A snippet from a commentary on the first four chapters of The Wealth of Nations

CHAPTER IV. OF THE ORIGIN AND USE OF MONEY.

1. 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.

Chapter 4 is concerned with the economic institution of ‘money’, but it opens with a summary of earlier arguments and ends with a sentence that is strikingly linked to the subsequent development of political economy and to matters that are highly salient in economic discussions today. Here Smith characterises and gives a name to the kind of society in which he lived. It is a “commercial society” and its defining characteristic is that every man “lives by exchanging, or becomes, in some measure, a merchant”. ‘Every man’ is not to be taken literally, but more in the spirit of ‘Everyman’, a character in a story or play who leads an ordinary, prevalent and ubiquitous way of life which audiences can instantly recognise and identify with.

Going back to the illustrations from antiquity in Chapter 3, it can be observed that the coastal cities and cities on navigable waterways might be characterised as being ‘commercial’, but, heading off into their hinterlands, in much of the surrounding territory the ubiquity aspect will typically be found lacking. Smith would therefore not want to characterise them as ‘properly’ commercial. As in the earlier chapters, Smith’s centre of attention is the labourer, his Everyman, and the test is whether he/she “lives by exchanging”.

Today the typical word to characterise the economic system of a country like Britain is ‘capitalistic’, and that different terminology, which does not reflect well on post-Smithian intellectual development, is much more than the substitution of one word for another. ‘Capitalism’ is a vaguely defined concept. In ordinary use of language, it refers to an economic system for which it easy to find advocates and opponents, often at vigorous odds with one another, but without any shared understanding of what precisely it is that they are arguing about.

De facto, and whatever its original meaning may have been, capitalism has become an ideograph, as defined by Michael Calvin McGee: “an ordinary-language term found in political discourse. It is a high order abstraction representing commitment to a particular but equivocal and ill-defined normative goal.” As to its origins, its first appearance in English occurred in a Thackeray novel and it was only used a couple of time by Marx. Marx typically referred to the capitalist mode of production, but a mode of production is a rather different thing to a whole society and the manufacturing sector, with which he was most concerned, was only the largest of the three major economic sectors – agriculture, manufacturing and services – for a relatively brief period of the 19th century. For most of the second millennium, including for most of the period that might be labelled the Industrial Revolution, services has been the sector that has contributed most to national output.

The superiority of Smith’s characterisation can be seen by asking two questions. First, is modern China a capitalist economy? As befits an ideograph, that will likely generate much heated debate – which might launch a new set of sects populated with zealots – but little light. Then ask: is modern China a commercial society? The appropriate answer is, I think: ‘Yes, next question please’. That doesn’t cast much immediate light on other characteristics of Chinese society, but it does at least provide the base for fruitful exchanges on those other matters, based on a common understanding of a term of art in political economy.

Author: gypoliticaleconomyblog

Lifetime student of political economy, retired academic and regulator.

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