The Big Question: Who was Adam Smith, and does he deserve to be on our banknotes?
Tuesday 31 October 2006
Why is Adam Smith in the news?
The Governor of the Bank of England, Mervyn King, has announced that a portrait of Adam Smith will feature on a redesigned £20 banknote, to come into circulation next year. He is said to be the first Scot to be so honoured, although he is already on the £50 note issued by the Bank of Scotland. He replaces the composer, Sir Edward Elgar, who has been the face of £20 since 1999. The note will also show a picture of a pin-making factory and summarise Smith's conclusions on the benefits of the division of labour.
Are bank-notes often redesigned?
Yes. Notes wear out, and a new design allows a new set of individuals to be honoured. The one constant is the portrait of the Queen on the front of the note. For the other side, the Bank of England sees itself as being - in its words - in a "privileged position to acknowledge the enduring contribution of its most talented citizens over their lifetime to the advancement of society". William Shakespeare, Isaac Newton and Florence Nightingale are among those who feature on current notes. A reason for introducing a new series of notes now is to incorporate new, hi-tech security features, including a holographic strip and improved watermark. The £20 note is first in line to be replaced, because it is the one most often counterfeited.
So who was Adam Smith and what did he do to deserve this recognition?
He was an 18th-century Scottish philosophy professor, and later customs commissioner, who is now widely regarded as the founder of modern economics. The magnum opus for which he is best known is An Inquiry into the Nature and Causes of the Wealth of Nations, which was published in 1776 when he was 52. It was one of the first extensive studies of how industry and commerce in Europe worked and it argued the case for free markets and against oppressive tariffs. His thinking derived almost entirely from his own observations of the functioning of industry and cross-border trade.
One of his central arguments was that pursuit of individual self-interest had the effect of advancing the common good - which was later interpreted by some as providing a justification for selfishness.
His analysis of the workings of a local pin factory led him to advocate the rational distribution of labour as a driver of increased production. And his thinking in both respects contributed to the ideological climate in which Britain's industrial might subsequently grew and flourished.
Why has he enjoyed such a resurgence now?
For two main reasons. First, because he was seen as the first economic thinker to explain and advocate the free market. As such, he was one of a constellation of economists co-opted by the British political right in the Seventies when they were looking for alternatives to what they regarded as the bankruptcy of Socialism. When Margaret Thatcher became Prime Minister in 1979, the political right had the chance to put the theory into practice: lower taxes, smaller government and freer markets. Long dead, Adam Smith was resurrected as the economic guru for Thatcherism.
Second, because his observations reflect an age when international trade was approaching its heyday, barriers were coming down, and manufacturing was growing apace. More than two centuries later, the end of the Cold War together with modern communications hold out the prospect of one, global, world - a world that, while faster-moving, seems eminently recognisable from Adam Smith's Wealth of Nations.
But he is quite a controversial figure today, isn't he?
Yes he is, and the association with Thatcherite economics is one of the main reasons. But it is not the only one. Tony Blair's New Labour accepted many of the free-market capitalist principles of the Thatcher years. But even New Labour found it hard to swallow the Thatcherite interpretation of Adam Smith whole, and it has looked for aspects of his thinking that fit more comfortably with New Labour. A global division of labour was fine, but selfishness was not - unless it was consciously understood to contribute to the common good.
The search was on for a more compassionate Adam Smith, and this has resulted in what has been described as "an unseemly battle for his soul". That battle is far from over. Not least because in the US and the former Soviet bloc countries in Europe, Adam Smith is lionised as the thinker who did more than anyone to promote and justify capitalism.
Is there any wider significance in this for the new banknote?
Probably not, but choices like these cannot but be seen as reflecting the age. The last new portrait (introduced on the £5 note in 2002) was of the prison reformer, Elizabeth Fry. That a Scot now replaces the very English Sir Edward Elgar could be regarded as more evidence of the sway south of the border of the so-called Scottish Raj.
Then again, there is a host of more speculative explanations. Some might see Adam Smith's elevation as the Bank of England cosying up to Gordon Brown in anticipation of his arrival at No 10. Like Brown, Smith was brought up in Kirkcaldy and graduated from Glasgow University. He had a reputation for sound, logical thinking and acute social awkwardness.
The move could also seen as a belated "thank-you" to Mr Brown for making the Bank of England independent. Or it might have nothing to do with Gordon Brown. Could it be intended, perhaps, to reassure the Conservative leader David Cameron that the Bank remains loyal to free-market principles and will exercise its independence wisely if he becomes Prime Minister?
An equally suspicious mind could see the summary of Adam Smith's thoughts on the division of labour, to figure beside his portrait, as propaganda for capitalism. But who actually reads what is printed on banknotes - beyond the number of pounds?
Should a Scot feature on a Bank of England note?
* He may be a Scot, but he is also British, and indeed an international figure as well
* More of the UK's 'minorities' should figure on our bank notes, not just Scots, but Welsh and Northern Irish
* As arguably the world's first philosophical 'globaliser', he is an appropriate figure for our age
* It is potentially divisive: there are quite enough Scots in the British and English firmament without exalting another one.
* The benefits of the free market à la Adam Smith are too contentious to be honoured on a national bank note.
* He has already featured on the £50 note issued by the Bank of Scotland. That was appropriate recognition.
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