BOOK REVIEWS 85

REFERENCES
ASPROMOURGOS, T. (2000) New light on the economics of William Petty (1623–1687): some
findings from previously undisclosed manuscripts. Contrib. Polit. Econ., 19, 53–70.
ASPROMOURGOS, T. (2001) The mind of the oeconomist: an overview of the ‘Petty Papers’ arch-
ive. History Econ. Ideas, 9, 39–101.

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WEINBERG, S. (2015) Eye on the present—the Whig history of science. New York Rev., 62 (no. 20),
82–84.

JESSE NORMAN, Adam Smith: What He Thought and Why it Matters. London, Allen Lane,
2018. pp.400.

Jesse Norman concludes his study of Adam Smith with the confident assertion that:
‘Today, in a world of uncertainty, extremism and misunderstanding, we need Adam
Smith and the wisdom to follow his thought through in its full implications, now more
than ever’. But those who have followed more modern interpretations of Smith could
be forgiven for asking which Adam Smith would turn up to answer the call, the Smith
of the free-market or the Smith of the social market. Neither is Norman’s answer,
rightly dismissing what he describes as the fad for selective interpretation of Smith.
Norman has both assessed Smith’s contribution in its contemporary setting, and
then applied Smith’s thinking to the word today. In doing so, he has very helpfully re-
set Smith’s position in economics. Smith is a theorist of industrialisation and thus eco-
nomic growth, and nor was he a free market ideologue, but it is important to under-
stand why not in both cases. Rather, he set out the framework for ‘commercial society’
thereby illustrating something that was evolving in the 18th century at a much faster
rate than at any time before. It is through this lens that it is more straightforward to
integrate Smith’s two major works, The Theory of Moral Sentiments and The Wealth
of Nations, and to understand the largely missing link of the Lectures on Jurisprudence.
At the heart of Smith’s view of commerce was the belief that markets and society are
sustained by trust and confidence, and that underpinning these features needs to be moral
behaviour by participants. Thus, a more market-based system creates social and moral
obligations of a different sort to those seen in a system based on deference. The exposition
of rational self-interest was not novel to the 18th century, and has roots at least back to
Aquinas in the 13th century, but Smith was an important part of the 18th century intellec-
tual movement, including Hume, Voltaire, Montesquieu and others, which set out an eth-
ical approach to commercial society, embodying the rule of law. The framework was one
in which people are assumed to wish to be virtuous, but that to achieve this outcome
requires a moral consensus or sentiment, something that Deirdre McCloskey has
described as social stability through the co-existence of individual and societal ethics.1
1
Deirdre N McCloskey. ‘The Borgeois Virtues: Ethics for an Age of Commerce’, University of Chicago
Press, 2007, P158.
86 BOOK REVIEWS

Moreover, Smith was clear that such a sentiment has to overcome inherent tensions, not-
ing in The Wealth of Nations that the business interest is always different from, and even
opposite to, that of the public. It is welcome that Norman has used this type of insight
from Smith to describe his contemporary relevance. Smith was clear that self-interested
individual behaviour can have positive consequences for society, but that the common

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good (or what we would now call the public interest) should outweigh private interests.
Smith was not an advocate of raw private interest. But, any study of Smith has to
confront what can appear to be the missing state. Norman takes this challenge head
on, and makes clear that this is not because Smith rejected the role of the state.
Rather, it arises from the missing third leg of his work, enough of which can be recre-
ated from what is known about his lectures on jurisprudence. Smith was clear that
ethics and moral sentiment underpin the concepts of law and rights. Thus, he devel-
oped in the lectures a theory of justice and government which underpinned commer-
cial society, making clear that property and civil government very much depend on
one another. Norman sets out how Smith saw the four goals of every system of law.
‘The Maintenance of Justice: the orderly administration of government, in particu-
lar to promote opulence or wealth-creation; the raising of public revenue; and the
management of arms to defend the state. But of these the idea of justice, analogous
to the idea of sympathy in the Theory [of Moral Sentiments], is the most fundamen-
tal, for without justice there can be no social order.’ (p67).
Smith emphasised the need for the state to define and defend property rights but
equally he deplored governments that arrested the progress of society, particularly by
aiding monopoly power. Smith’s assault on the protectionism inherent in the mer-
cantilist view of the world remains, as Norman emphasises, as relevant as ever today.
While the theory of comparative advantage was formalised later by Ricardo, Smith
pointed the way to the mistakes of opposing free trade and open markets.
For all that, Smith was not, as Norman points out, a theorist of industrialisation.
This important comment needs to be explained with more context than Norman pro-
vides, not least because it is reasonable to counter that by describing the role of the div-
ision of labour in his famous example of the pin factory, Smith set out the basis for
understanding the role of productivity in an industrial setting. As Robert Lucas has
pointed out, the classical economists, of whom Smith was in many ways the first, did
not conceive of sustained economic growth, and while they were aware of the import-
ance of physical and capital accumulation it was not until the 20th century that a true
modern theory of growth which embodied technological change and rising per capita
incomes emerged2. For Smith, the focus was more on income levels than growth rates.
But that is not to diminish Smith’s contribution for failure to anticipate develop-
ments in thinking of much more than a century later. What Smith did contribute to
in important ways is at least three key elements of a modernising economy. First, the
embedding of a market ideology which created important conditions for innovation

2
Robert E. Lucas, Jr, ‘The Industrial Revolution: Past And Future’: in Lucas Lectures on Economic
Growth, Harvard University Press, 2002.
 BOOK REVIEWS 87

and cumulative technological change, consistent with his example of the pin factory.
Second, in so doing, he set out a theory of the value of labour which envisaged the
creation of surplus value by labour in the production of goods, thus enabling an
expansion of exchange (trade) and mutual economic dependence (which required a
moral and legal basis). And third, he made decisive progress in explaining how trade

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enables specialisation, an important foundation for modern, growth theory. Smith’s
contribution to economics was fundamental but it does need careful explanation.
But Smith did not stop here. A fourth major contribution which falls more into the
scope of political economy in its modern sense, is that with specialisation, the exchange
of goods, and surplus value, goes rent seeking. Norman applies this powerfully to the
contemporary setting. In doing so, he draws out that Smith wrote in terms of goods
markets and that there were intrinsic conflicts between public and private interest. Rent-
seeking was part of these clashes and reflected asymmetrics of power between market
participants. Norman draws out the modern context where both goods and financial
markets exist. He makes the point that financial markets help to define and value prop-
erty rights, consistent with Smith’s thinking, but are in important respects different from
the goods markets that Smith described. Norman goes on to describe how we live today
in a world of anger with corporations and capitalism neither a term that Smith used or
was familiar with in the 18th century economy. Norman observes that restoring a moral
public interest, a very Smithian concept, with key roles for both markets and the state, is
a critical part of a new ‘master narrative’. States and their institutions need to be resili-
ent, as Smith envisaged, and property rights need to be well defined but without sacri-
ficing the priority of concern for the poor and vulnerable. At the heart of this is morality
and trust, the latter being one of the more difficult concepts that modern philosophers
have sought to assess. And, perhaps most important political economy is a term that has
real meaning. As Norman asserts, we need Smith’s thinking more than ever.
Fortunately, and to his credit, Jesse Norman has given us the full Adam Smith.

ANDREW BAILEY
UK Financial Conduct Authority

doi:10.1093/cpe/bzz002
Advance Access Publication May 25, 2019

DIETER PLEHWE, MORITZ NEUJEFFSKI, STEPHEN MCBRIDE and

BRYAN EVANS, Austerity, 12 myths exposed. Falkensee, SE Publishing, 2019, xxiii +85.
ASIN: B07NSZHFF7

This book (offered as a free download at www.socialeurope.eu by the German digital

media publisher Social Europe—SE) provides the reader with a collection of 12 short