June 5, 2023 is marked as the birth tercentenary of Scottish Philosopher Adam Smith, also known as father of economics. Ideally, it should be 300th anniversary of Smith’s baptisation as he was baptised on the date. But as we do not know his birth date, June 5 is marked as the great Scotsman’s birthday.
Smith’s scholarship have fascinated not just economists and philosophers but cuts across many fields. The interest in Smith and his ideas has developed into a mega industry of its own with so many books and scholarship, each interpreting his ideas from their vantage points. Given his tercentenary, there have been proliferation over internet and social media of several articles. One speech, among many, strikes a chord. Gita Gopinath, first deputy managing director of International Monetary Fund (IMF) was invited to speak at University of Glasgow, where Smith acclaimed fame as both a writer and teacher. In her remarks, Gopinath asks “how would Adam Smith have responded to the emergence of this new “artificial hand”?
Gopinath manages to hit two birds with one stone via this question. First, she cleverly draws attention to the famous Smith attribution of “invisible hand” but instead calls it “artificial hand”. Why? Because she wishes to draw attention to how Smith, if alive today, would have thought about world of digital technologies and Artificial Intelligence (AI).
Second, by asking the question in this manner, she makes Smith relevant three centuries later. I teach this subject called History of Economic Thought (HET), which focuses on these stalwart economists and their ideas. I am often asked: How is HET or Smith relevant in today’s world? Gopinath’s phrasing of the question will immediately draw the attention of the 21st century student.
Smith wrote two major books in his life: Theory of Moral Sentiments (TMS) in 1759 and Inquiry into Nature and Causes of Wealth of Nations (WoN) in 1776. Both these books generate a lot of controversy as one is not sure which book portrays Smith correctly. TMS, as the title suggests, focuses on moral philosophy and discusses human beings as a sympathetic being who cares for others.
WoN, on the other hand, as the title suggests, focuses on how nations grow rich and why individual liberty is crucial in economic transactions. Smith mentions the famous metaphor of “invisible hand” in WoN which has generated a lot of controversy. There is one group of economists who interpret “invisible hand” as economies which work best when there is minimal State intervention. He also mentions that self-interest is the core reason for any economic activity. Both self-interest and invisible hand are cited as major reasons for less government intervention in economic life and even generally, too. Smith has become the face of those who support markets over State.
There is another group which suggests that Smith’s “invisible hand” attribution has been overstretched. Smith did write about the need for State and role of taxes. Moreover, he mentions invisible hand just once in the book which in turn was influenced by none other than William Shakespeare! There is a third group which argues that we should read TMS and WoN together to get a true understanding of the man. Alex Thomas of Azim Premji University sums up the differences between all the three views nicely here.
Coming back to Gopinath’s lecture. Most discussions on Smith are limited to WoN and TMS is ignored. Thankfully, Gopinath discusses impact of the ‘artificial hand’ from both the prisms of WoN and TMS. Smith mentioned that wealth of nations is determined by productivity. Gopinath cites evidence showing AI has led to productivity growth which will please Smith. AI technology is still evolving and we still do not know its true impact. However, if AI leads to job losses, creates more fake news and deepens divide in the society, TMS’ Smith will be deeply troubled by the impact of AI.
Given these different perspectives, Gopinath says “we can use Adam Smith’s thinking and philosophy as a guide to help us navigate the path ahead.” This is why he still matters as even after 300 years we can use his ideas to think about the future. She also says Smith is best remembered for his contributions to economics but he was a student of “law, history, rhetoric, languages, and mathematics.” The opportunities and challenges from AI (include ageing and climate change, too) and “harnessing its good for the humanity” will require an interdisciplinary approach.
Gopinath’s speech reminded me of a similar sounding, equally delightful, article written by Atish Ghosh, historian at IMF. Ghosh had written on another stalwart economist — John Maynard Keynes. It is very interesting to note that Keynes coincidentally shares his birth date with Smith’s baptisation date! How these two remarkable economists who share the same dates are seen on different sides of the economic debate. While Smith is usually seen on the side of liberals, Keynes ideas are seen on those promoting government intervention.
Keynes was a multifaceted personality and, among the many things he did, he instituted the World Bank and the IMF. In 2019, the IMF had completed its 75 years. So, Ghosh tried to visualise Keynes visiting IMF in 2019. He notes how Keynes would have informed that he was coming to visit IMF via a telegram and how he is asked for an ID at the gate! Then he meets IMF’s head Christine Lagarde and is surprised to see a woman at the helm of affairs. He was bitterly disappointed to know that his Great Britain was the fifth largest quota at the IMF whereas, in his time, it was in the second position after the US. There are many more disappointments and lessons for Keynes as he talks through to Lagarde.
There is little doubt that Smith would also be equally surprised to see how much the world has changed in the last 300 years. His years were of England colonising the world and he writing against the ills of East India Company. The US got its independence the same year WoN was published and Smith would be amazed to see its progress and emergence as the top economic power. Given his quiet and unassuming personality, he would, perhaps, be most surprised that his ideas continue to be relevant (reverent, some would say) three hundred years later and, perhaps, forever.
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