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Reintroducing Adam Smith, an economist for our times

Who's Afraid of Adam Smith?: How the Market Got its Soul

By Peter J. Dougherty

(John Wiley & Sons, $29.95, 223 pages)

Reviewed by CECIL JOHNSON

Most Americans would shout out instantly, "The Declaration of Independence," if asked to name the most important piece of English-language prose of 1776. But a few brave souls might venture, "Adam Smith's The Wealth of Nations."

The number of those who would dare to give the latter response could increase significantly in the coming years because of Who's Afraid of Adam Smith?, publisher and economics editor Peter Dougherty's entertaining and informative retrospective on the evolution of economics.

Dougherty does not endeavor to make such a point. But his reflections on Smith's ideas and those of the economists and social philosophers who were influenced by Wealth could give many readers a deeper appreciation of Smith's enormous contribution to the evolution of modern civilization.

The emphasis in Dougherty's book, however, is more on Smith's lesser-known book The Theory of Moral Sentiments. He presents Smith as a thinker who was deeply concerned about promoting the culture, power and well-being of the whole society and all citizens.

He emphasizes that Smith, the founder of modern economics, was preoccupied with more than land, labor and capital.

"Economics is also part of a larger civilizing project, and Smith's original effort to understand it was an exercise in soulcraft _ one that has continued since his time and will not end today. The soulful side of Adam Smith is also, typically, the last thing one learns _ in an economics education," Dougherty writes.

One of the first things one learns in introductory economics course, Dougherty points out, is the content of Paul Samuelson's textbook Economics. Dougherty calls it the "windows" or "instructions" for understanding and navigating the world of contemporary capitalism.

And it is indispensable to comprehending the legacy and language of Wealth. It is also crucial to grasping the economic ideas of John Maynard Keynes, who, like Samuelson, expanded upon Smith's thinking.

"Samuelson's great achievement was to explain how the tools of macroeconomic management exposited by Keynes _ countercyclical monetary policy and taxation _ could be used to guide the economy through the gyrations of the business cycle, thereby allowing Smith's Invisible Hand to function smoothly the rest of the time," Dougherty writes.

Keynes, of course, was preoccupied with the problem of unemployment and the role of government in dealing with the destabilizing vagaries of the market.

"National planning, managed through Keynesian deficit spending, became the norm throughout industrialized societies; social inclusiveness and the socialization of risk became the main moral sentiments; and programs such as nationalized health insurance and public education became the preferred delivery systems," Dougherty writes.

Among the other notable economists profiled in Dougherty's book are Karl Marx, Alfred Marshall, Friedrich von Hayek, John Kenneth Galbraith and Milton Friedman.

He describes Marx as a student of Smith and an early admirer of capitalism who became disillusioned with it because of the repression and injustice that he said it engendered.

"The critical swath cut by Marx slashed across not only Adam Smith's commercial humanism, but also Edmund Burke's cultural conservatism and any remains of Europe's ancient institutions," Dougherty writes.

Marxism failed because it had no theory of culture and because the commissars had no market channels through which to generate initiative and ambition from the people they ruled. Moreover, they took no risks.

"They had all the advantages of an economic elite and none of the disciplinary restraints provided by markets or law. Economists in the tradition of Adam Smith had no such illusions about a free Leninist lunch," Dougherty writes.

In a chapter called "The Comeback Kid," Dougherty says many contemporary economists are "dusting off Smith's vision as they embrace the importance of civic institutions and social capital."

He attributes the return to Adam Smith to the monetary economics of Keynes and his fellow macroeconomists, including such enemies of the Keynesian welfare state as Friedman.

Describing the ongoing conflicts between macroeconomists such as Friedman and members of the Keynesian persuasion, Dougherty turns to the film The Godfather and quotes a remark by Peter Clemenza, one of the don's henchmen, about an impending war among the New York crime families:

"This sort of thing has to happen every five or 10 years. It clears out the bad blood."

Dougherty also uses The Godfather to make an essential point about the importance of noneconomic institutions to the economic. He refers to Michael Corleone saying, "It's not personal, Sonny. It's strictly business," when he outlines his plan to kill a drug boss and a crooked police captain.

"The point is this: The morality of a tragic and lawless subculture like the Mafia, in which economic inevitability is enforced at the business end of a gun, is different from that of our mainstream commercial culture because we have insisted on the civilizing features that make our economic culture distinct," Dougherty writes.

The Smith presented in this book is a man of enormous social conscience and "the true architect of the modern conception of commercial humanism _ the original social capitalist."

Who could be afraid of a guy like that?

_ Fort Worth (Texas) Star-Telegram

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