Heinz Kurz recently gave a very stimulating lecture, "The Wealth of Nations (WN) at 250: The Revenge of the Mercantilists" at the Federal University of Rio de Janeiro, and I was the commentator. His central point was that Adam Smith has been badly served by both his admirers and his critics. Smith was not the apostle of selfishness, laissez-faire, and the minimal state imagined by later free-market ideologues. Political economy was, for him, a branch of the science of the statesman, concerned with the institutions and policies required to promote prosperity, liberty, and justice.
Kurz rightly emphasized Smith’s distrust of merchants and manufacturers. Smith understood that business interests do not automatically coincide with the public interest. Merchants frequently seek monopoly, protection, and political privilege. The “mercantile system” was objectionable not simply because it involved state intervention, but because the state had been captured by particular interests. This reminded me of what Bob Heilbroner used to say, the enemy in the WN is not the state, but monopolies.
Kurz also criticized the revival of economic nationalism associated with Donald Trump. Trump’s policies reproduce some of the errors criticized by Smith, especially the obsession with bilateral trade balances and the confusion of particular corporate interests with the national interest. But Trumpism is not really a restoration of historical mercantilism. Mercantilism was part of a broader process of state formation, institutional development, naval power, public finance, and industrial transformation. Trump has tariffs, but no coherent development strategy.
This is where I would place the emphasis somewhat differently. The historical success of the Italian City States, Netherlands, Britain, and later the United States rested not simply on trade protection and some degree of what today is called industrial policy. It depended on the construction of a fiscal and monetary architecture based on the so-called Military-Fiscal State. Taxation, public debt, public banks, central banking, infrastructure, where central elements of the Military-Fiscal, and Fiscal-Naval, state. These institutions made sustained developmental policy possible. Trump revives the rhetoric of mercantilism while neglecting the other elements that successful countries actually used. I discussed why Trump's protectionism would not birng back manufacturing jobs here.
Kurz’s discussion also raises an old controversy about Smith’s “Physiocratic prejudice.” Following a line of interpretation originating with Piero Sraffa, Kurz argues that Smith continued to give agriculture and “corn” a privileged position within his analytical system, even though Smith explicitly rejected the Physiocratic doctrine that agriculture alone was productive. On an analytical level, there is no doubt that Professor Kurz is correct and that the foundation of the Smithian growth model is Physiocratic.
Kurz's argument is subtler than simply saying Smith believed only agriculture was productive. Instead, Kurz reconstructs Smith's analytical system in Sraffian terms and argues that Smith distinguishes "necessaries" (corn) from luxuries. Corn is treated as the only genuine basic commodity, because every production process ultimately requires workers' subsistence. Manufacturing therefore cannot become the independent engine of cumulative growth. Consequently Smith retains what Sraffa calls a "Physiocratic prejudice." Notice that Kurz's criticism concerns the architecture of Smith's growth theory, not Smith's explicit statements about productive labor.
Tony Aspromourgos provides a counterpoint, with a more direct textual reading of Smith. Textually, Smith clearly regarded manufacturing, transportation, and commerce as contributors to the social surplus. Aspromourgos stresses that Smith rejected this outright: "The capital error of this system ... seems to lie in its representing the class of artificers, manufacturers and merchants, as altogether barren and unproductive." He notes that Smith systematically repudiates the Physiocratic limitation of productive labour to agriculture in Book IV of WN. This reflects the difference between a historical-institutional reading of Smith's aims and the theoretical basis of his model.
Ronald Meek suggests another way of looking at the issue. Smith was not primarily constructing a timeless model of production in the manner of Ricardo or Sraffa. His central concern was historical development, in particular the movement from hunting to pastoral, agricultural, and commercial society, and the corresponding transformation of property, law, government, and social classes. Agriculture may therefore be historically central without being the only analytically productive sector.
This has implications for the interpretation of Alexander Hamilton, and Hamiltonian protectionism, often defended as the first in a long line of American protectionists, an American School, as Michael Hudson has called it. Hamilton’s Report on Manufactures should not be read as a theoretical rejection of Smith. Hamilton relied on distinctly Smithian mechanisms, the division of labor, the extent of markets, the vent for surplus that created demand for agricultural output. His disagreement concerned the policies appropriate to a new, agrarian republic rather than the underlying theory.
Hamilton did not believe that the policy appropriate to an already industrial and financially developed Britain could simply be transferred to the United States. Public credit, a national bank, taxation, and the encouragement of manufacturing were historically specific applications of political economy to American conditions. In that sense, Hamilton was not a mercantilist in Smith’s pejorative meaning. He was a Smithian developmental statesman.
Paradoxically, Jefferson’s agrarian ideal was closer to the Physiocratic privileging of agriculture, while Hamilton’s emphasis on manufacturing, urbanization, finance, and the division of labor was closer to the dynamic elements of Smith’s commercial society. Kurz’s lecture therefore provides an excellent starting point for recovering a Smith who was neither a free-market ideologue nor an opponent of developmental statecraft.
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