If I Forget Thee, O Kirkcaldy! Reflections on What We Have Forgotten.

• Author: Lobdell, Jared
• Position: Editorial

For the last few years I have been telling my students that they (or we) were studying economics at almost an ideal dme for the study of economics. Why? Because much of what economists (and financiers) had been saying for years seems to be doubtful or even untrue, and we have a chance to get closer to the truth than they have been.

For much of that time I have been asking the following question, in one form or another, with different names inserted, as a test question in my "Introduction to Macro," Econ 201, class: "What would Adam Smith (1723-90) or Charles MacKay (1814-89) orThorstein Veblen (1857-1929) or John R. Commons (1862-1945) or Frank H. Knight (1881-1967) or John Burr Williams (1900-1989) or George J. W. (Jerry) Goodman (b. 1930, "Adam Smith" of The Money Game [1968]) say about the current financial mess?" Two of these seven individuals are in fact journalists rather than economists, which might also be said of Walter Bagehot (1826-77), who has also appeared in the question, as have (with a change in focus to German-speaking economists) Max Weber (1864-1920), Ludwig von Mises (1881-1973), Joseph Schumpeter (1883-1950), F. A. Hayek (1889-1992), and Gottfried Haberler (1900-1995).

Of course, we have forgotten more from Adam Smith of Kirkcaldy than we have from any other economist, and of course this question as given is aimed at a few of his insights only. Nevertheless, we should begin by looking at a few of these few insights and begin our beginning by looking at the most famous one. The degree of the wealth of a nation is the "greater or smaller proportion" of the mass of "necessaries and conveniences" "to the number of those who are to consume it." "But this proportion" between goods and consumers, "must in every nation be regulated by two different circumstances; first, by the skill, dexterity, and judgment with which the Labour is generally applied; and, secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed" (Smith 1776, 1). In other words, wealth (on the average) depends on the productivity of labor and the level of employment. Or, as I tell my students, the wealth of a nation lies in the productive capacity of the people. Aid, of course, Smith's famous distinction between productive and unproductive labor flows swiftly on the heels of this statement. We will come back to our founder later.

Charles MacKay, Scottish journalist, songwriter, versifier (if not poet), collector of Cavalier lyrics, traveler in the United States, and memoirist, published Memoirs of Extraordinary Popular Delusions and the Madness of Crowds in 1841, basing his discussion of "tulip-mania" on Johann Beckmann (1739-1811). Beckmann, professor at Gottingen, gave us not only Beitrage zur Geschichte der Erjindungen (1780-1805), translated into English as History of Inventions, Discoveries, and Origins ([1797] 1846)--a work in which he relates the origin, history, and recent condition of the various machines, utensils, and so on employed in trade and for domestic purposes--but also Anleitung zur Technologic, oder zur Kentniss der Handwerke, Fahriken, und Manufakturen, vornehmlich derer, die mit der Landwirtschaft, Polizey, und Cameralwissenschaft in nachster Verbindung stehn ([1772] 1968).

These works entitle Beckmann to be considered the founder of the study of scientific technology, a term that he was the first to use (and possibly invented) in 1772. Though MacKay was not an economist, Beckmann was at least a proto-economist. When we talk about "technology" as a determinant of supply, for example, we echo Beckmann. Nonetheless, the immediate importance of MacKay's Extraordinary Popular Delusions and Beckmann's History and Technology here is simply that the "tulip-mania" of 1636-38 (recounted in MacKay, based on Beckmann) should be thought of as the ur bubble in financial history and analysis and Beckmann and MacKay as its first analysts (though I strongly suspect MacKay was in touch with at least one Scottish economist of his own generation--if one counts John Stuart Mill [1806-73] as a Scottish economist, as his father was: MacKay wrote for the Morning Chronicle [London] from 1835 to 1844; Mill wrote for the Morning Chronicle from 1835 to 1846, including his articles on free trade).

When I went to work on Wall Street in 1962, new investment analysts were still (sometimes) given copies of Barney Baruch's 1932 reprinting of MacKay's book as a salutary reminder that financial markets do not always act in a textbook fashion of market (or investor) rationality (nor do prices go up forever). But note that when Beckmann brings us the "tulip-mania," he does it as a per contra to growth through technology, echoing a distinction between productive and unproductive labor, which we have met before and will meet again. In fact, we meet this view, in slightly different terms, in Veblen.

Thorstein Veblen is, for the purposes of this question in Econ 201, the author of The Theory of the Leisure Class (1899) rather than the author of The Engineers and the Price System (1921), and he is introduced into the course in connection with the marginal propensity of the rich and very rich to invest or to save. (If Veblen is right, the argument for reducing taxes on the very rich is not that they will save and invest but that they will spend and spend--though of course he might have been right at the end of the nineteenth century but not be right now). But we should remember that Veblen's primary theme is the opposition between (as he might say) pecuniary values and mechanical or industrial values. That is, Veblen's opposition between the use of money simply to make money (which can be done, for example, by banks borrowing from the Federal Reserve at zero percent and lending back to the U.S. Treasury at 3 percent) and the use of money for investment in productivity--building up the wealth of our nation--is echoed in Adam Smith's distinction between types of labor.

I am aware of the incongruity of singling out a subversive radical economic sociologist such as Veblen and making him part of an essentially conservative (and, in my case, libertarian) argument for paying...