The Sunday Telegraph book review: At last the pioneer is freed from the clutches of free-marketeers

The two words, Adam Smith, contain a strange power. Many years ago, I found myself in an African country having what the official communiqués joyfully describe as "a frank discussion" (a monumental row) with a very bright young official from the World Bank who had recently acquired religion. The religious belief in question was a complete (and, in this case, utterly naive) adherence to laissez-faire economics. At a certain point in the conversation, the official produced with a huge flourish the supposedly knock-down argument that the recommendation of the World Bank was just what Adam Smith would have recommended.

She knew what she was doing: in those days of the early Nineties, in certain ill-informed quarters of Washington and such places, these invocations of Adam Smith had much the same effect as invoking Marx in the Soviet Union, or invoking St Paul in the medieval Church.

Jesse Norman has produced an invaluable corrective to this kind of nonsense. He demonstrates conclusively that Adam Smith – although the first economist to put the market at the centre of economic thought – was emphatically "not a believer in laissez faire, if by that is meant the idea that markets should operate entirely independently of the state and with little or no regulation". He shows Smith being "quite clear that markets - and indeed society as a whole - are generally sustained by trust and confidence, and that for these and other things they rely on external institutions, notably of law and government, for their viability".

 While he is at it, Norman pulls down a number of other false shrines. In an intelligent survey of the whole corpus, he comprehensively demolishes the often-repeated suggestion that the views advanced about human conduct in Adam Smith's less well-known scientific, philosophical and jurisprudential works somehow contradict the assumptions about economic behaviour implicit in his great economic treatise on The Wealth of Nations. This doesn't, in point of fact, take much doing.

As Norman very properly points out, the famous reference to the free market being guided towards socially beneficial results by the "invisible hand" (usually taken as the defining characteristic of the supposedly laissez-faire thesis of The Wealth of Nations) is actually used just once, in a highly restricted way, in that text. It is also present in Smith's Theory of Moral Sentiments, where it is used in a far more general way to explain how the rich "in spite of their natural selfishness and rapacity" can, in an appropriate social structure, be "led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society".

In short, the Adam Smith that emerges from Norman's reconstruction is one who recognises with open eyes the selfishness that is the wellspring of much economic activity, and who is optimistic about the ability of the market to direct such individual selfishness to collective social advantage. But Norman's Adam Smith is also one who fully understands that this channelling of selfishness into collective gain will occur only if the market is understood as "a social construct" that does not "always know best" and whose boundaries need to be set by the state and "shaped through social and moral norms" in such a way as to become "a means to generate social value and address social evils".

 On this "more rounded" (and much more faithful) account, Adam Smith ceases to be the high priest of quasi-anarchic laissez faire and becomes instead an advocate of regulated markets in a social order within which, "far from being intrinsically opposed, states and markets rely on and benefit from each other".

As Norman persuasively argues, his Adam Smith would have been on the side of George Osborne's Banking Commission, not on the side of President Trump, when dealing with issues of financial regulation. In direct support of such regulations, Norman's Smith accepts that they "may, no doubt, be considered as in some respect a violation of natural liberty" but adds (in stark contrast to President Trump and in line with the Banking Commission) that "those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society are, and ought to be, restrained by the laws of all governments... The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed". In Norman's limpid commentary, "we can only regret such party walls did not exist in 2008."

 Norman enlists Adam Smith as an ally in a series of causes very foreign to the naive proponents of laissez faire – including an attack on "crony capitalism", support for the role of the state in promoting the "norms and identities" of communities through fiscal and other encouragement, concern for ecological sustainability, and the need for inter-generational fairness. Abandon all hope, you libertarian "disciples" who enter the pages of Norman's interpretation. There is nothing here to celebrate unrestricted capitalism. Rather (and more truthfully) there is an insistence that "Smith's system of thought rests on a recognition of the absolutely fundamental importance of the harmony or interdependence of humans within a society".

It is one of the many merits of this wide-ranging, beautifully written book that it contains its own summaries. So, in an egregious but unashamed example of esprit d'escalier, I wish I could have rattled out to the annoying World Bank official Norman's own summary of the essence of his argument. He tells us that: "the real Smith was not an intellectual turncoat who switched from altruism in The Theory of Moral Sentiments to egoism in The Wealth of Nations.

"He was not a market fundamentalist, an economic libertarian, or in that strong sense a laissez-faire economist. He was not an advocate of selfishness, pro-rich or a misogynist, the creator of homo economicus or the founder of predatory capitalism... In his great project... mutual recognition... generates social and moral norms...[ and] these norms demand the same basic things of us all, wherever and whoever we are: awareness of others, courtesy, open-mindedness, consideration, tolerance and respect." Please, dear reader, bear these words in mind if you ever hear anyone using the phrase "Adam Smith" as a reason for unbridled commercialism.

 It is a cause for rejoicing that we live in a country in which a front-line politician like Jesse Norman has the capacity and the energy to write an important work of revisionist biography with a direct and important impact on the intellectual underpinnings of liberal free-market thought. If we want to be well governed, we need to be governed by people who have the capacity not merely to act but also to think – and Jesse Norman, as this book amply demonstrates, is one of those people.

 

[This article was first published in the Sunday Telegraph on June 30, 2018]