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“In the Heat of Writing”:
Polemics and the “Error of Adam Smith” in the Matter of the Corn Bounty
(August, 2005)
Glenn Hueckel
Department of Economics
PomonaCollege
Claremont, California 91711
E-mail:
Abstract
The empirical content of Smith’s attack on the mercantile system rests on the denial of the “popular notion” that, as national wealth is associated with the accumulation of specie, so inflation is a consequence of economic growth. Smith insisted on the contrary: growth in the face of a constant specie stock must produce a falling price level. But his data revealed a contradiction: the corn price rose over the 17th century. The anomaly is explained by appeal to the corn bounty: subsidized export, not economic advance, was the source of the observed rise in the corn price. But Smith’s defense carried no weight with his opponents, all of whom insisted that the bounty-induced stimulus to agriculture served to reduce grain prices.
To refute that claim, Smith derived from his larger theory of economic growth the principle that “the money price of corn regulates that of all other commodities.” Armed with this maxim, Smith could conclude that the corn export bounty produced no more than a rise in the general price level. Paradoxical though it may seem, Smith’s claim that corn production is uniquely immune to policy favors can be seen to be consistent with his larger system so long as it is restricted to the narrowly static framework within which it is defined.
Nevertheless, if subsidized exports produce no output response, then how can they be said to “force the trade of a country into a channel much less advantageous than that in which it would naturally run”? Further, what is the benefit of a free grain export in such a system? An inclination to press his case too far vitiated the polemical force of Smith’s argument by opening inconsistencies to be exploited by his opponents and creating a phantom “error” that would later deflect the course of Ricardo’s value theory.
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“In the Heat of Writing”:
Polemics and the “Error of Adam Smith” in the Matter of the Corn Bounty
Glenn Hueckel
The recognition that economic theory has indeed progressed should not be allowed to obscure the highly uneven rate of improvement which has typified the history of analytical progress in economics. General insights into the pure logic of the price system make their appearance embedded in a particular theoretical framework associated with the conditions and problems peculiar to the times. … Propaganda and ideology are always there, but so is the discipline exerted by rules of scientific procedure built into economics by generations of practitioners: economics is forever catching up with the biases of yesterday (Blaug 1997b, 4 and 6).
I. Paradox
“The nature of things has stamped upon corn a real value that no human institution can alter”; so wrote Adam Smith in his famous attack on the corn bounty (WN, ed. 1, IV.v.a.23), forming, thereby, a “paradox” that has bedeviled his intellectual heirs for generations.[1] As Samuel Hollander put the question, how is it that so “sophisticated” an economist as Smith seems to have “neglected all the lessons that he himself had tried to expound” when he took up the question of the corn bounty? “To deny the possibility of raising the relative profitability of agriculture by appropriate intervention is an extraordinary contention,” particularly when that denial of the power of a corn export subsidy to stimulate grain production comes from an author whose exposition of the resource allocative function of the price mechanism is widely viewed as exhibiting a “remarkable artistry” (1992, 84–85 and 322–23).
The discovery of yet another internal contradiction in Smith’s work has, of course, long since lost the capacity to surprise his readers. Indeed, a flourishing cottage industry has arisen in Smith scholarship in which the various inconsistencies tucked away in his pages are searched out and lovingly dissected.[2] Nevertheless, while there can no longer be any doubt as to the presence of such conflicts in Smith’s work, the evaluative weight we are to assign them remains a matter of uncertainty. Some would diminish that weight on the ground that “consistency was never the central aim or virtue of eighteenth-century writers, especially of the Scottish sociological school. It certainly was not then the ark of the covenant that it is for our analysis-ridden age.” By this reading Smith and his intellectual compatriots “were more concerned with giving a broad well balanced comprehensive picture seen from different points of view than with logical rigour” (Macfie 1967, 22 and 126). Having now been well schooled by Blaug ([1990] 1997; 1999) in the importance of the distinction between “rational” and “historical reconstructions” of ancient texts, we can acknowledge the value of Macfie’s warning that to apply modern standards of argument to the intellectual structures of the past is to fall into the error of anachronism.
Yet, try as we might to minimize the significance of Smith’s occasionally troubling lapses, those internal contradictions carry undeniable consequences for the clarity and persuasive power of his argument. Though choosing to apply an apparently dismissive tone in describing those lapses as a “conspicuous lack of that species of small-mindedness which makes a virtue of consistency,” Coats (1975, 218) nevertheless cites this particular characteristic as among those “features of Smith’s style and mode of presentation [that] make it virtually impossible to determine the precise meaning and significance of his ideas.” Nor is it just within “our analysis ridden age” that the apparent inconsistencies in Smith’s discourse have commanded attention. As Hollander (1997, 772) has observed elsewhere with regard to the particular policy matter at hand, Smith’s “irresponsibly rigid theorizing in the context of the Corn Export Bounty” offered a point of attack exploited by the two major criticisms of his work published during his lifetime—those of James Anderson ([1777] 1968) and Thomas Pownall ([1776] 1987). On those points where his analysis touched upon matters of current controversy, Smith’s contemporaries were neither blind to apparent contridictions in his argument nor were they prepared to overlook them, though no doubt many, in agreement with one of Anderson’s reviewers, would have seen them as no more than excusable error, Smith having, perhaps “through inadvertency, ... advanced arguments in one part of such a long work that are contradicted by his reasoning in other parts of it” (Anon. 1778, 365).
But the consequences of Smith’s peculiar claims regarding the corn bounty extended beyond their risk to the power of his own argument to persuade his readers. To the extent that his fame prompted an uncritical acceptance of those claims, they sowed the seeds of error that would deflect the course of analytical advance undertaken by the generation to follow him. Smith’s principle that the bounty can produce no change in the relative price of grain and thus no stimulus to grain output rested upon his conclusion that “the money price of corn regulates that of all other commodities.” As we will see below, within the narrowly static confines of Smith’s argument, a bounty-inducedrise in the money price of corn is wholly passed through to money wages and thence to all other product prices. By this reasoning Smith insisted that the bounty could produce no more than a purely nominal shock: “The real effect of the bounty is not so much to raise the real value of corn, as to degrade the real value of silver; or to make an equal quantity of it exchange for a smaller quantity, not only of corn, but of all other commodities” (WN, ed.1, IV.v.a.11).
Now, it has been a staple of Ricardian commentary dating back to Jacob Hollander that Smith’s principle of the “regulating” character of the corn price constituted a “vulnerable point in [Ricardo’s] theory of the inverse relation between wages and profits,” it being “impossible to prove that a rise in wages was the exclusive cause of a fall in profits if it were true that a rise in wages necessarily occasioned a rise in prices” (Hollander [1910] 1968, 83; cf. Sraffa, “Introduction” to Ricardo1951-73, I, xxxiii-xxxiv). This reading has survived the changing fashions of Ricardian commentary right down to Samuel Hollander’s massive reevaluation of Ricardo’s economics. Like his earlier namesake, the more recent Hollander identifies as Ricardo’s “fundamental conception” that inverse relationship between movements in real wage and profit rates, a principle that necessarily rests upon the presumption that “capitalists are unable to pass on increased wage costs in the form of generally higher prices” and which, further, is to be understood as having been “initially formulated as a direct challenge to received doctrine based upon Adam Smith’s analysis whereby wage rate increases are passed on by capitalists” (Hollander 1979, 7).
It is true that Hollander’s reassessment of the earlier Sraffian vision of Ricardo’s system has come under vigorous attack (see Peach 1993, chap. 1 for a brief survey of the issues and protagonists), but all parties are agreed that Smith’s “regulating” corn price provided the historical counterpoint prompting Ricardo’s tortured journey into the mysteries of price determination, leading ultimately to his flirtation with a labor theory of value. Nor should this agreement come as a surprise for we have as our guide Ricardo’s own words in letters to James Mill, Malthus, and McCulloch written in the midst of his struggle to compose the opening chapters of his Principles. It is in these letters where we first find him grappling with the problem posed for his own theory by “those who maintain that an alteration in the value of corn will alter the value of all other things.” Such a view, which Ricardo himself had earlier held, could no longer be accepted since it denied the “invariability of the value of the precious metals,” which principle “is the sheet anchor on which all [his] propositions are built” (30 Dec. 1815, Ricardo 1951-73, VI, 348-9). That he understood this objectionable doctrine to derive from Smith is evident from his comment to McCulloch regarding the latter’s Essay on the Question of Reducing the Interest of the National Debt: “Your system proceeds upon the supposition that the price of corn regulates the price of all other things ... —but this I hold to be an erroneous system, although you have great authorities in your favour, no less than Adam Smith, Mr. Malthus, and M. Say” (4 Dec. 1816, Ricardo 1951-73, VII, 105).[3] Ricardo continued to confront that “erroneous system” for the remainder of his life, the whole of chapter 22 of his Principles being devoted to a criticism of Smith’s bounty claims and giving special attention to this “error of Adam Smith,” which underlay those claims, and noting its subsequent recurrence in the work of Horner and Say. Hence, the “paradox” of Smith’s peculiar claim regarding the unique, “price-regulating” character of corn continued to influence the development of value theory well beyond his own time.
II. “The Heat of Writing”: the Peril of Polemic
How then are we to account for this paradox? In Smith we are faced with an author whose work could be praised by its reviewers “for sagacity and penetration of mind, extent of views, accurate distinction, just and natural connection and dependence of parts,” who had “taken an extensive and connected view” of his subject, “and from an happy union of fact and theory [had] deduced a system which ... is on the whole more satisfactory, and rests on better grounds, than any which had before been offered to the Publick” (Annual Register, 1776 and Monthly Review, 1776/77, reprinted in Mizuta 2000, 116 and 165). Yet the author of that “just and natural connection and dependence of parts,” while opening his bounty chapterwith the proposition that the“effectof bounties, like that of all other expedients of the mercantile system, can only be to force the trade of a country into a channel much less advantageous than that in which it would naturally run of its own accord” (WN IV.v.a.2-3)—a statement that is in perfect harmony with his larger critique of those mercantile “expedients”—could a few paragraphs later apparently contradict that opening proposition by insisting that a “bounty upon the exportation of corn ... can in no respect promote the raising of that particular commodity of which it was meant to encourage the production” (IV.v.a.24). The corn bounty is thus given a very peculiar aspect: like all mercantile “expedients,” it serves, “by extraordinary encouragements, to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it” (IV.ix.50, cf. IV.ii.3), but unique among those policy favors, the stimulus prompted by this particular subsidy, Smith insisted, is a purely nominal phenomenon, yielding nothing more than a rise in the general price level, with no gain in corn production (IV.v.a.9-15 and 24). What are we to make of such a performance?
Smith himself provided a hint at an answer when he acknowledged in his letter to Andreas Holt that, in composing his first edition statement of the special, “regulating” character of the corn price, his mode of “expression was certainly too strong and had escaped [him] in the heat of Writing.” Indeed, it was, he admitted, James Anderson’s criticism that prompted him to make in the second edition certain changes which he insisted “corrected this careless expression” (Corr., 208). Further adjustments were made to the bounty analysis in the third edition as well, but all these revisions taken together amount to little more than minor verbal alterations that do nothing to improve the substantive coherence of the argument (see Prendergast 1987, 394-6 for a catalogue of those modifications). Nevertheless, Smith’s admission that he could be led, “in the heat of writing,” to press his case too far calls to mind another theme of Smithian commentary that is relevant to the question at hand—namely, the avowedly polemical tone and structure adopted in the Wealth of Nations. That Smith’s most famous book is a work of polemic is, of course, no surprise, particularly in view of Smith’s own description of the book in that letter to Holt as his “very violent attack ... upon the whole commercial system of Great Britain.” But the implications of that polemical intent for our understanding and assessment of his work has recently become the object of increasing attention among Smith’s readers.
Among those implications is the matter of the weight to be assigned to those elements of his argument that appear to modern eyes as instances of analytical or historical error. O’Brien, for example, in cataloguing a number of objections to Smith’s famous hierarchy of investment priorities pronounces the entire argument “an awful muddle.” Still, we are not to take these lapses as undermining the credibility of his larger theme. “Smith,” O’Brien assures us,“was not a fool; ... what he was really concerned to do was to make an attack upon the forcing of capital into channels which it would not have entered, given an undistorted choice for the owners of that capital,” and it is a mark of his success that he did “in fact draw attention to this.” It is only “unfortunate that he should have advanced a perfectly reasonable argument in terms which were not reasonable” (O’Brien 2004, 251). Similarly, Skinner has observed that, as an exercise in historical reporting, Smith’s recounting of the contemporary relations between Britain and her American colonies exhibits a number of “apparent shortcomings.” But to focus on these is to miss the central point: in his treatment of the colonial trade, “Smith’s purpose was in part at least rhetorical,” aimed at a “critique of the mercantile fallacy” (Skinner 1996, 223-27; cf. Coats 1975).
An appreciation of Smith’s polemical aim also bears upon our assessment of his rhetorical structure, particularly as that structure encompasses an effective synthesis of theory and evidence. As we have seen from the Monthly Review’s admiration of the “happy union of fact and theory” in the Wealth of Nations, this feature of Smith’s discourse was frequently the subject of praise from his reviewers. The Critical Review likewise took note of Smith’s “abstract reasoning,” which “he never fails to illustrate and confirm by such apposite and familiar examples as place all propositions he deduces in the most striking and incontestible light” (Mizuta 2000, 144). Even those who found fault with his conclusions expressed admiration for the structure of his argument. Pownall opened his long critique with the observation that Smith had “by a truly philosophic and patient analysis, endeavoured to investigate analytically those principles by which nature ... conducts the operations of man ... And then, next, by application of these principles to fact, experience, and the institutions of men [Smith had] endeavoured to deduce synthetically, by the most precise and measured steps of demonstration, those important doctrines of practice” (Pownall [1776] 1987, 337).
As these comments suggest, Smith’s argument began with the “abstract reasoning”; the appeals to historical events and institutional facts served only to “illustrate and confirm,” and thus to throw into “the most striking and incontestible light” the propositions derived from his theory. Henry Buckle noticed this feature of Smith’s rhetorical structure a century later, observing that Smith’s frequent appeals to factual support “are essentially subsequent to the argument. They make the argument more clear, but not more certain,” for in the Wealth of Nations, “every thing depends upon general principles” (Buckle [1857-61] 1970, 285; quoted in part in Campbell and Skinner 1976, 56). More recently, Smith’s Glasgow editors gave this point its most memorable expression: Smith “worked from the system to the facts not from the facts to the system,” and when his facts diverged from the predictions derived from his system, “Smith felt obliged to offer explanations of the divergence” (Campbell and Skinner 1976, 56).