Andrew Carnegie: Robber Baron, Entrepreneur, Philanthropist, Scot

Rarely do I review books that disappoint, but there's a first time for everything, and I want to report that in my opinion David Nasaw's 850+-page  Andrew Carnegie (Penguin:  2007) is skippable.

This is a shame.

Carnegie, aside from being perhaps the most successful entrepreneur and businessman of the Gilded Age next to John D. Rockefeller, was a rags-to-riches story, one of the greatest philanthropists in modern history (in inflation-adjusted dollars), and, notably, a Scot.  First, a bit on Carnegie's life itself, and then more on why I can't recommend this treatment.

Carnegie arrived in Pittsburgh, then the center of industrial North America, in 1848 at age 12, son of a rather feckless and unsuccessful father and a hard-working mother from Dunfermline, Scotland.  With only the most rudimentary education, but an energetic, sunny disposition, and no fear of hard work, he started as a messenger boy in the telegraph office—the key hub in the only information network that mattered in those days—and soon became the most sought-after telegraph operator in the company because of his speed and accuracy.  Connections there (only the powerful regularly sent and received telegrams) enabled him to gain an introduction to the local manager of the Pennsylvania Railroad where, not yet 20 years old, the president offered him the opportunity to buy shares in another company (with a loan) and shortly thereafter receive his first dividend check:

"I shall remember that check as long as I live," he wrote many years later. "It gave me the first penny of revenue from capital -- something I had not worked for with the sweat of my brow.''Eureka!' I cried. 'Here's the goose that lays the golden eggs.'"

Spoken like the true capitalist that he was. 

By 1865 his reported income was $38,735, roughly $5.6-million today (according to Nasaw—not independently calculated by me), and by the time he sold Carnegie Steel to J.P. Morgan in March 1901 it was worth $400-million, or perhaps $80-billion today (same caveat). 

What few realize about Carnegie was that his  insatiable drive for more and more wealth, without limit, was tied linearly to his conviction that it was his duty to give it all away by the time of his death—so that, the richer he became, the more beneficent he could be.  Now, depending on one's view, this is either charming, or perverse, or a transparent excuse for rapacious behavior.  Here's how Carnegie expressed it, in decidedly Spencerian and, to our ears, antiquated, terms:

"Carnegie formulated a 'gospel of wealth,' relying heavily on Herbert Spencer, that rebutted 'protests against the unequal distribution of wealth by arguing that the common good was best served by allowing men like himself to accumulate and retain huge fortunes. The more wealth that landed in wise hands, the more that could be given away -- wisely -- by the retired capitalist acting 'as trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could do for themselves.'"

Despite his lack of formal education, Carnegie was the classic autodidact and after the Civil War he began offering regular unsolicited advice to US Presidents and other luminaries.   Oddly full of insecurities for one so spectacularly successful, he didn't marry until his early 50's, although the marriage then was by all accounts remarkably happy and strong.  His work habits could be said to be odd, at the very least; he spent months and months of every year far away from Pittsburgh, either in New York (a full day's journey and more) or in Scotland, managing by telegram, with only the lightest finger on the tiller, delegating essentially everything (including the notorious, murderous, put-down of the Homestead steel strikers) to his managers on the ground.

Finally, by the time he died in 1919 he had nearly succeeded in his goal of giving away his entire fortune.

Now, what's wrong with this picture?

As full as it is of Carnegie the man (almost too full:  the book could easily be cut by 200 pages without material damage to its narrative thrust), it's almost devoid of insight into Carnegie the entrepreneur.  We only learn by inference how relentlessly innovative and determined he was. 

In a sense, he was in the perfect place at the perfect time.   As I said, Pittsburgh was the hub of industrial North America in the second half of the 19th Century and Carnegie's claim to wealth and fame was of course steel-making.   It was fortunate his parents saw fit to settle there rather than, say, New York City or upstate, and it was incredibly fortunate that the great continental build-out of the railway network was about to commence, which (we now know) would create immense demand for steel rails.

Prior to the Civil War, steel could only be made in small batches of 50-75 pounds or so at a time, making it prohibitively expensive for widespread industrial-scale use.  Rail track was made of iron, which rusted, wore out, and even shattered under heavy loads.  It was only when Henry Bessemer invented his eponymous converter that steel could suddenly be made at the rate of 25 tons at a crack (with enormous energy savings to boot), opening up the railroads as major league customers. 

In 1860 the entire United States produced about 1,600 tons of steel, but by 1900 Carnegie Steel alone was producing more than the entire output of the British steel industry.

"Voila," you may be saying?  Perfect place at the perfect time?

My question is slightly different:  How is it possible that no one but Carnegie saw this perfect confluence of immense demand (railroads for rails) and sudden ready supply (the Bessemer converter process).

Of course, it's not possible in the slightest; it would have been as plain as day.  And this is where Nasaw utterly fails to lend insight into why Carnegie Steel came to dominate and not, say, Frick Steel or Rockefeller Steel or (say) O'Reilly, Schultz, or Mancini Steel, there being plenty of Irish, German, and Italian immigrants alongside the Scots.

Reading between the lines, my diagnosis is that Carnegie was the master of creative destruction, including creatively destroying his own not-so-old mills by replacing them with new and improved equipment as soon as it became available.  He ran the mills relentlessly, 24/7, and was not in the least afraid to sell at or below cost in order to keep his hyper-productive mills running at the expense of competitors.  But these are conclusions one must infer, as they are not explained—certainly the economic and business consequences of his practices are not explained.

If I'm right, Carnegie's true competitive genius lay in his courage to continuously destroy his own competitive advantage in order to redouble it with the next generation of equipment and processes.  I am sure he never heard, much less uttered, the phrase, "If it ain't broke...."  Nor—listen up, lawyers—would he have countenanced the question/objection, "Who else is doing it?"  If no one else is doing "it" (it being the next generation in steel-making), that was precisely Carnegie's golden opportunity.

(Parenthetically, we may note that the sad dinosaur carcass that US Steel, successor to Carnegie Steel, became in the second half of the 20th Century was precisely because of its highly risk averse culture and its refusal to embrace the "mini-mill" technology introduced by the Japanese steel industry and such nimble domestic competitors as Nucor, which relied heavily on recycled steel as an input and produced relatively small-bore and unimpressive products such as thin rolled steel for kitchen appliances rather than massive trusses, stanchions, and I-beams.)

The ultimate question about Carnegie's life, of course, is whether his philanthropy trumps his ruder business practices or vice versa.  On this Nasaw prudently withholds judgment.  For my part, I think his almost furious philanthropy redeems whatever he may have done to amass his wealth.  Business standards 100 and 150 years ago were not as they are today, and it's blinkered and unfair to judge him by our nobler sensibilities (say we with loud self-satisfaction).  Some of what he did surely would qualify as insider trading today; other behavior was, as noted, murderous strike-breaking; and still other was simply pressing advantages without mercy.  But from the very earliest of ages he was driven, I believe, not by wealth for his or its own sake, but in order to multiply what he could give away.

According to Wikipedia, between 1883 and 1929 Carnegie and his trust funded the construction of 2,509 libraries,1,689 in the United States, 660 in Britain and Ireland, 156 in Canada, and others in Australia and New Zealand among other places. At the turn of the last century, more than half the libraries in existence in the US were Carnegie funded. He had vowed as a very young man to see to it that no one should be deprived of books growing up as he had been, and he came shockingly close to achieving this dream.

A complex fellow indeed.  I'm sorry this enormous effort by the indisputably talented Nasaw did not gain my critical favor.

The History of Allen & Overy: 1930 - 1971

A couple of weeks ago, the two volume history of the firm of Allen & Overy arrived FedEx from Europe.  I had just recently learned that the books existed, and the firm was kind enough to send me them when I expressed interest.  When they arrived, they were not remotely what I had expected.

First of all, the two books could not be more different, in format and typography, tone of voice, subject matter and organization, or even print quality (uniformly high, I hasten to add, but not remotely similar otherwise). 

Volume 1 (Allen & Overy The Firm 1930 - 1998, Allen & Overy, London, 1999), written by Humphrey Keenlyside, an alumnus of A&O, covers the years from the founding of the firm in 1930 through 1998, and resembles a classic law firm history with a greyish-silver cover, thick and heavy stock, and a standard chronological organization.

Volume 2 (A&O at 75, Allen & Overy, London, 2005), is a different beast entirely.  In format it's "landscape" not "portrait;" it's softbound not hardbound; it's printed in full, glorious, high-gloss color, with abstract commissioned drawings liberally sprinkled throughout; it covers no particular chronological period although it brings the story forward in time to 2005 (the firm's 75th Anniversary); and it's organized geographically, by office, rather than chronologically or by practice area or client. 

As Guy Beringer puts it in his foreword, "Rather than simply update the existing history of Allen & Overy, I thought it would be appropriate to focus on the single most important change that has happened to the firm -- our internationalisation."

Together, the two volumes tell what I believe is a story worth summarizing here in the pages of "Adam Smith, Esq.," for what it has to say about fortuity and foresight, luck and preparedness, vision and blinkered sight, and building on strength and recovering from disasters.

The history is voluminous enough that I will report it in three installments. Here is the first.

A&O opened its doors on a remarkably inauspicious day, January 1, 1930, at the start of what we now know was to be the Great Depression.  And although it seems alien to our current thinking, recall that Europe had still not psychically or physically recovered from World War I; the Continent, in particular, was still rebuilding.  Fortunately for A&O, George Allen and Tom Overy came from their previous firm, Roney & Co.—which they left because they were generating a large portion of the billings and receiving a small portion of the compensation—with a number of good clients that would get the firm on its feet. 

Conditions were, by today's lights, primitive.  The lift to the office "wheezed," heat, such as it was, came from coal, and transporting client files from Roney to the new global headquarters of A&O was accomplished in an overstuffed cab with Allen and Overy doing all they could to keep the piles from careening off onto the pavement.  (One imagines the same transfer of documents could be accomplished today through one or two zipped email attachments surreptitiously to oneself @googlemail.com.)

The history calls George and Tom "The Odd Couple," and indeed they seem to have been.  Allen "was exceptionally handsome, a dark, somber face offset by strong piercing eyes" and with an, austere, precise, scrupulously tidy military bearing.  Overy, by contrast, was all of 5'3" "and, if anything, gave the impression of being smaller, with the sort of face that scares small children."    In the first of several remarkably candid notes, the history states flatly that "it is quite possible that they were not even particularly good friends."  But share a commitment to the development of the firm they did.

The firm's first big break came when King Edward VIII abdicated the throne in December 1936 in order to marry Wallis Simpson; George Allen was the King's solicitor and arguably his key advisor during the crisis, spending the climactic ten days in almost continual close touch with his royal client.  Allen's gift for succinctness showed itself at a critical moment when the King, on the phone with Wallis Simpson (who was in France), covered the phone with his hand and asked Allen what he should say to summarize the situation to her.  Allen wrote, and the King relayed, "The only conditions on which I can stay here are if I renounce you for all time."

Although sensationally high-profile matters such as that undoubtedly helped the firm's profile, it's worth pausing for a moment to note that all is relative compared to the A&O we are familiar with today. 

After proclaiming that "the firm picked up quickly once the war [WWII] finished," it immediately follows with numbers which would be less than underwhelming today:  Total revenue for the year 1947 was £100,000, and Allen and Overy each earned nearly £12,000, which, we are reassured, was "the equivalent of £275,000 in today's money."

But if the firm was doing well, something I can only describe as human tragedy was in the offing.  In the summer of 1951, George Allen and Tom Overy decided to consult with their accountants to determine what they thought would be a simple matter:  The terms upon which they would retire.

The key issue was how the ongoing partnership would be able to repay the capital that Allen and Overy had contributed, together with the additional goodwill generated as a return on their investment.  The sticking point came to be how long the partnership would have to make good on the repayment.  The accountant initially suggested at three-year period, which Allen endorsed on the ground that even young partners were enjoying a high income by virtue of being partners.  Overy, on the other hand, favored giving the young partners longer to meet their sizable obligation.

Time was not on their side.

The partnership deed was due to be renewed January 1, 1952, and relations between Allen and Overy "became increasingly acrimonious," to the point that they were communicating only by written notes.  On December 31, 1951, they finally agreed on terms.  But the story was not ended. 

Early in 1952, as the junior partners began to realize the burden they had unwittingly assumed, they began lobbying to extend the repayment period from 3 years to 7.  Overy sympathized and took their side, but Allen "detected a conspiracy" and threatened to resign from the partnership altogether.  He even refused to attend a celebratory dinner with the partnership planned for the occasion of his knighthood by Queen Elizabeth in June 1952.   In June 1953 he formally retired from the firm.

George Allen in a formal portrait

And alas, the strain Overy had gone through began to take its toll as the decade continued, and "he began behaving strangely and unpredictably."  So long as this could be cabined within the four walls of the firm, it was manageable if awkward.  But the last straw was when he appeared unannounced one day at the offices of Morgan Grenfell (a client) demanding to be taken to lunch.  A senior A&O partner was summoned to pick him up, and shortly afterwards he would be committed.

As the book candidly puts it, "It is not clear whether Tom  Overy suffered a full-blown nervous breakdown or whether it was a temporary mental illness," but in November 1960 he was hospitalized and never again worked at the firm.  He died 13 years later at 80.

Tom Overy (undated photo)

In the early 1960's Allen & Overy seemed to be humming.  A 1962 book, Anatomy of Britain, identified it as one of the top four firms in the City, the other three being Linklaters & Paines, Slaughter and May, and Freshfields.   Customs of that time—well within the lifetime of many followers of "Adam Smith, Esq."—are as quaint and beguiling as they are unimaginable today.  For example, following the annual Christmas partners' lunch, all would proceed to Locks the Hatters in St James's Street to be sized and fitted for a new bowler for the coming year.

At the offices, each partner—in the absence of his own secretary, which of course all had—could buzz down to the general office where a light would blink next to his nameplate, prompting someone to rush to his office.  We are told that "if it was 4:00 pm and it was Tony Overy's buzzer going, the office boys would know the order that was coming:  a packet of DuMaurier cigarettes from the tobacconist opposite.  Years later, the instruction would more probably be for a visit to the off-licence."  [The "off-licence" is a liquor store, and Tony was Tom's son.  He had been made partner as of right under the original 1930 articles of partnership, which entitled George and Tom each to anoint one son as a partner.]

After Overy's departure, the role of "senior partner" was assumed by a triumvirate of Godfrey Morley, Willie Martin, and Jim Thomson, but "in reality it was Thomson who called the shots."  By all accounts he was a superb lawyer—some have said his reputation was as the finest commercial lawyer in the City—but it was his drive and ambition that gave him the impact he would have. 

"He was fiercely ambitious, not just for himself but also for the firm.  He made it his business to know everything that was going on.  No one, from senior partners down, escaped his attention.  He would call up files opened in the name of other partners without telling the partner responsible.  Whenever he passed anyone in the corridor he would shoot them a question about how a particular matter was being dealt with."

Thomson's leadership of A&O came at a time when the profession was undergoing a sea change whose repercussions are still being felt today:  It was no longer possible or desirable to be a generalist.  An update to The Anatomy of Britain published in 1965 read:

"'The new kind of lawyer is a more adaptable and positive person; he is staking his claim in the new corporate world, and prepared to deal with any business, including tax, pensions, and hire purchase, that his client might have.'  Substitute the words 'derivatives,' 'securitization,' and 'mergers' for those last three examples and that same sentence could just as easily be written today."

While the firm had made great strides during the  '60's, several large shocks hit it as the '70's began.  In the spring of 1970 John New, one of the new generation of leading lights, died of a heart attack at age 42.  He was the first at A&O to pursue the new field of intellectual property (and to realize its coming centrality to a sophisticated practice), and his death "left a huge hole."  In 1971, Robin Broadley, a partner since 1964, left to go to Barings.  He had been indispensable in developing the firm's banking work.

But the worst happened in the spring of 1971.  Thomson was in South Africa on business with a client.  On July 8, 1971, the car he was riding in to the airport for the return flight to London was forced off the road by a swerving driver; it hit a barrier and flipped over.  Thomson died on the way to the hospital.  Each of the other three people in the car was seriously injured, but ultimately survived.

The firm was "devastated.  Everyone went into a state of shock and a numbness spread throughout.  Allen & Overy revolved around Jim Thomson."  As the chairman of a major bank client put it:  "That will be the end of Allen & Overy."

Jim Thomson (undated photo)

To be continued....

"Managing the Modern Law Firm," edited by Dr. Laura Empson

If you are fascinated as I am by the congeries of issues lying at the intersection of the "partnership ethos" and "corporate-like management," then you need to be familiar with the work of Dr. Laura Empson, as highlighted in Aric Press's recent "In-House" column for The American Lawyer.

Aric calls the just-released book which Laura edited, Managing the Modern Law Firm, a "valuable new collection of essays" that constitutes where "we all [should] start" in thinking about these issues. (Disclosure: I've met Laura and her publisher, Oxford University Press, sent me a reviewer's copy of the book.)

I just learned that Laura has moved from the University of Oxford’s Saïd Business School, where she was Director of the Clifford Chance Centre for the Management of Professional Service Firms, to Cass Business School, in the City of London, where she has joined the Faculty of Management as Professor in the Management of Professional Service Firms.

Lest you fear that Laura's approach might be too "academic," you should know that she began her career as an investment banker in the City and experienced the Big Bang first-hand. If you suspect that might have given her a keen curiosity about, and perspective on, how global professional service firms respond to change, you're absolutely right.

Do the Management Gurus Have Clothes?

The relentless onslaught of business and management books often feels (to me, at least) like standing at the bottom of the sluiceways of the Grand Coulee Dam.  Fortunately, all but a tiny slice of the dead-tree armada is utterly inconsequential.  Of the remaining few books that penetrate consciousness for a week, a season, or a year, my secret suspicion has always been that far more are bought than are read.

A still slimmer slice are those select few that become household (or perhaps "office-hold") words:  In Search of Excellence, The Innovator's Dilemma, Good to Great, The Effective Executive, et al.

But even more unusual in my experience is the seriously-pedigreed book that questions the very foundations of the genre:  The business book, in other words, that's a meta-entry in the category.  In case you haven't guessed, I'm nominating The Halo Effect, by Phil Rosenzweig, a professor of strategy and management at the International Institute for Management Development in Lausanne.  He's a Wharton Ph.D, UCLA MBA, and former Harvard Business School Professor.  (I did say "seriously pedigreed," didn't I?)

New reviews of Halo, published this month, are coming out virtually daily, so I can't and won't attempt an exhaustive literature search here; besides, that's not what "Adam Smith, Esq." is all about.  I do want to focus on a piece Rosenzweig wrote himself in The McKinsey Quarterly, which, alas, is not yet available online (I subscribe to the print version, which arrived last night), but in the meantime the most capable review I can point your browser towards is courtesy of the stalwart FT. 

Rosenzweig begins with the inarguable observation that "The quest of every high-quality corporate executive is to find the keys to superior performance."  In this quest, they "too often" put their faith in books and articles that "have claimed to reveal the blueprint for lasting success, the way to go from good to great, or how to craft a fail-safe strategy or to make the competition irrelevant."

If you're starting to feel queasy at the claims of these books, in my opinion ever-so-fairly characterized by Rosenzweig, get on line.

His indictment of the accumulated managerial literature can succinctly be stated, in my view, as falling prey to mistaking correlation for causation.  Specifically, many management books that focus on excellence, strategic success, enduring and powerful cultures, and so forth, start out by looking for companies that have succeeded and then trying to tease out and analyze what they have in common.  Rosenzweig's point is that, when the business writer begins the search for superior traits in firms by examining those who are (we now know, in our wisdom) successful, that the writers have by hypothesis excluded from the dataset firms that underperformed or even failed.

Yes, of course, you may be nodding, but the issue is this:  What if some or many of the sub-par performers shared  the traits the author proceeds to identify as indicia of success?  We would never know, because the authors never asked.

The "halo effect" itself is a phenomenon first identified in the 1920's by Edward Thorndike, a US psychologist, and is "the tendency to make specific inferences on the basis of a general impression."  This may at first blush seem abstract, but Rosenzweig fleshes it out thus: A firm that is conspicuously successful (say, Cisco during the late 1990's) is typically praised for "its brilliant strategy, masterful management of acquisitions,a nd superb customer focus."  Then, when the dot-com's collapsed, observers were "quick to make the opposite attributions:  [That] Cisco now had a flawed strategy, haphazard acquisition management, and poor customer relations."

Rosenzweig's insight follows immediately:  "On closer examination, Cisco really had not changed much—a decline in its performance led people to see the company differently."   After all, those various attributes ("strategy," "customer focus," indeed "management" itself) are profoundly subjective, or, as he puts it, "ambiguous and difficult to define."

Elsewhere, I have made the observation that the problem with statements to the effect that your firm is pursuing maximum (or higher, or optimal, or whatever) "profitability" is that as a manager there's no dial on your financial dashboard that tunes profitability up or down. It's the residual, if you will, of everything else you do, from professional development and cultural hygiene to the needs and preferences of your clients and the exertions of your competitors.

The dashboard/race car analogy may actually be useful. How? What a race car driver would really like would be a dial on his dashboard for "faster lap times." Of course there's no such thing, and we all must work with the pedals and wheels that we can control:

• The innate performance capabilities of your tools: The engine, suspension, brakes, tires, steering, etc. (think your IT infrastructure, your KM system, your office layout, your support and administrative staff).
• The external environment including the track design and condition (think the regulatory and public-opinion environment, and if you doubt it matters, I have three words for you: Stock options backdating).
• The abilities of your team-mates and pit crew (your colleagues, partners and associates and paralegals, and your line staff).
• What the other drivers and teams are doing (your competitors: If you subscribe in principle to the observation that "no battle plan survives its first encounter with reality," ask yourself if you are truly mindful of how your competitors might preditably react to your firm's new initiative X). And
• The driver's own level of experience, reflexes, risk tolerance, peripheral vision, etc. (your expertise as both a legal practitioner and as a trusted advisor to your client).

But back to Rosenzweig. He proceeds to deconstruct the promises of the books, in particular the promises of absolute performance and of enduring success, as having especially pernicious consequences for executives who rely on their false hopes.

As for absolute performance, it's largely irrelevant. All that matters is relative performance.  Need an example?  Try GM. Its US auto market share has gone from 35% in 1990 to 29% in 1999 and 25% in 2005. That's the relative measure—the only one that matters.  In absolute terms?  Without question, GM cars in 2005, compared to those it put out in 1990, were of far higher quality, safer, with more features, performance, and comfort.  Yet the comparison that mattered was not to itself in 1990, it was to the Japanese, German, and South Korean competition, where GM was (sadly, but richly deservedly, in my view) was getting hosed.

And as for enduring success? 

In today's globally competitive environment, there is no such thing as incumbency.  There's both a statistical and an empirical dimension to this observation. 

The statistical reality is simply that in any given population of X (human beings, fruit flies, wonders of the world, companies), there will be some remarkably long-lived examples.  The problem is that they are only identifiable after the fact.

The empirical reality is that long-term successful firms haven't magically "unlocked the secrets of sustained greatness:"  Instead, they've strung together a long string of many short-term successes.  Rosenzweig doesn't mention this example in the McKinsey piece, but I would nominate GE as a long-term-successful firm that has achieved that privileged position only by continually re-inventing itself at a pace that would shame Madonna.

Managers cannot rely on principles of this or principles of that, seven habits programs (or 12-step programs), 2 x 2 matrices, or other guru wisdom @ $29.95.  Instead, we must realize that the world is uncertain and indeterminate:  We are affected more than we'd like to admit by:

• technological change,
• capricious customer preferences, and
• unknowable internal capabilities within our own firms.

This means we must learn to "see the world through probabilities," as summarized in this observation from ex-Goldman Sachs, ex-US Treasury Secretary Robert Rubin:

"Once you've internalized the concept that you can't prove anything in absolute terms, life becomes all the more about odds, chances, and trade-offs.  In a world without provable truths, the only way to refine the probabilities that remain is through greater knowledge and understanding."

So is Rosenzweig's thesis a counsel of despair?  Can we, indeed, know nothing meaningful about successful management strategies?

I view it, as does Rosenzweig, as a counsel of inspiration.

In this unknowable world, what attitude and what approach grace us with the best odds of success?  Only one:  Critical thinking. 

This means rigorous and unblinking analysis of reality as it is, not as you want it to be; a welcoming attitude towards mistakes as learning opportunities and a skeptical attitude towards successes as profoundly time-and-place specific; and a severe allergy to formulae, knee-jerk reactions, and wilful ignorance of the new, the foreign, and the "other."

As Rosenzweig puts it, "If a set of steps that could guarantee success did exist, and if greatness were indeed simply a matter of will, then the value of clear thinking in business would be lower, not greater."

Would you want it otherwise?

The "Adam Smith, Esq." Monthly Book Review: "The Authentic Adam Smith," by James Buchan

James Buchan, The Authentic Adam Smith (W. W. Norton & Company, Inc.: New York, 2006) has recently come out and it is an irresistible selection for this month's "Adam Smith, Esq." Monthly Book Review.  I hope you understand.

Buchan, a Brit, lives in Norfolk, England, and has been a foreign correspondent for The Financial Times as well as the author of Frozen Desire, an examination of money through history, as well as Crowded with Genius, a study of Edinburgh during the Enlightenment.  Better credentials for profiling Adam Smith are hard to imagine.

Which Buchan does succinctly:  In the small span of 145 not-large pages (not counting extensive endnotes).  And what story does he tell?  Essentially, a more complex and sophisticated view of Adam Smith than those ideologues of left and right today who would denounce or embrace him as a fairly one-dimensional proponent of laissez-faire, free markets, and limited government. 

Smith, in fact, viewed himself not as an economist (the term had barely been invented), but as a moral philosopher.  Buchan stresses the importance of The Theory of Moral Sentiments, which predated The Wealth of Nations by 17 years, and implicitly critiques too-casual "followers" of Smith today who invoke his name in ignorance of what Smith actually wrote.

As for Smith's personal life, it's safe to say he was an eccentric preoccupied with the life of the mind.  He never married and lived much of his life as an adult with his mother.  Although he became wealthy through tutoring the Duke of Buccleuch through a multi-year tour of the European continent, followed by a lifelong retainer of £900/year (more than the most highly-compensated Scottish judges at the time), and considered himself "as affluent as I could wish to be," it was only after his death that we learned he gave away most of his wealth to charitable causes.

An unexplored—or unknown, hitherto, by me—aspect of Smith's thinking were his views on maintenance of the British Empire, and specifically on control of the American colonies (recall that Wealth of Nations was published in the almost preposterously apropos year of 1776).  Smith's view, in a word?  Set America free.

He came at this both through his economic analysis of matters, and from his experience of military affairs.  The second first:  As Buchan puts it (p. 112), "Smith, who like many Scotsmen of his social class had wide connexions with military officers, was able to see that an American militia, once it had served long enough to achieve military discipline, might be a match for the redcoats."

And as for the first? He believed that Britain's attempt:

"To prohibit a great people, however, from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred right of mankind."

"Such has hitherto been the rapid progress of that country in wealth, population and improvement, that in the course of little more than a century, perhaps, the produce of American might exceed that of British taxation.  The seat of the empire would then naturally remove itself to that part of the empire which contributed most to the general defence and support of the whole."

As the expenses of the American war effort escalated, Smith became convinced of "the real futility of all distant dominions."

Smith died in Edinburgh on Saturday, July 17, 1790, aged 67, after a few years of declining health.  In February of that year he remarked:

"I meant to have done more; and there are materials in my papers, of which I could have made a great deal.  But that is now out of the question."

The night before he died, he took leave of his friends at dinner saying, as he left the room, "I believe we must adjourn this meeting to some other place."

Pick up Buchan's book; you'll learn much in short order, and may even, familiar as you believe you may be with Smith, learn something new.  I did.

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