Dr Robbie Mochrie is a Senior Lecturer in Economics at Heriot-Watt University and a frequent contributor to the National on the Scottish economy.
Achieving wellbeing has been at the heart of economics since Adam Smith wrote The Wealth of Nations nearly 250 years ago. Believing that wealth was the source of wellbeing, Adam Smith explored its nature, and how to create it.
He rejected the idea, common in the 18th Century, that wealth was simply money, and that countries should try to acquire as much of it as possible through trade wars. He also knew that when money became capital, and was used to produce other goods, it was a type of wealth.
But being able to explain what it meant for capital to be a form of wealth was just his starting point. He wanted to explain the conditions under which societies would build capital, and ensure that it was spread widely across society.
The best way to understand The Wealth of Nations is to read Adam Smith’s other book, The Theory of Moral Sentiments. As a professional philosopher, he thought deeply about how people manage to live together in complex societies. The wellbeing economy is just one part of the complex web of social relationships which bind us all together.
He was not the first person to have thought about these problems. Ancient Greek philosophers had concluded that economic wellbeing was a matter of controlling our desires. In their way of thinking, scarcity, which is an essential assumption in modern economics, was the result of greed. Manage our appetites well, and we would be surrounded by abundance.
That has always been a comfortable argument for social elites as they disparage the undeserving poor. Adam Smith, a radical liberal, who believed that people are all fundamentally equal, roundly condemned Britain’s Caribbean and North American colonies’ dependence on slave labour. He argued that in a wellbeing economy, people should avoid gluttony, and excess, and instead work hard to enjoy future rewards.
We can also see the influence of the first Muslim scholars’ thinking about business and trade on Adam Smith’s understanding of economic wellbeing. They had argued that trade would be beneficial for all participants, so long as there was fair dealing. Over time, that became the idea that in business dealings, no one should either exploit other peoples’ needs, or sacrifice their own interests. In The Wealth of Nations, fair dealing became enlightened self-interest.
The foundations of Adam Smith’s version of the wellbeing economy were therefore widespread honesty and patience. We should not be surprised to find this great philosopher arguing that the success of an economy depends on the moral character of its participants – nor that he believed that it was important that there should be widespread moral education, so that people would aspire to have these characteristics.
Building his wellbeing economy was bound to be a long-term project. It involved a programme to promote enduring social relationships, which would increase wealth, from which people would be able to increase their wellbeing. He realised that if most people were honest, then they would trust strangers. That is essential in any complex society in which we are dependent on other people to provide us with services.
If trust is widespread, people will generally be willing to cooperate to achieve shared objectives. Right at the start of The Wealth of Nations, Adam Smith used the example of a pin factory, pointing out that by cooperating, and each performing a single part of a complex process, the workers in the factory could produce much more output than they would if they each had to carry out all the processes.
Of course, Adam Smith knew very well that Britain in the 18th Century was not such a perfect world. His opposition to slavery was just one part of that. He was also very critical of deference to social status and wealth, with Robert Burns capturing much of Adam Smith’s thinking in A Man’s a Man for a’ That.
More generally, he worried that any accumulation of economic power would inevitably undermine fair dealing. He could see plenty of evidence of political power being abused, with public contracts often being awarded to the friends and families of politicians. The resulting suppression of competition made personal connections, rather than ability, a route to sudden, spectacular wealth.
Since he believed that people were equal, it was natural for him to argue that governments should treat them equally. Among the roles which he expected government to take on were national defence and the administration of justice, both of which would provide security to participants in the economy. That would help to build trust. He also saw government as having an important role in building and maintaining the national infrastructure. That would encourage patience. And of course, he believed strongly in the importance of publicly funded education, which would train people to participate actively in the wellbeing economy.
Here, we come to what was perhaps the critical trust relationship in Adam Smith’s thinking. A government which took on those roles would demonstrate its trust in the inhabitants of the country, while earning their trust. Wellbeing would come from a much more general form of cooperation than in the pin factory. People would be willing to contribute to the public purse because public spending would bring substantial social benefits.
Smith’s principles still seem robust. Times have changed, and the role of government is now much greater. The main cause of the repeated failures of government in the UK, especially since the financial crisis in 2008, has been the fraying of the trust between government and the public. That people do not trust politicians may be obvious. Arrogating power to themselves, political leaders have also shown that they do not trust the public. At least, in a democracy, elections should allow the public to reset that relationship.