up the floor and I can’t resist this one seeing as where you ended. Is Gordon Brown Adam Smith’s greatest disciple?

Jesse Norman MP: The joy of Adam Smith is that everyone thinks that Smith has some kind of umbilical connection to their own policies and ideas and there was a moment where Mrs. Thatcher said at the meeting of Scottish conservatives that everyone thinks ‘Thatcherism (?) is new, but it isn’t new at all I got it from Adam Smith and David Hume. ‘ That felt pretty provocative at the time, but no less provocative is that moment when Gordon Brown could barely give a speech in the early 2000s without pointing out that both he and Smith were born on Kirkcaldy. So his line was standardly ‘Coming from Kirkcaldy as I myself did Adam Smith a unique and astonishing genius believed that xyz insert pet (pat?) theory of one’s own…’  And of course you don’t have to be much of a Smith scholar to see that what Gordon Brown thought about Adam Smith and what Adam Smith actually thought are two wide and rather distinct things and you don’t have to believe me but there are plenty of scholarly comments on the topic as well if you’re interested. But they both wanted that authority and in Mrs. Thatcher’s case, she was painting in very bold colours. What she was trying to do is to shake Britain out of what she thought of a kind of corporatist, unionized sludge in the 1970s and in Gordon Brown’s case what he was trying to do is to elaborate a Blairerite third way which mixed a pretty unapologetic reconciliation with markets and in particular the city of London and I would say and under derogatory slightly unintelligent unquestioning acceptance of markets. And a desire to insert markets where markets shouldn’t be put I’ll give you the example of the PFI which I am pleased to say we have now managed to kill after ten years of campaigning for yours truly. And I think he did that unapologetic and also what he wanted was a .. Not a more intrusive but a more pervasive and a more subtly extractive state and I think he thought he could use Smith for both of those things. He creates the idea of the invisible hand being off-set by the helping hand and there is no such suggestion as the helping hand in Smith and smith is not a theorist of the invisible hand so it’s a bit of a bad idea all around. But I mean its as good as a working politician gets if they haven’t done any thinking beforehand.


Dr Alan Mendoza: Now interestingly you picked up on tech companies, which is a very contemporary point. We are ten years on to the financial crisis which in many ways has shaped the climate around capitalism today, much more so than the tech companies. What would Smith have had to say when you think about the banking situation just prior to the financial crash?


Jesse Norman MP: It’s a very interesting question. It’s terribly hard to know what Smith would have said in retrospect and that’s because he is very adept in thinking around different aspects of a subject. You know really interesting people don’t have their ideas come in packages you can’t always tell what the specific judgement will be when they apply a set of ideas to a specific circumstance. What in Burke’s case is so fascinating is that you absolutely can’t predict what he is thinking which is an amazingly rich and interesting mixture and I think smith has something of the same. I would like to think that Smith would only need one fact to know what the problem was and hope I may give you a prop to explain what the problem is. This is a very incompetent description of a bank leverage for the 40 years from 1960 to 2000. So in 1960 bank leverage depth vs equity was 20x, in 1970 it was 20x in 1980 iit was 20x in 1990 it was 20x, in 2000 it was 20x in 2007 it was 50x. That’s the only fact you need to know. And I think if Smith had seen that fact he would have had a simple diagnosis of what the problem was and it’s astonishing. But we also know that this was massively enabled by a kind of mixture of unawareness and overconfidence and foolishness amongst those running the state. Because there is a reason why that 20x number was there and that was broadly speaking that even thou persuasive arguments were made to increase bank leverage there were regulators that were not so much setting rules but applying them and not allowing leverage to go and using maxims rather than gameable as it were roots (routes?). So it was a different style of regulation. After 2000 what happened was the growth in the banks was not merely sensitive to tiny changes in market sentiments because the depth made it that much more equity given (?) and rubbed out by any loss it was also created a suite of institutions that was so large they were in the famous phrase of being too important or too big to fail. So by the time we got to 2008 and the crash the uk banks were operating on an implicit subsidy that is to say the amount of money was castidly keeping them in place in form of this ‘too big to fail’ estimated us between 1500 and 50 billion pounds. Now that’s not small amounts of money, even for Gordon Brown. So it’s worth being aware of the different aspects of that escalation and in-depthness (?)

Dr Alan Mendoza: Great so I’ve got some more, but I’m going to let you come in because I have noticed the time. I’m just going to start with you. If you can please give your name and your affiliation if you have any.

Speaker 1: Andrew Brute (?), no affiliation. If this means all things to all men, can Mr. Corbyn and Mrs. McDonald get anything out of Adam Smith to support their theories?

Jesse Norman MP: Well that depends how scrupulous you want to be about the standards of truth you’re going to apply to a theory. We should be clear that Smith had an enormous impact on Marx and Corbyn as you know is more Trotsky like and therefore is more of an anti-imperialist and that strand of Marxism rather than the economic Marx. But the idea that the stadial view of history is evolving or be it in a materialistic and Hegelian way in Marx comes from a theory of the evolution of society which we find originally in Smith. The idea of alienation of labour, the idea that someone can suffer a mental mutilation by being too tied to their repetitive piece work and that education in smith’s case public education should be a response to that. The idea of alienation you find in Marx. A lot of the understanding of economics is essentially post-Smithian mainstream classical 19th century economics. So I think that there is a strand of anti-colonialism in Smith against the idea of colonies kind of anti deluvian conception of GDP rather than the productive capacity expressed every year through GDP. I think the idea that colonies were a bad thing was something Smith believe very strongly. He believed that the East India Company was essentially a colonial racket. That would find some echoes, I think he was right about that and fascinatingly of course a lot of the later history comes out of that recollection, that understanding. Smith is a very early opponent of the Slave trade and very much believed in human equality and dignity. The rhetoric of a Corbyn is very much about equality and dignity, although I’m not sure how that would actually translate. When the bureaucrats have taken control of the commanding heights of your economy then … And I have spent a lot of time on communist countries giving away medical textbooks to doctors during the latter days of the communist period so I am familiar with that and I can tell you that if you have seen the nomenclature and the party in action you’re never quite as naïve about communism as how some of the people appear to be today. But because he is such an universally, all-consuming and interesting, wide-ranging thinker there would be things for people of every interest and certainly there aren’t any economists that would say they have never been influenced by Smith.

Dr Alan Mendoza: You have written about Smith and Burke. Don’t you find it remarkable that these two men have lived almost contemporary in the 18th century and have not been remotely surpassed in the two centuries since with all the developments that happened? Do you not think that’s incredible?

Jesse Norman MP: Well I’m not sure that whether I think that’s incredible and I don’t think even surpass, because you get to a point of genius where it stops being meaningful to us if this person is a bigger genius or not. And of course as public life …as thought has become more academized, it’s become more specialized, more narrow and more confined into silos and of course the people we really admire, are the people who break out of their silos and are able to think in a really integrated way. I name a lot of people who I think Smith has influenced since then. Kent, Marx, Hayek, Keynes. What is interesting is that we have a pervasive yearning for intellectual authority in our lives. And I think the current contemporary culture wars have rather brought that out. People say ‘Who do you really want to believe in?’ Is there any political figure in any country who I could unhesitatingly believe in? Well I mean that never happens. Who would people say, well in the last 30-40 years? They might say Nelson Mandela, Li Quan Yu and if we look further back they might say Churchill with all his weaknesses or Pit or Abraham Lincoln, who is another great hero of mine. I really think there are quite some great people out there, just in different ways.

Speaker 2: Tony Patterson. I’m reading your book about Burke at the moment and I can see the things you admire him about because he got so many things right about the excessive power of the king, support of the Americans in the war of independence. Got it right about the French Revolution, but he is going on and on against Warren Hastings. Sort of obsessively right into the 90s and he knew it wasn’t going to work and it seemed so out of proportion, so manic about it. And I just wanted to hear about Smith. Is there a strand of Smith where you think he really got it wrong?

Jesse Norman MP: Well it’s a very subtle question whether and how Burke got the attack on Hastings wrong. I mean if you think… In many ways Hastings was a man like Burke, very cultivated and brilliant man who came from a modest background to a position of great eminence. And by all standards a remarkably humane person as well. Everyone was filling their boots in the East India company in the 1760s 70s and 80s. It was a time of astonishing wealth capture. Extractive wealth rather than generative wealth and people were making fortunes there trying to avoid dying, coming back and setting up and exercising a very significant political and economic power when they got back here. So that is true. As a person it is not obvious that it was fair or right of Burke to identify Hastings and to depillar him and embarrass and humiliate him in the way that he did. If you take that view then Hastings got after a lot of pain, ultimately justice. But as a token of a system that was egregiously cruel and in many ways unfair, immoral in its interactions with its Indian hosts. And in many ways embarrassingly betraying the high ideals that the Brits had professed to have, then it’s not so obvious that Burke was wrong about that. What is clear is that Burke in the 1780s kind of …He has a moment where he just runs out of contemporary relevance and becomes rather angry and then you have the French revolution and the events suddenly become so important and moving and bitterly contested that suddenly he looks amazingly relevant again and becomes not merely relevant but absolutely prophetic and achieves and astonishing late celebrity.

Speaker 3: My name is Ian Olsten and I am chairman of the Edmund Burke society and I just wonder if Jesse could say a little bit about how the two met and how they influenced each other?

Jesse Norman MP: Well, it’s a very interesting question. When ‘The Theory of Moral Sentiments’ was published, Smith was in Scotland and he asked …and you’re dealing with an astonishing group of people…I mean in Scotland you got Smith, Hume, Ferguson, Keynes, Hutton I mean an amazing array Thomas Reed I mean an amazing array of brilliant people in the Scottish enlightenment. In London you have Burke, Johnston, Goldsmith, Garric, Eduard Gibbon. It’s like a constellation of intellectual genius in many ways. And so beautifully, Smith asks David Hume to give copies of his new book to anyone who might be of interest and of influence in relation to it and we have the list of people to which Hume distributed the books, it’s a ‘who is who’ of the social-intellectual leaders of the time and astonishingly it includes… at 1759 at the time, that is 6 years before Burke gets into parliament and achieves any public celebrity when he is still the editor of the literary register. Burke is one of the people to whom Hume gives one of the copies of Smith’s work and Burke then reviews it himself very favourably and it looks like he may have reviewed ‘The Wealth of Nations’ and of course Smith joins Dr. Johnston’s club of which Burke was a founding member in 1774. The club was founded in 1763 to try to distract the good doctor from his periodic depression, give him company. By Joshua Reynolds, who is a great friend of his and who is a great friend of Burke’s and together the three of them are really the kind of core of the early founding. There are several other members in there as well, and the genius of it is that it brings Johnston who is an incredibly sophisticated lapidary wit together with Burke who is just an amazing torrent of ideas and so you have this … the roman and the greek coming together and it is this very interesting combinations that they are playing off each other and Johnston was not a man who could really deal much with competition. He liked to be the top dog, he liked to be the biggest talker in any particular area but he has an amazing respect for Burke. So we have to trace around sometime between 1759 and 1774, they probably meet in the 1760, early 1760s and they really become … We don’t know how close they are early one but it’s very clear that by the late 70s and 80s that they are not really intellectually attuned but close as friends and Burke goes to Scotland in order to become the rector of Glasgow university and stays with Smith and they travel around and they go to Loch Lomond and see the sights and you know it’s a very nice moment. So there is a great intellectual affinity between them and I personally have incurred a bit of roth (roff?) from right thinking academics. I see Smith in many ways as small conservative figure, not in a completely burkian kind but…They did disagree on some things and I don’t think Smith has had as much respect for tradition and for property in that traditional landed sense as Burke does. So Smith reject’s primogeniture for example so passing your wealth on to the first born, that’s a very levelling idea. I don’t think Burke was worried about primogeniture, Burke was worried about defending the wig-aristocrats as the great oaks of English society. But there is a tremendous overlap between them and their anger at social injustice and in their belief in a fundamentally in many way egalitarian conception of human society and scope for human freedom and in their hatred of utopian thought, in geometrical thinking and geometrical policy making, in the rationalism of the French revolution. And neither of them espouses any of the great radical causes of the day I mean you know, universal mail suffrage … I think it is fair to say that certainly Burke and Smith too is a small scale conservative figure.

Dr Alan Mendoza: We have time for one last question, does anyone have a last question? If you don’t, I do. You claimed that every economist says that they were influenced by Smith. Based on your understanding of Smith, which economist, you can pick anyone, do you think best reflected Smith’s ideas? Who would you say is Smith’s heir?

Jesse Norman MP: Ok that’s an absolutely impossible question. It’s such an interesting question. But I don’t think Smith has an heir. The intellectual move in the book will be interesting for economists who reflect on these things is that I don’t think its right to see Smith as the inevitable antecedent to what was standard neo-classical economics. I think of him as a much more dynamic thinker and I think it’s really important that those lessons be taken on board. I mean … And I’ll just give a very simple idea, we don’t have a robust understanding in economics at the moment of human preferences. At the moment economists work as thou preferences were fixed, there is no dynamic formation of preferences, there is no changing of preferences over time within models…These are absolutely basic Smithian ideas. The human being is formed in interactions with others. So the idea of a human being as a distinguished individual is a really difficult one to pin down, because Smith’s thought in modern idioms is so webby. So the idea that this is an individual and we are going to give them a utility function, we are going to give them a basket of goods that maps onto their utility function and let them loose in a model. That is a tiny way of capturing the full magnificence of the Smithian view and it’s really important that we open that out and I’d love to think that economists would take this as a challenge and to try and start to expand their view … And they are actually, the best economists think in much more dynamic and energetic ways than they do at the moment.

Dr Alan Mendoza: Well Jesse, absolutely fascinating. For me I think the idea actually of the complementarity of moral sentiments and wealth of nations is a striking one because so often as you stated one of the books is used to sort of chip away at the other in terms of it’s approach. But actually if you take the idea that they sort of explain each other in how markets work that gives you a much more complete understanding of where smith is sat on these issues. And I think that’s a useful thing to take through to the current ages, when we are so polarized with ideas. Everyone claims bits of this agenda. The book are outside, with possibly a signed copy so do head outside, Jesse will gladly sign them. From our perspective, thank you for coming along and explaining the man, his ideas and his contemporary relevance. Thank you, Jesse.


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