The Founding Myth of Adam Smith

Adam Smith, in Wealth of Nations, offers the following well-known myth:

In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison, than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armourer. Another excels in making the frames and covers of their little huts or moveable houses. He is accustomed to be of use in this way to his neighbours, who reward him in the same manner with cattle and with venison, till at last he finds it his interest to dedicate himself entirely to this employment, and to become a sort of house-carpenter. In the same manner a third becomes a smith or a brazier; a fourth, a tanner or dresser of hides or skins, the principal part of the clothing of savages. And thus the certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he may have occasion for, encourages every man to apply himself to a particular occupation, and to cultivate and bring to perfection whatever talent of genius he may possess for that particular species of business (Wealth of Nations I.2.2).

For Smith, this perfectly “natural” process is both the origin of the division of labour and reveals the natural propensity for human beings to “truck, barter and exchange one thing for another” (I.2.1). This distinguishes us from the animals, for who ever saw a dog offer a bone as a fair and deliberate exchange with another dog? Smith goes on:

When the division of labour has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society (I.4.2).

We’re all capitalists at heart, it seems, for we are natural merchants, constantly exchanging things with one another. Smith can be a little long-winded, so let me summarise the remainder of this myth. Once our primitives have all busied themselves with their natural propensity to produce and “truck”, they soon find that others may have enough of whatever is on offer. I might have made plenty of toe ticklers, but now that the tribe or village is full of toe ticklers, I have nowhere to hawk my wares and get what I want. The solution: stockpile items that I am sure everyone will want – salt, sugar, dried cod, dressed leather, sex toys …. So when I want something, I can simply use these items in exchange. At last, one of us happens upon the idea of using precious metals, weighed, then standardized, minted and so on. Eventually, in our wisdom, we come up with credit, or virtual money.

In various forms, this myth has been repeated countless times in economics textbooks, in online forums and in classes on economics. For economists, it is “the most important story ever told” (Graeber, Debt, p. 24). Its narrative from a natural division of labour, through to barter, money and then, in our sophisticated modern era, banking and credit, has become so pervasive that it is regarded as common sense. The problem, as David Graeber points out, is that it is pure fantasy-land (pp. 21-41). Where is this mythical village? Among North American Indians? Asian pastoral nomads? African tribes, Pacific Islanders, Australian aborigines? A small Scottish town of shopkeepers? Often in the same myth it moves from one place to the other. But the simple fact is that it never existed. No such village has ever been found, nor will it be. As Graeber shows in some detail, contrary to the barter-money-credit sequence of the myth, credit would seem to have preceded money, and barter is a side product, happening only in places that have already come to know money. On that last point, the common “return to barter” account during economically difficult times – in the early Middle Ages or in Russia and eastern Europe in the 1990s or today in Greece and other countries severely affected by the rolling economic crisis that began in 2008 – takes place only within the framework of monetarized economies.

Graeber expresses some frustration at the sheer pervasiveness of Adam Smith’s myth, working overtime to show that it is not original to Smith and that the evidence is overwhelmingly stacked against it. One source of his frustration is that a crucial founding myth is not empirically falsifiable. No amounts of “facts” will dent the power of the myth, as Sorel showed so well many years ago (Reflections on Violence). Instead, it is more worthwhile to ask what truth the myth expresses, given that a myth is always split between fiction and a deeper and not always pleasant truth (part of its mixed heritage).

That truth is that Smith, in resuscitating and refining the myth, had a distinct agenda: he wanted to create a new being, “the economy.” The definite article is crucial, for “the” economy was to be distinct entity, with its own rules, its own dynamic that is distinct from politics, the state, and above all religion. What better way to do so than reconstruct a myth in which “the” economy arose as a natural expression of human nature? But why did he wish to create such a being? A new field of study needed an object to study, the discipline of economics. And in order to ensure that this discipline was not bereft of an object of study, “the economy” was created.

It is worth noting that Smith was really completing a process that began with the earlier work of Hobbes and Locke from the seventeenth century. They provide an explicit but incomplete path from the Bible and theology to economics, at times seeking continuities and at others offering a narrative of movement beyond the Bible. Smith’s achievement was to bring to process to a definitive break: economics as both discipline and reality was no longer tied to theology. Or rather, it was sublimated as a moral tension between compassion and self-interest.

In other words, the myth of origin is crucial to the very formation of the discipline of what we would now call classical economics. To dump the myth would mean to dismantle the discipline as now understood. I would prefer another formulation: economics would turn out to be inseparable from social relations, politics, and religion.