UK: Smith's primer for a free market.

UK: Smith's primer for a free market. - The Wealth of Nations isn't the right-wing manifesto it's thought to be, says Stuart Crainer. Adam Smith talks as much about labour and his conclusions are distinctly humanitarian.

Last Updated: 31 Aug 2010

The Wealth of Nations isn't the right-wing manifesto it's thought to be, says Stuart Crainer. Adam Smith talks as much about labour and his conclusions are distinctly humanitarian.

For a book that is over 200 years old, there is a surprisingly modern-sounding ring to a great deal of Adam Smith's The Wealth of Nations. Take Smith on customer service: 'The pretense that corporations are necessary for the better government of trade is without any foundation. The real and effectual discipline which is exercised over a workman is not that of his corporation, but that of his customers.' W Edwards Deming, the management guru, never put it better.

Alternatively, there is Smith's 18th-century version of achieving a focused workforce: 'Men are much more likely to discover easier and readier methods of attaining any object when the whole attention of their minds is directed towards that single object than when it is dissipated among a great variety of things.' Cut through some of the archaic and dense prose, and timeless advice can be found.

Must-read for politicians

The trouble is that Smith has been hijacked for political purposes. His best-known book has been picked clean. As a result, The Wealth of Nations is usually viewed as a right-wing manifesto, a gloriously logical exposition of the beauty of market forces. Inevitably, this is only partly true.

Published in 1776, The Wealth of Nations is a broad-ranging exploration of commercial and economic first principles. Indeed, Smith is often given credit for the founding of economics as a coherent discipline.

The book had an immediate impact when it was published. It was a best-seller and became a must-read for many politicians. 'We are all your scholars,' prime minister Pitt told Smith. Lord North's budgets of 1777 and 1778 were reputed to be influenced by it.

For those unversed in the basics of economics, The Wealth of Nations remains a useful starting point. Smith lays out the basics with precision.

For example, supply and demand: 'The quantity of every commodity which human industry can either purchase or produce naturally regulates itself in every country according to the effectual demand.' Or career management: 'Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command.'

Key to the text is Smith's argument that the value of a particular product or service is determined by the cost of production. If something is expensive to produce, then its value is similarly high. 'What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our own body ... They contain the value of a certain quantity of labour which we exchange for what is supposed at the time to contain the value of an equal quantity.'

The sceptic will find that, at times, Smith's conclusions are distinctly humanitarian. 'The liberal reward of labour, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth,' he says. 'The scanty maintenance of the labouring poor, on the other hand, is the natural symptom that things are at a standstill, and their starving condition that they are going fast backwards.'

Indeed, Smith talks less about markets than about labour. Within Smith's sizeable intellectual legacy was the concept of the division of labour.

'The division of labour ... occasions in every art, a proportionable increase of the productive powers of labour,' he wrote. 'The separation of different trades and employments from one another seems to have taken place in consequence of this advantage.' This system of demarcation and functional separation provided a basis for the management theorists of the early 20th Century, such as Frederick Taylor, champion of scientific management, and practitioners such as Henry Ford. They translated Smith's thinking into practices in the workplace. They did so in ways and to a scale that Smith could never have imagined.

An intellectual triumph

It is possible to put a spin on many of Smith's ideas. This is to do them a disservice. The Wealth of Nations was the first comprehensive exploration of the foundations and machinations of a free market economy. It was an intellectual triumph, not a manifesto.

Clearly, history puts its own limitations on Smith's theorising. Physical labour is no longer so important. The 20th Century has seen the emergence of management as a profession. Similarly, Smith wrote without knowledge of the power and scope of modern corporations - let alone the power of brand names and customer loyalty. He also wrote in harder times, when self-interest was not a choice but a necessity.

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