Scottish independence and the wealth of nations

How would the great Scottish economist, Adam Smith – professor in his time at Glasgow, today one of the hotbeds for independence – vote on Thursday? I think the answer is an unambiguous 'no'.

He would not have appreciated the efforts of ‘Academics for Yes’ and people like Murray Pittock, professor of literature at the University of Glasgow and vice-principal too, who have argued that: “The Scottish government has shown itself committed to the Enlightenment ideals of the application of reason to knowledge,” which he would have seen as putting the cart before the horse.

Nor would he have been pleased to see the Times Higher Education survey published this week that found that a narrow majority of staff at Scottish universities are set to vote ‘no’ in next week’s referendum on independence, even if that preference seems, like those of the butcher, the baker and the candlestick maker, to have been arrived at on narrow calculations of self-interest.

However, one of the remarkable things about this debate is how little anyone cares what academics think. The public analysis has been conducted instead by politicians and pundits in the manner of a Punch and Judy show.

Yet this referendum will have the most profound effects on societies across Europe, if not the globe. It is surely worth pausing a moment to step back from 'narrow issues' and obtain the kind of grand perspective which the great Scottish philosopher managed so well.

Indeed, Smith may not be Scotland's most famous son, but he is certainly its most influential. His clear and precise account of the workings of money, penned in the bestselling Wealth of Nations back in 1792, is very much the blueprint for modern industrialised economies.

How ironic, let us hope not tragic, then, that his advice should have been so completely forgotten by his fellow countrymen.

The value of money

Here’s why I am sure Smith would have warned the Scottish away from voting 'Yes'.

First of all, confidence in the value of money, the thing he tells us we must at all cost protect, would be damaged. We have already been seeing a jittery pound: if there is a 'Yes', rush to convert your sterling into those much despised euros!

Collapsing confidence is something Smith was very concerned about. At the time Smith wrestled with his first draft of the Wealth of Nations, many banks – the Newcastle, Norwich, Bristol, and even closer to home, the Ayr – collapsed into bankruptcy. Even the Bank of England was said to be shaking.

The collapse in confidence and associated loss of jobs made Smith’s labour seem even more important, along with its ambitious attempts to get the prescription for the economic ills of the time right.

Symptomatic of this disease was the National Debt, which Smith noted was growing at an astronomical rate, reaching the shocking level of £130 million in 1775.

Most of this was the cost of colonising the rest of the world, which despite the common sense view of such expeditions, was in fact a ruinously expensive imperial venture. Historians believe that it was the costs of a similar escapade in South America, the Darien Disaster, which forced Scotland into the Union in the first place.

And today, although the new Scottish government would briefly enjoy a wave of popular acclaim, the practical reality is that there is ‘nowt left in piggy bank’.

Scotland's ‘hoard’ of gold (recently fought over in debates) would place it so low in the ranks of world bullion holdings that its role backing a new and separate money for Scotland is not even worth talking about.

As energy consultant Andrew McKillop has pointed out, Scotland's gold, at current market price levels, would be worth a princely US$1.7 billion. The Scottish share of UK debt is placed at about US$190 billion or £120 billion! Smith would have had a blue fit…

Petty nationalism

Smith explicitly warns against petty nationalism, saying that the Navigation Acts, which protected trade with the colonies, had skewed Britain's industries and markets counterproductively.

“Instead of being suited, as before the act of navigation, to the neighbouring market of Europe, or the more distant one of the countries which lie round the Mediterranean sea... the greater part of them have been accommodated to the still more distant one of the colonies.”

Better, in all things, to follow the guidance of the free market, he says. For Smith, nationalism may dictate self-reliance and discourage imports – but economics preaches the advantages of interaction with others and openness, the essential ingredients, too, of higher education.

Smith is the great advocate of the free movement of goods and services, which he sees as win-win propositions. Dividing Britain into separate countries interferes in this freedom, creating new legal and administrative barriers.

The clamour from big business to vote 'No' reflects the reality that in the event of a separation, companies will have to relocate – quick, try to save your job! – and new taxes, border controls and rules will sprout up overnight.

That said, Smith would certainly understand Scottish anger with the government in London, which has allowed Scotland to become dependent on income from oil and Britain itself to be addicted to speculation on the capital markets, with the wealth concentrated in London and out-of-control house inflation the result.

Smith would warn his fellow countrymen of the high risk for North Sea oil of either a crash or erosion of the oil price, investor retreat from the high cost North Sea fields, and rapid decline of output.

The political prerogatives could be leading citizens to disaster. Instead, from Smith, they could obtain a canny perspective on human society.

Where other philosophers saw human society as determined by human decisions and choices, Smith says that our political arrangements, even our values, are only a consequence of subtler, economic forces: the ‘hidden hand’ of market forces and economics that guides all our actions and decisions.

Even so, following the great English philosopher Thomas Hobbes, he recognises that there is also a desire for ‘recognition’ by others – which can lead to conflict and disaster.

Smith was in his time both wealthy and successful – but gave away most of his money and lived simply. His idea of luxury was taking extra sugar cubes in his tea. Surely, if he were alive today, he would warn his fellow Scots, of the danger of hubris that is inevitably followed soon after by nemesis…

* Martin Cohen is editor of The Philosopher and author of several books that discuss Adam Smith’s political significance, including Political Philosophy: from Plato to Mao (Pluto Press 2001, 2008).

* The full text of An Inquiry into the Nature and Causes of the Wealth of Nations is available here.