Who’s Afraid of Adam Smith? How the Market Got Its Soul! by Peter J. Dougherty, the publisher and senior economics editor of Princeton University Press, is several books rolled into one. Some of them work better than others.


It is strongest as an economics primer cum publishing memoir, weaving a history of modern economic theory and practice from the era of Adam Smith onward with some of the author’s own experiences in the field. These experiences include a range of luminaries he has met, work he has published, speeches he has heard and conferences he has attended. Dougherty brings us along on the journey and at the same time takes us back through several centuries of economic and philosophical progress: It’s not always smooth, not always pretty, but usually interesting and almost always wittily related.


The Importance of Social Capital

We know Adam Smith largely for The Wealth of Nations and “The Invisible Hand,” the book and the metaphor with which Free Marketers and Libertarians are constantly trying to beat back any and all market intervention – not always what Smith would have wanted, Dougherty tells us. The Smithite strain of the book under review, however, is fractured into more than one vein, one part of which might have more logically been subtitled: The Adam Smith Nobody Knows. A good part of what Dougherty focuses on is Smith’s first, but somewhat lesser known treatise: A Theory of Moral Sentiments. 


It is his reading of Smith’s first book, as well as a more thorough and nuanced analysis of The Wealth of Nations, that leads Dougherty to put Smith, somewhat surprisingly, in line with such recent social critics as Robert Putnam, the author of Bowling Alone, in arguing the importance of social capital.


Dougherty’s chief ideological point all the way through is that economists can be an important source of fresh, market-based ways of generating social capital – of attacking poverty, for example – without resorting to what laissez faire economists see as the failed big government approaches of the past. 


As he puts it: “Though we tend to associate financial engineering with stocks, bonds, and the various exotica of the investment business, policy journals are brimming these days with news of the creation of new kinds of assets for the working class and the underprivileged. Among these instruments are: individual housing accounts for poor families; individual savings accounts for the working poor, modeled on middle-class investment plans; innovative educational and medical accounts for working families; shared ownership of public utilities for local communities; futures markets for the value of homes, jobs, cities, and even countries; and all manner of new asset-based policy innovation.”


Dougherty goes on: “Contrary to earlier government-administered welfare-state programs, such as the notorious high-rise rental housing projects that pocked the urban landscape of the 1960’s, and consistent with Adam Smith’s insistence on the strategic delivery of public services, these new financial innovations are designed to create property ownership for their constituents without adding wasteful and corrupt bureaucracy to the public purse.”


At its core, this resonates with President Bush’s admonishment that what we need to do is expand the economy – not terribly different from what President Clinton recommended, of course. The question is always by what method and for whom.


“The new breed of public economists,” Dougherty tells us, “always keeps one eye on the greater service of economic growth in the design of public enterprise – growth that is not to be confused with the redistribution of wealth, which was the overriding economic goal of many an old public program. The lesson is: Growth expands the economic pie.  Socially, it pays larger long-term residuals by bringing into the mainstream people who are on the economic fringe.”


The rhetoric here is hard to dispute. Growth is almost always good – with a caveat to be dealt with below – but numbers have a notorious plasticity. We look back on the boom of the 1990s through the lens of our personal politics, even as the numbers are revised. As for the idea of a rising tide lifting all boats, suffice it to say that it does not lift the boatless. And, without wading into the bog of numbers, we would do well to pay attention to conservative commentator Kevin Philips who has taken to warning lately that we currently face a situation in which income inequality in America is rapidly returning to ratios not seen since the Gilded Age.


The Tragedy of the Commons

As to areas in which growth is not necessarily a panacea, particularly useful here is biologist Garrett Hardin’s 1968 essay, “The Tragedy of the Commons,” which resonates ever more powerfully as we debate global environmental issues and questions of regulation. In the analogy from which the essay takes its title, Hardin posits a commons on which a number of herdsmen pasture their animals. Absent regulation, he asks, what is likely to happen? If I am one of those herdsmen I have a huge incentive to add to my own herd. After all, for every animal I add, I keep 100% of the profit, but the degradation of the commons is shared with my partners: Privatize the profit; socialize the loss. Once one of the herdsmen does this, the pressure on the others to do the same increases – since the herdsman with more animals can undersell his competitors. Absent an agreement, the inevitable result is the destruction of the commons. 


The oceans represent just one contemporary example of Hardin’s commons writ large – and one that he wrote about in his original essay. Today, a majority of the world’s major fishing grounds have either been fished to exhaustion or to the brink of exhaustion. Just 30 years ago we were told that there were enough fish in the sea to feed the world in perpetuity, to solve the problem of global hunger. Not so, it seems. 


Could a system of trading fishing rights – a market-based solution – have solved this problem? Could it solve it yet? Perhaps. So far, however, the relentless pursuit of Smithian self-interest on the high seas has resulted in a world pocked with fish-free zones. This sort of upbeat free market rhetoric rings hollow in empty bellies and quiet harbors. 


Why Editors Need Editors

Just as some of the larger strands of the book are a bit more tangled than they might have been, there are a few places where Dougherty hits somewhat tinny notes, as when he quotes Michael Milken and identifies him as “a world-class champion of freedom from big government.” Surely we know Milken for less august accomplishments. Or when – in the context of discussing corporate restructuring – he says, “America not only recovered its industrial footing but experienced the greatest decade of prosperity in its recent history.” Given the steady export of industry from the United States, this is a poor choice of words. Towards the end of the book, he mentions scholars changing planes in the “Keynesian Cambridge [Massachusetts] of [M.I.T. economist] Paul Samuelson.” Cambridge doesn’t have an airport.  And – even for the sake of easy metaphor, and however often it may happen – Bostonians have never taken lightly to having their city conjoined with another.


These issues, large and small, point to why even – perhaps especially – editors need editors.


An Unexplored Side of Smith’s Legacy

Dougherty makes a compelling case for Adam Smith’s humanity and for the sincerity of the intentions of the classical liberal economists who followed in Smith’s footsteps. The same cannot always be said for the politicians who use these theorists as cover for policies which seem simply to serve the interests of their own constituencies. In that sense, the book is a better history than it is a polemic: It will not likely change many people’s minds. Those predisposed to agree that markets have wrought positive change will see those changes; those not so disposed will dismiss those changes or see them as negative. The same may be said looking forward. 


That noted, those who have heretofore only seen Adam Smith as the cudgel used by free market ideologues against any and all market intervention will have been shown an important, under-explored side of his work.


Dougherty has written an interesting, valuable, and layered book that gives us a rich new perspective on Adam Smith and the profession that he did so much to define.