Adam Smith's Legacy: His Place in the Development of Modern Economics.

This book originated in a conference held in Edinburgh in July, 1990, to mark the bicentenary of Adam Smith's death. Eleven laureates participated, "the largest number of Nobel laureates in economic science," we are told in the Foreword, brought together "since the prize was instituted in 1969." Not all eleven attended the conference. Paul Samuelson later sent in his paper, Sir Richard Stone's paper was read for him, and Jan Timburgen's paper was read by another laureate, James Mead, who did not offer a paper. Thus, of the ten papers printed in this volume, seven are by laureates who attended the conference and the eighth was read by a laureate who did not offer a paper. The editor of the volume, Michael Fry, was the organizing secretary of the Adam Smith Bicentenary.

We are told in the Foreword that participants were asked to prepare papers which had one of three objectives. The first was "to look again at The Wealth of Nations from today's perspective." Not surprisingly, none of the contributors tried to cover the whole of the great book but rather limited themselves to those segments which fall within the author's expertise. Thus, Paul Samuelson in his essay, "The Overdue Recovery of Adam Smith's Reputation as an Economic Theorist," argues that Smith has gotten a "bum rap" from his successors who have generally felt that David Ricardo was by far the better theorist. Samuelson's argument is that if we adopt the right premises and use the most up-to-date economic analysis Adam Smith's conclusions are shown to be more tenable than Ricardo's.

Laurence Klein, in "Smith's Use of Data", considers whether Smith is to be faulted for being unaware of the existence of business cycles and concludes both from historical studies which he cites as well as his own statistical analysis of the best data available that "there is little evidence that Adam Smith should have been able to observe business cycles in his lifetime." Maurice Allais, argues that "the fundamental concepts underlying the analysis of Adam Smith ... correspond to an underlying model, which is actually the one [Allais has] elaborated since 1943, the model of the economy of markets, founded on the general theory of surpluses."

Richard Stone considers Smith's views on economic policy, a subject that can be, and often is, politicized. In fact, the editor could not resist the temptation to relate Smith's views to Britain's imposition of a poll tax in recent times, even though Stone did not refer to this in his paper. What Stone does is to give us a very fine and straight-forward summary of Smith's views. What stands out in his summary is Smith's pragmatic orientation. Like everyone else, Smith had to rely on generalizations, but one gets the impression from Stone that it was the observation of details that not only led to the qualification of generalizations but formed the basis of the generalizations themselves.

The objective of the second group of papers, which in the program presented in Edinburgh were given in a second session but in the book are not marked off by any separate heading, was (ostensibly) to show modern applications of Smith's analysis. The first paper by Franco Modigliani, titled "On the Wealth of Nations", actually deals with the determinants of savings; the author admits that his title is misleading because the "wealth" in the title refers to the stock of national net worth and not, as in Smith, the flow of annual produce. What Smith had to say on this score is covered in two pages in The Wealth of Nations and in a few lines in Modigliani's piece. Modigliani's article is concerned with J. M. Keynes's views on saving and the evolution of these views into the life-cycle model. Modigliani is primarily concerned not with showing a modern application of Smith's analysis but rather with pointing up deficiencies in The Wealth of Nations which have since been rectified (by Modigliani as well as others). Next, James Buchanan, in "The Supply of Labor and the Extent of the Market", very ingeniously puts to work Smith's notion that the division of labor is limited by the extent of the market. He argues that it should be possible to realize gains not only by removing external restraints, thereby creating external increases in market size, but also by increasing labor input via fostering a work ethic, thereby creating internal increases in market size. James Tobin, in "The Invisible Hand in Modern Macroeconomics," shows in what sense the new classical macroeconomics and the real business cycle theory are related to Smith's great idea about the "invisible hand," and he wonders what Smith's reaction to these developments might have been. Theodore Schultze in "Adam Smith and Human Capital" points out the links between his own life's work in this area and ideas first presented by Smith. He observes how much this area has expanded in importance since Smith's time and expresses the view that economists "have not been bold in coming to grips with investment in human beings." Part of the problem, Schultze tells us, is that "our new analytic cupboards are bare on thinking by economists about institutions."

Under the third objective, which was to show "the condition of modern economics," Wassily Leontief argues that the state of economics has declined since the time of Adam Smith. The reason for this, he tells us, is that economists for the most part concern themselves with highly abstract models without being concerned with the empirical interpretation of the mathematical symbols used in the models. He suggests that this situation is not likely to change until the government collects more extensive data on the detailed workings of the economy. Jan Timburgen, in the final piece in the volume, cautions that his views are subjective, limited as they are by his knowledge of the whole field. He tries to relate economics to other sciences, to point to some important results in economic inquiry achieved since Smith's time, and suggests some of the major questions to which economists must attempt to find answers if the science is to remain a constructive force.

In the Foreword the editor tells us that "[n]o less memorable [than the presentation of the laureates] was the collective participation of the audience ... [d]rawn from thirty countries representing all continents" and ranging from "professors of economics through politicians, company chairmen, central bankers and journalists to schoolteachers and students." He goes on to say that "[th]ough at the conference we were on the whole spared attempts by ideologues to hijack Smith for their own causes," as is evident from reading the papers, the laureates "yielded to nobody in their ability to fan the flames of controversy." This is puzzling. It sounds like there was a good bit of discussion as part of the proceeding since few if any of the papers are particularly controversial nor, from the published papers, does it appear as if Smith's legacy was energetically disputed. If there had indeed been such discussion, which was withheld from this volume, this is unfortunate because the most interesting aspect of this volume are the questions which some of the papers raise. For example, Samuelson's thesis about Smith as theorist rests upon a notion of what constitutes the theory component of an economist's contribution, which some historians of economics would surely question. Or consider the question of whether the lifecycle hypothesis shows a lack in Smith's notions about saving, considering Smith's interest in this matter, or whether it is the growth in interest of economists into areas in which Smith had little concern (which, as Tobin shows in his paper, was understandable considering the fact that cyclical instability had not yet arisen in Smith's time). Or again consider Klein's underlying presumption that if business cycles had existed in Smith's time and he had not been aware of them this would have a beating on his standing as a great economist. This is surely a notion that everyone can accept, and yet the idea that an economist is to be judged on whether he concerns himself with significant problems of his time runs counter to mainstream economic methodology. This paradox would have been worth considering.

One could go on noting such questions, but this is hardly necessary. I cite the examples merely to suggest that the planners of the volume missed an opportunity to make the volume far more interesting than it is. The individual essays by themselves, written by so distinguished a group of contributors, are competently done. But taken together, they do not add up to a very interesting volume. One does not learn very much from it that is new about Adam Smith, or about the present state of economics, or even about the Nobel laureates. The final impression one gets is that the idea for the conference may have been a good one and those who want a record of this event will want to buy the volume that resulted from it, but I do not think that it is the sort of work most scholars will want to add to their collections.

Abraham Hirsch Brooklyn College, Emeritus