On Adam Smith's Digression Appended to His Chapter on Bounties in the Wealth of Nations: A Window onto His Approach to Political Economy

Article excerpt

Abstract: In this paper it is contended that the 'Digression Concerning The Corn Trade And Corn Laws' appended to Adam Smith's chapter 'Of Bounties' in The Wealth of Nations is an instructive illustration of the author's approach to economic analysis. It is shown how Smith analysed the market in its complexity and that such analysis provided a material insight into the market's operations over time. The passage of time is an integral part of the analysis and hence the 'Digression' also develops considerations of the significant role played by risk and expectations in both the domestic and international corn markets. It is further argued that the approach to economic analysis exhibited in the 'Digression' is entirely consistent with the scientific method Smith developed early in his career and held to its end.

1 Introduction

Adam Smith appended a 'Digression Concerning The Corn Trade And Corn Laws' to Chapter V 'Of Bounties', Book IV of his The Wealth of Nations. While its subject was to remain an important matter of economic policy debates in the British Isles for most of the nineteenth century, this 'Digression' is also of interest in that it nicely illustrates much of the author's approach to economic analysis and, in particular, that of the market phenomena of supply and demand. It also addresses issues concerning the market-stabilising role of the speculator, both temporally and spatially, that have concerned contemporary economists, a role that has been challenged by Amartya Sen's theory of famines (Sen 1981; O'Grada 2002, p. 17).

In this paper attention is drawn to Smith's rich and complex representation of the corn market in the 'Digression' and it is suggested that this is the manner in which Smith portrays markets generally. In particular, the following discussion of the 'Digression' re-emphasises a point made by some of the better historians of economic thought from Jacob Viner to Donald Winch to Emma Rothschild--but rarely, if at all, by modem orthodox economists and ideologically-driven journalists; namely, that Smith's understanding of a market is very different from the simplistic and highly abstract 'demand and supply' representations that dominate modem undergraduate textbooks. Given that modem protagonists still bend and reshape Smith's writings to gain leverage in the debates that dominate the present, especially in those debates that came in the wake of the recent financial crisis, it is a point that cannot be too often repeated. In section two, Smith's representation of the corn market in the 'Digression' is reviewed. In section three it is shown that his nuanced and complex representation of both the corn market and markets in general is entirely consistent with Smith's philosophy of science. Finally, attention is drawn to how the 'Digression' ties consideration of the functioning of the market to one of his principal preoccupations: political freedom and security and their roles as drivers for the economic progress of nations.

2 Smith's Representation of the Corn Market in the Digression

Smith commences a 'Digression Concerning The Corn Trade And Corn Laws' with an exposition of the process of the supply of corn to the domestic market from domestic sources; from the 'inland dealers in corn ... including both the farmer and the baker', together with the corn merchant (Smith 1981, Vol. I, p. 526). His analysis is consequently of the market for the commodity corn as it was supplied in all its manifestations to meet the demand of consumers. As he noted, this was by far and away the largest market in the contemporary economy so the subject he was addressing was of considerable significance from his perspective (loc. cit.).

The corn market that Smith viewed is seasonal with an obvious and significant period between one quantum of supply and the next. The available corn must in effect be rationed over the period between seasonal supplies so that through that period its demand and supply are matched. …