Benjamin M. Friedman is a macroeconomist at Harvard who has nurtured a lifelong interest in intellectual history. I was personally affected by his stature within the discipline seven years ago. I had invited him, eighteen months ahead of time, to participate in a conference on what social scientists had to say about the common good. He agreed, provided that another, yet-to-be-scheduled lecture did not interfere. Once scheduled, it did. The other lecture was to the Bank for International Settlements, based in Basel, Switzerland. Don’t try to open an account there. It’s the organization of heads of the world’s central banks—and they were turning to Friedman for advice. My misfortune was Europe’s gain. He reminded the central bankers of how Germany had received several rounds of debt relief after World War II despite criticisms of interwar German fiscal irresponsibility. He thereby helped to soften the German central bank’s harsh stand against debt relief for Greece, Spain, and elsewhere.
Friedman borrows the title for this splendid new book from a famous 1926 work by R. H. Tawney. Both an historian and a crusader for social justice, Tawney lamented the loss of moral criteria in humanity’s rush to increase the GDP. Friedman restricts his book to the history of ideas, though these certainly have implications for life more generally.
The book makes a wonderfully novel claim about the influence of religion on the unreligious genius of Adam Smith. Today, when so many have come to believe the historical error that science developed in opposition to religion, Friedman’s argument is refreshing.
First, consider Friedman’s account of Smith’s achievement. He did for economic life what Isaac Newton had done for physics. Newton, who died when Smith was a toddler, had transformed science by a theory of the physical world based on fundamental principles. Smith aimed to do the same for our understanding of the social world. His Theory of Moral Sentiments addressed the innate connections among humans, while his more famous Wealth of Nations presented a theory—founded on fundamental principles about human life—to explain both daily economic intercourse and long-term growth in economic prosperity. The most basic principle he relied on was “the natural effort of every individual to better his own condition.”
This effort generates “a propensity to truck, barter, and exchange,” which in turn leads to “the division of labor” (specialization), whereby people produce what they’re best at and trade for the rest of what they consume. And with specialization, people not only become even better at what they do but often invent machines that further increase their efficiency, raising their incomes while lowering prices for others. The wealth of a nation rises with the prosperity of its citizens.
This fundamental principle is rooted in the self-interest—“self-love” is Smith’s term—of both producers and consumers. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Yet consumers need not worry about the power of producers, as long as competition exists. The baker can’t charge too high a price, or we’ll just buy our bread from another baker down the street. Here, Friedman indicates, was a theory of Newtonian character, based on simple first principles, that made descriptive sense of a very complicated economic life. As Friedman puts it, “Smith invoked no external influence, no mysterious change in human nature or behavior.”
So how was religion involved? There are four steps in Freidman’s argument. The first concerns the nature of the most fundamental scientific insights. Friedman relies on a variety of highly respected scientists who have explained the importance of a larger view of the world in scientific discovery. He quotes Einstein on the importance of a “worldview,” even for physicists: “Scientific thought is a development of pre-scientific thought.” What’s true for physics was true for the birth of modern economics.
The second step is to recognize the slowly evolving eighteenth-century conviction that self-interest can generate a larger good. Bernard Mandeville’s “Fable of the Bees” (1705) presented this view in raucous doggerel verse. Others in the eighteenth century observed the unintended consequences of much of human action. But no one before Smith presented a theory for why this happens. This theory came to be known by the image of “the invisible hand.” In Friedman’s words, “individual pursuit of self-interest channeled by market competition leads to unintended consequences of more general benefit.”