Did Adam Smith Retard the Development of Economic Analysis?: A Critique of Murray Rothbard's Interpretation

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In the first volume of a two-volume work, An Austrian Perspective on the History of Economic Thought (1995), Murray N. Rothbard attempts to make the case that Adam Smith perverted the development of sound economic analysis by failing to advance valid extant theories of value, money, and income distribution. According to Rothbard, most of those ideas had been developed by the Scholastics but were little known to the English-speaking world until recently "simply because [they] had not been translated into English" from Latin (xi). He believes the ideas were "proto-Austrian," which is why their later discovery naturally has had to fall to the modern Austrian School, which he regards as "the major challenge to the Smith-Ricardo" tradition of modern economics (xiii).

Rothbard develops the specifics of his criticisms of Smith in chapters 16 and 17, where he claims there does not exist in The Wealth of Nations any consistent cost or relative-scarcity theory of value, let alone the concept of subjective valuation of objects by individuals. For Smith, profits are not payments for entrepreneurship, claims Rothbard, nor is Smith clear on whether rents enter into the determination of prices or prices into the determination of rents. According to Rothbard, Smith also does not recognize the money-supply-and-demand theory of the price level as argued by David Hume; nor does Smith include Hume's familiar price-specie-flow model of international price adjustments. Rothbard also faults Smith for not having been a consistent advocate of laissez-faire policies, alleging that Smith advocated various forms of state intervention in the economy, including the establishment of a government post office, and that he supported rigid usury laws. His overall assessment of Smith's scholarship is that Smith "originated nothing that was true, and whatever he originated was wrong; that [Smith] was a shameless plagiarist, acknowledging little or nothing and stealing large chunks, for example, from Cantillon" (435). Rothbard thus wants to awaken the economics profession to the truth about Smith's scholarship and to identify the Scholastics, Richard Cantillon, A. R. J. Turgot, and the Austrians as the true developers of what is good economics.

Rothbard may well have made a worthwhile contribution to the history of economic thought by drawing more attention to pre-Smithian economic theorists. And, of course, not every one of Smith's arguments in The Wealth of Nations is beyond valid criticism. Indeed, David Ricardo, in the preface to his Principles, for example, explained that it was to "advert to those passages in the writings of Adam Smith from which he sees reason to differ" (6), particularly with respect to the laws that regulate the "course of rent, profit, and wages" (5), that he was writing. But there is little evidence in Rothbard's book to justify the serious charges he levels against Smith. Rather, most of the claims are misrepresentations of Smith's arguments in The Wealth of Nations. Others derive from errors in Rothbard's own analysis. I illustrate these points with direct quotations from The Wealth of Nations, to which Rothbard refers but without providing specific pages where his claims may be verified. I also refer to some other sources in which more accurate evaluations of Smith's work may be found. I conclude that it is Rothbard who distorts Smithian scholarship by his arguments, and not Smith who is liable to the charge of having seriously perverted the development of sound economic analysis.

These days, when the study of the history of economic thought is fast disappearing from the curriculum of most economics students, misrepresentations such as Rothbard's appear to warrant the more extensive correction that some reviewers could only hint at (e.g., Lowry 1996). My reexamination of Smith's work also contradicts some concessions made to Rothbard by Paul B. Trescott (1995), including that "Smith's distinction between productive and unproductive labor is appropriately condemned" (319), "Smith helped perpetuate a materialistic fallacy that persisted into recent development theory and toyed too much with the labor theory of value" (320), and "Rothbard rightly notes that Smith failed to identify any useful services provided by landlord and capitalist which would justify their shares of income" (321). …