Adam Smith, Consumer Tastes, and Economic Growth

Author(s): Nathan Rosenberg

Source: The Journal of Political Economy, Vol. 76, No. 3 (May - Jun., 1968), pp. 361-374
Published by: The University of Chicago Press
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Adam Smith, Consumer Tastes, and
Economic Growth

NathanRosenberg*
Purdue University

Adam Smith's neglect of demand in explainingthe determinationof

naturalpriceis well known.But is it also true,as it is ofteninferredor
assumed,that demand forcesplay no importantrole in the Wealthof
Nations?As an analyticalmatter,thetraditionalinterpretation is certainly
a defensibleone. If one confinesoneselfto thetheoryofvalue,thepickings
are distinctly lean in thatbook. But,of course,onlya rathersmallfraction
of Smith'smajor workis explicitlyconcernedwiththetheoryof value. If
one is interested also in inquiringintothenatureand causes of thewealth
ofnations-and itis at leastarguablethatSmithpossessedsuchan interest
-it is possiblethatdemand-sideforcesmay be utilizedin an important
way.In describingand accountingfortheprocessofeconomicgrowthas it
occurredin Europe, does Smith rely heavilyon demand forcesas ex-
planatoryvariables? Grantedhis limiteduse of demand withinan ana-
lytical context,are such forces importantwithin the frameworkof
historicalgeneralizations concerningeconomicgrowth?
This paper will attemptto furnishan affirmative answer to the last
question.It will be arguedthatthe tasteand preference structure of con-
sumers-or at least certain classes of consumers-is indispensableto
Smith'sexplanationof theprocessof economicgrowth.More specifically,
it willbe shownthat(1) thecompositionof demandand (2) theimpactof
the availabilityof new commoditiesupon household behavior have,
historically, been criticaldeterminants of the "progress of opulence in
different nations."1
It will be arguedfurther thatSmithhas a fairlywell integratedviewof
* The authorwishesto acknowledgethe benefitwhichhe has derivedfromdis-
cussionswithJamesLorimer.
I Book III ofthe WealthofNationsis titled"Of theDifferent
ProgressofOpulence
in DifferentNations." On thecontentsof Book III Schumpeter stated:"It did not
attracttheattentionit seemsto merit.In itssomewhatdryand uninspired wisdom,it
mighthavemadean excellentstarting sociologyofeconomiclife
pointof a historical
thatwas neverwritten"(Schumpeter, 1954,p. 187).
36i
362 JOURNAL OF POLITICAL ECONOMY

the natureand formationof humantastesand the mannerand direction

in whichhumanwantsdevelopovertime.This viewis an essentialpartof
hisconceptionofeconomicgrowth.It is not,however,expressedin a single
place, and therefore it will be necessaryto draw upon varioussourcesto
achievethe desiredsynthesis-inparticular,to supplementSmith'sstate-
mentin variousportionsof the WealthofNationswithmaterialsfromthe
earlierTheoryof Moral Sentiments.
In examiningthe role played by demand in Smith'sview of develop-
ment,it will be helpfulto concentrateour attentionon the economic
surplusgeneratedby different societiesin different
stagesof development.
For economicgrowthis regardedas essentiallya matterof thesize of the
surplusat any momentin timeand themannerin whichit is disposedof.
As we willsee,certainaspectsof consumertastesare regardedby Smithas
affecting all of thesefactorsin a decisiveway.
All of the earliestformsof societywere,of course,preoccupiedwith
the acquisitionof food. "Among savage and barbarousnations,a hun-
dredthor littlemorethana hundredth partofthelabourofthewholeyear,
willbe sufficient to providethemwithsuchloathing and lodgingas satisfy
thegreaterpartof thepeople. All theotherninety-nine partsare frequently
no morethan enoughto providethemwithfood" (Smith,1937,p. 163).
Adam Smithdistinguishes two stagespriorto a settledagricultural society:
(1) " hunters, thelowestand rudeststateofsociety,suchas wefinditamong
thenativetribesof NorthAmerica"and (2) " nationsof shepherds,a more
advancedstateof society,suchas we finditamongtheTartarsand Arabs"
(Smith,1937,p. 653). The nextmore advancedstageis "a nationof mere
husbandmen,"one whereplantshavebeendomesticated and a settledagri-
cultureis carriedon, but wherethereis "littleforeigncommerce,and no
othermanufactures butthosecoarseand householdoneswhichalmostevery
privatefamilypreparesforitsown use" (Smith,1937,p. 655). Subsequent
stages,to which(and only to which) Smithapplies the term"civilized
society,"possess moreextensivecommerce,includingforeigncommerce,
and a moreextensivemanufacturing sector,withinwhichthereexistsan
elaborate specializationof functionamong workmen(Smith, 1937, pp.
656-57).
Since "subsistenceis, in the natureof things,priorto conveniencyand
luxury"(Smith,1937,p. 357), thegrowthof thenon-agricultural sectoris
dependentupon improvements in productivityin agriculture."When by
the improvement and cultivationof land the labour of one familycan
providefood fortwo,the labour of halfthe societybecomessufficient to
providefoodforthewhole.The otherhalf,therefore, or at leastthegreater
part of them,can be employedin providingotherthings,or in satisfying
the otherwantsand fanciesof mankind" (Smith,1937,p. 163). It is the
growthin agriculturalproductivity, then,which makes possible urban
societyand the productiveactivitieswhichare uniquelyassociated with
ADAM SMITH, CONSUMER TASTES, AND ECONOMIC GROWTH 363

cities.2A surplusabove subsistenceneeds emergesat veryearlystagesin

thedevelopmentof societies.Althougha nationof huntersprovidesonly
a "precarioussubsistence"and "universalpoverty,"a nationofshepherds
can producea verysubstantialsurplusabove subsistencerequirements.3
From thisearlystageonward,therefore, thedispositionof thesurplusbe-
comesa matterof primaryimportance.This in turnraisesthequestionof
the distributionof income and the mannerin which above-subsistence
incomesare disposedof.
In a societyof shepherdsthe rangeof commoditiesavailable forcon-
sumptionis severelycircumscribed. In theabsenceof thegoods produced
by a moreadvanced stateof the artsand manufactures (whetherdomes-
ticallyproducedor made available throughforeigntrade),thereare very
fewopportunities forexpenditureson personalconsumption.The resultis
thatthewealthyacquire numerousdependentsand retainerswho relyfor
theirsubsistenceentirelyupon theirmasters:

A Tartar chief,the increase of whose herds and flocksis

to maintaina thousandmen,cannotwell employthat
sufficient
increasein any otherway thanin maintaininga thousandmen.
The rude state of his societydoes not affordhim any manu-
facturedproduce,any trinkets or baubles of any kind,forwhich
he can exchangethatpartof his rudeproducewhichis overand
above his own consumption.The thousandmen whom he thus
maintains,dependingentirelyupon him for theirsubsistence,
must obey his ordersin war, and submitto his jurisdictionin
peace. He is necessarilyboth theirgeneraland theirjudge, and
is the necessaryeffectof the superiority
his chieftainship of his
fortune(Smith,1937,p. 671; cf. Smith,1956,pp. 15-16).

This pointis, in fact,a generalone applicableto all societieswhichdo

not have available to themthe productsof a more advanced and refined
manufacturing.4 The opportunity costto therichofsupporting thepoor is,
at themargin,quiteliterallyzero, and thereforethehospitality of therich
2
"The cultivationand improvement of the country...whichaffordssubsistence,
must,necessarily,be priorto theincreaseofthetown,whichfurnishes onlythemeans
of conveniency and luxury.It is thesurplusproduceof thecountryonly,or whatis
overand above themaintenance of thecultivators,thatconstitutesthesubsistenceof
thetown,whichcan therefore increaseonlywiththeincreaseofthissurplusproduce"
(Smith,1937,p. 357).
3 Smithin fact attributes the establishment of regulargovernment to the in-
equalitiesof propertywhichemergeamongshepherdsocieties."The appropriation
of herdsand flockswhichintroducedan inequalityof fortune, was thatwhichfirst
gave riseto regulargovernment. Till therebe property therecan be no government,
the veryend of whichis to securewealth,and to defendthe richfromthe poor"
(Smith, 1956, p. 15).
4All largecountries, See
in fact,have some minimalamountof manufacturing.
(Smith,1937,p. 381).
Smith'squalification
364 JOURNAL OF POLITICAL ECONOMY

" seemsto be commonin all nationsto whomcommerceand manufactures

are littleknown" (Smith,1937,p. 386):
In a countrywhichhas neitherforeigncommerce,nor any of
the finermanufactures, a greatproprietor,having nothingfor
whichhe can exchangethegreaterpartoftheproduceofhislands
whichis overand above themaintenanceof thecultivators, con-
sumes the whole in rustichospitalityat home. If this surplus
produceis sufficientto maintaina hundredor a thousandmen,
he can make use of it in no otherway than by maintaininga
hundredor a thousandmen. He is at all times,therefore, sur-
rounded with a multitudeof retainersand dependents,who
havingno equivalentto givein returnfortheirmaintenance, but
being fed entirelyby his bounty,mustobey him,for the same
reasonthatsoldiersmustobeytheprincewho pays them.Before
the extensionof commerceand manufacturesin Europe, the
hospitalityof therichand thegreat,fromthesovereigndown to
the smallestbaron, exceeded everythingwhich in the present
timeswe can easilyforma notionof (Smith,1937,p. 385).
In order to appreciateSmith's furtherargument,it is importantto
understandan aspect of his interpretationof humanbehavior.Smithbe-
lievedthat,in all butthemostprimitive societies,"the necessitiesand con-
venienciesof thebody" wereeasilyprovidedfor(Smith,1817,p. 343; see
also Smith,1956,p. 160). In more advanced societies,the strivingin the
economicarena takes place not to procuregoods whichcaterto human
needs in any utilitariansense; forthe goods acquired by the richare of
"frivolousutility"and provide,at best, "triflingconveniencies."5The
effortinvolvedin theiracquisitioncertainlycannotbe justifiedin termsof
thedirectutilitytheyafford.Indeed,in speakingofthedecisionofthepoor
man's son to pursue wealth,Smithsays: "To obtain the conveniencies
whichthese[wealthand greatness]afford,he submitsin thefirstyear,nay
in thefirstmonthofhisapplication,to morefatigueofbody,and moreun-
easinessof mind,thanhe could have suffered throughthewholeof his life
fromthewantof them" (Smith,1817,p. 291).6
5 "The poorman'sson,whomHeavenin itsangerhas visitedwithambition"finds,
aftera lifetimeof "unrelenting industry"that " wealthand greatnessare mere
trinketsof frivolousutility,no moreadapted forprocuringease of body or tran-
quilityofmind,thanthetweezer-cases of theloveroftoys;and, likethemtoo, more
troublesome to thepersonwho carriesthemabout withhimthanall theadvantages
they can affordhim are commodious. There is no otherreal differencebetweenthem,
except thatthe convenienciesof the one are somewhatmoreobservablethanthoseof the
other"(Smith,1817,pp. 290-92[emphasis added]).In old age,"powerand richesap-
pearthento be, whattheyare,enormousand operosemachinescontrived to produce
a fewtriflingconveniencies to thebody" (Smith,1817,p. 293; see also pp. 236-37).
6 Also: "It is not ease or pleasure,but alwayshonour,of one kind or another,
thoughfrequently an honourveryill understood,that the ambitiousman really
pursues"(Smith,1817,p. 100).
ADAM SMITH, CONSUMER TASTES, AND ECONOMIC GROWTH 365

What thenis the object pursuedby mankindif it is not the pleasure,

comfort,and ease affordedby the acquisitionof a largestockof worldly
goods? Briefly,the recognitionand admirationof our fellow human
beings."To deserve,to acquire,and to enjoy,therespectand admiration
of mankind,are the great objects of ambitionand emulation" (Smith,
1817,pp. 94-95).7
Although this respect and admirationshould properlybe attained
throughstudying to be wiseand practicingto be virtuous,"the greatmob
of mankind"is notadequatelyequippedto discernand appreciatewisdom
and virtueand indiscriminatelyaccords its respectand admirationto the
richand powerful.'Hence arises a corruptionof the moral sentiments,9
and hencethepursuitof richesis primarily actuatednot by theenjoyment
of richesitselfbutby therecognitionand distinction whichthepossession
and displayof wealthaffords:10
It is chieflyfromthis regardto the sentimentsof mankind,
thatwe pursuerichesand avoid poverty.For to whatpurposeis
all the toil and bustleof thisworld? What is the end of avarice
and ambition,of the pursuit of wealth, or power, and pre-
eminence?Is it to supplythenecessitiesof nature?The wagesof
the meanestlabourercan supplythem.We see thattheyafford
himfood and clothing,thecomfortof a house, and of a family.
If we examinehis economywithrigour,we should findthathe
spends a greatpart of themupon conveniencies, whichmay be
regardedas superfluities,and that,upon extraordinary occasions,
he can givesomethingevento vanityand distinction. What then
is the cause of our aversionto his situation,and why should
thosewho have been educatedin thehigherranksof life,regard
7 The importance of the pursuitof rank, and the unimportance of satisfying
bodilyneeds,is expressedeven moreforcefully lateron: "Though it is in orderto
supplythenecessities and convenienciesof thebody,thattheadvantagesof external
fortune recommended
are originally to us, yetwe cannotlivelongin theworldwith-
out perceivingthattherespectofourequals,ourcreditand rankin thesocietywe live
in,dependverymuchuponthedegreeinwhichwe possess,or aresupposedto possess
theseadvantages.The desireof becomingthe properobjectsof thisrespect,of de-
servingand obtainingthiscreditand rankamongourequals,is perhaps,thestrongest
ofall ourdesires,and ouranxietyto obtaintheadvantagesoffortune is, accordingly,
muchmoreexcitedand irritatedby thisdesire,than by that of supplyingall the
necessitiesand conveniencies of the body,whichare alwaysveryeasilysupplied"
(Smith,1817,p. 343).
8 "We frequently see therespectful of theworldmorestrongly
attentions directed
towardsthe rich and the great,than towardsthe wise and the virtuous"(Smith,
1817,p. 94).
9 ChapterIII, Part I, of the Theoryof Moral Sentiments is titled"Of the Cor-
ruptionof Our Moral Sentiments, WhichIs Occasioned by This DispositionTo
Admirethe Rich and the Great,and To Despise or NeglectPersonsof Poor and
Mean Condition."
10"With thegreaterpartof richpeople,thechiefenjoyment of richesconsistsin
theparadeof riches"(Smith,1937,p. 172; cf.Smith,1817,p. 77).
366 JOURNAL OF POLITICAL ECONOMY

it as worsethandeath,to be reducedto live,evenwithoutlabour,

upon the same simplefare withhim,to dwell underthe same
lowlyroof,and to be clothedin thesame humbleattire?Do they
imaginethattheirstomachis better,or theirsleep sounder,in a
palace thanina cottage?The contrary has beenso oftenobserved,
and,indeed,is so veryobvious,thoughithad neverbeenobserved,
that thereis nobody ignorantof it. From whence,then,arises
thatemulationwhichrunsthroughall thedifferent ranksof men,
and what are the advantageswhich we propose by that great
purposeof humanlifewhichwe call bettering our condition?To
be observed,to be attendedto, to be takennoticeof withsym-
pathy,complacency,and approbation,are all the advantages
whichwe can proposeto derivefromit. It is thevanity,not the
ease, or the pleasure,which interestsus. But vanityis always
foundedupon the beliefof our beingthe objectof attentionand
approbation.The richman gloriesin his riches,because he feels
that theynaturallydraw upon him the attentionof the world,
and thatmankindare disposedto go along withhimin all those
agreeableemotionswithwhichtheadvantagesof his situationso
readilyinspirehim.At thethoughtofthis,hisheartseemsto swell
and dilateitselfwithinhim,and he is fonderof his wealth,upon
thisaccount,than for all the otheradvantagesit procureshim
(Smith,1817,pp. 77-78).11
Furthermore:

Naturehas wiselyjudged thatthedistinctionof ranks,thepeace

and orderofsociety,wouldrestmoresecurelyupon theplainand
of birthand fortune,than upon the invisible
palpable difference
and oftenuncertaindifference of wisdom and virtue.The un-
eyesof thegreatmob of mankindcan wellenough
distinguishing
thatthenicediscernment
perceivetheformer:it is withdifficulty
of thewise and thevirtuouscan sometimesdistinguishthelatter
(Smith,1817,p. 366).

Thus, the behaviorof upper income receiversmust be understoodin

and thisunderliesSmith's
termsof theirpursuitof rankand distinction,

11LaterSmithstates:"And thus,place,thatgreatobjectwhichdividesthewives
of aldermen,is theend of halfthelaboursof humanlife;and is thecause of all the
tumultand bustle,all the rapineand injustice,whichavarice and ambitionhave
introducedintothisworld.People of sense,it is said, indeeddespiseplace; thatis,
theydespisesittingat the head of the table,and are indifferentwho it is thatis
pointedout to the companyby that frivolouscircumstance, whichthe smallest
advantageis capable of overbalancing.But rank,distinction,pre-eminence,no man
despises,unlesshe is eitherraisedverymuchabove, or sunkverymuchbelow,the
ordinarystandardof humannature"(Smith,1817,p. 90).
ADAM SMITH, CONSUMER TASTES, AND ECONOMIC GROWTH 367

continuousreference, in the WealthofNations,to thevanityof therichin

attempting to accountforthepatternoftheirconsumptionexpenditures.12
In a societywhere the finermanufacturesare not available, oppor-
tunitiesforcultivatingone's vanityare necessarilylimited.In the absence
of such commodities,largerentalincomesare employedin hospitality, in
themaintenanceofa largegroupofretainers, and in actsofbountyto one's
however,thetypicalbehavior
tenants.In spiteof theseacts of generosity,
of largelandownersas late as thetimeof Europeanfeudalismwas reason-
ably frugal.Large landownerswerenot extravagant, and it was evencom-
mon forthemto save. This was truenot only of the nobilitybut of the
sovereignhimself,who frequentlyaccumulatedtreasure."In countries
wherea richman can spend his revenuein no otherway than by main-
tainingas manypeople as it can maintain,he is not apt to runout,and his
benevolenceit seemsis seldomso violentas to attemptto maintainmore
thanhe can afford"(Smith,1937,p. 391; cf. also pp. 414, 859-60).
All this was, however,transformed by the growthof commerceand
manufactures, whichbroughtan enormousenlargement ofthecommodity
universe.Althoughthe finermanufactures have sometimesgrownup out
of the "gradual refinement of thosehouseholdand coarsermanufactures
which must at all times be carriedon even in the poorest and rudest
countries"(Smith,1937,p. 382), foreigntradehas, historically, playeda
crucialrole in Europeancountries:

The inhabitantsof tradingcities,by importingthe improved

manufactures and expensiveluxuriesof richercountries,afforded
some food to the vanityof the greatproprietors,who eagerly
purchasedthem with great quantitiesof the rude produce of
theirown lands. The commerceof a great part of Europe in
those times,accordingly,consistedchieflyin the exchangeof
theirown rude,forthe manufactured produceof morecivilized
nations.Thus thewool of Englandused to be exchangedforthe
wines of France, and the finecloths of Flanders,in the same
manneras the corn of Poland is at thisday exchangedforthe
winesand brandiesof France, and for the silks and velvetsof
France and Italy.
A tasteforthefinerand moreimprovedmanufactures, was in
this manner introducedby foreigncommerceinto countries
whereno such workswerecarriedon (Smith,1937,p. 380).
12 "To be pleasedwith... groundlessapplause is a proofof the mostsuperficial
called vanity"(Smith,1817,p. 186). And
levityand weakness.It is whatis properly
later: "He is guiltyof vanitywho desirespraiseforqualitieswhichare eithernot
praiseworthy in anydegree,or notinthatdegreeinwhichhe expectsto be praisedfor
them,whosetshischaracterupon thefrivolousornaments of dressand equipage,or
upon the equallyfrivolousaccomplishments of ordinarybehaviour"(Smith,1817,
p. 501).
368 JOURNAL OF POLITICAL ECONOMY

In makingavailablea widerangeofgoods withwhicha greatproprietor

could gratify his "most childishvanity,"a "revolutionof thegreatestim-
portanceto the public happiness" was broughtabout (Smith, 1937, p.
391). For the resultingalterationin expenditureflows,reflectingthetastes
of (non-capitalist)upperincomegroupswhenconfronted withan enlarged
range of consumergoods, was directlyresponsiblefor eventsof major
significance.These include,in additionto an acceleratedrateof growthof
output,the gradual erosion of the political power of the landowning
classes and the decline of feudal institutions generally,the accelerated
growthof capitalistinstitutions, and a large-scaleshiftin thecomposition
of resourceuse and output.
The expansionin the range of alternativesfor the dispositionof the
economicsurplushad theimmediateeffects of (1) shiftingthecomposition
of consumerexpenditure flowsaway fromservicesand towardgoods; (2)
shifting upwardtheconsumptionfunctionsof largepropertyowners,who
previouslylivedwithintheirincomesbecause of thelimitedscope afforded
forthe exerciseof personalvanity;and (3) less obvious, but at least as
important,the strengthof the desire for these new goods provided a
motiveforefficient cultivationwhichwas previously lacking.The increased
incentiveprovidedby theavailabilityof new goods led to the elimination
of knowninefficiencies whichhad previouslybeen toleratedand to legal
and institutional changes which,by strengthening economic incentives,
Smithregardedas indispensableto sustainedeconomicgrowth.
The transformation in the consumptionexpendituresof the wealthy
whichis wroughtby theavailabilityof finermanufactured goods in a pre-
viouslyagricultural societyis, Smithappearsto believe,highlypredictable.
For he arguesthatall membersof higherincomeclassesin an agricultural
society landlords,clergy,and sovereign-succumbequally,and withthe
same consequences,to the seductiveattractionsof thesenew goods. For,
although" thedesireoffoodis limitedin everymanbythenarrowcapacity
ofthehumanstomach,"it is also truethat"the desireoftheconveniencies
and ornaments ofbuilding,dress,equipage,and householdfurniture, seems
to have no limitor certainboundary"(Smith,1937,p. 164).13 As a result,
What all theviolenceof thefeudalinstitutions could neverhave
the silentand insensibleoperationof foreigncommerce
effected,
and manufacturesgradually broughtabout. These gradually
furnishedthe greatproprietorswithsomethingfor whichthey
could exchangethe whole surplusproduce of theirlands, and
whichtheycould consumethemselveswithoutsharingit either
withtenantsor retainers.All forourselves,and nothingforother
13
Some of the more misleadingimplicationsof Smith'sdictumconcerningthe
"narrowcapacityof thehumanstomach"are examinedin Davis (1954). Somewhat
surprisingly,
Davis did notcall attention
to theevenstronger by Smithon
statement
thesame subject(in Smith,1817,pp. 295-96).
ADAM SMITH, CONSUMER TASTES, AND ECONOMIC GROWTH 369

people, seems,in everyage of the world,to have been the vile

maximof the mastersof mankind.As soon, therefore, as they
could finda methodof consumingthewholevalue of theirrents
themselves,theyhad no dispositionto sharethemwithany other
persons.For a pair ofdiamondbucklesperhaps,or forsomething
as frivolousand useless, they exchangedthe maintenance,or
whatis thesamething,thepriceofthemaintenanceofa thousand
menfora year,and withit thewholeweightand authority which
itcould givethem.The buckles,however,wereto be all theirown,
and no otherhuman creaturewas to have any share of them;
whereasin the more ancientmethodof expencetheymusthave
sharedwithat leasta thousandpeople. Withthejudges thatwere
to determine thisdifference
thepreference, was perfectlydecisive;
of the mostchildish,the meanest
and thus,forthe gratification
and themostsordidof all vanities,theygraduallybarteredtheir
wholepowerand authority(Smith,1937,pp. 388-89).
The behaviorof the clergyon theirlarge landed estateswas in no es-
sentialwaydifferent
fromthatofothersubstantiallandowners.'4Similarly,
the sovereignhimself,the greatestsinglelandowner,is subjectedto the
same forcesand respondsto themin the same manner.15
14 The largerents and tithesreceivedbytheclergywereusuallypaid in theformof
agricultural products." Thequantity exceededgreatly whattheclergycouldthemselves
consume;and therewereneitherartsnormanufactures fortheproduceofwhichthey
could exchangethesurplus.The clergycould deriveadvantagefromthisimmense
surplusin no otherwaythanbyemploying it,as thegreatbaronsemployedthelike
surplusof theirrevenues,in themostprofusehospitality, and in themostextensive
charity.Both thehospitality and thecharityof theancientclergy,accordingly, are
said to have been verygreat.Theynot onlymaintainedalmostthe wholepoor of
everykingdom,but manyknightsand gentlemenhad frequently no othermeans
ofsubsistence thanbytravelling aboutfrommonastery to monastery,underpretence of
devotion,but in realityto enjoy the hospitalityof theclergy.... The gradualim-
provements of arts,manufactures, and commerce,thesame causes whichdestroyed
thepowerofthegreatbarons,destroyed in thesamemanner,through thegreaterpart
of Europe,the wholetemporalpowerof theclergy.In the produceof arts,manu-
factures, and commerce, theclergy,likethegreatbarons,foundsomething forwhich
theycouldexchangetheirrudeproduce,and thereby discoveredthemeansofspending
theirwholerevenuesupon theirown persons,withoutgivinganyconsiderableshare
of themto otherpeople. Theircharitybecamegraduallyless extensive,theirhos-
pitality lessliberalor lessprofuse.Theirretainers becameconsequently lessnumerous,
and by degreesdwindledaway altogether.The clergytoo, like the greatbarons,
wishedto geta betterrentfromtheirlandedestates,in orderto spendit,in thesame
manner,upon thegratification oftheirownprivatevanityand folly.But thisincrease
ofrentcould be gotonlybygranting leasesto theirtenants, whothereby becamein a
greatmeasureindependent of them"(Smith,1937,pp. 753-55).
15 In a societywithlittlecommerceand manufactures, "the expenceeven of a
sovereignis not directedby thevanitywhichdelightsin thegaudyfinery of a court,
butis employedin bountyto his tenants,and hospitality But bounty
to hisretainers.
and hospitalityveryseldom lead to extravagance;thoughvanityalmost always
does.... In a commercial countryaboundingwitheverysortofexpensiveluxury, the
sovereign, in thesame manneras almostall thegreatproprietors in his dominions,
370 JOURNAL OF POLITICAL ECONOMY

The intensity ofthelandlord'sdesirefor" trinkets

and baubles" led him
graduallyto dismisshis retainersand to reducethenumberof thetenants
on his land " to thenumbernecessaryforcultivating it."
By the removalof the unnecessarymouths,and by exacting
fromthe farmerthe fullvalue of the farm,a greatersurplus,or
what is the same thing,the price of a greatersurplus,was ob-
tained for the proprietor,which the merchantsand manufac-
turerssoon furnishedhim witha methodof spendingupon his
ownpersonin thesame manneras he had done therest.The same
cause continuingto operate,he was desirousto raise his rents
above what his lands, in the actual stateof theirimprovement,
could afford.His tenantscould agreeto thisupon one condition
only,thattheyshould be securedin theirpossession,forsuch a
termof years as mightgive them time to recoverwith profit
whatevertheyshould lay out in the further improvement of the
land. The expensivevanityof the landlord made him willing to
accept of this condition; and hence the origin of long leases
(Smith,1937,p. 390).
Again the same forcesoperated,withthe same consequences,upon the
clergy.'6
Thus, in addition to its otherconsequences,the structureof tastesof
the major propertiedclasses when confrontedwiththe introductionof
new goods resultedin a substantialincreasein the economy's output.
Agriculture came to be reorganizedin a mannerwhich,forthefirsttime,
providedstrongincentivesto the cultivatorto raise outputover previous
levels.'7
Thereis anotheraspectofmen'sevaluationsofthesatisfactions afforded
byeconomicsuccessto whichSmithattachesmuchsignificance. Although,
as we have seen, the satisfactionsaffordedby greatwealthare not sub-
stantial,theyneverthelessappearto be so fromthevantagepointof those
less favorablysituated.This is, apparently,a systematicbias in men's
expectations.Moreover,thisoverestimation of the pleasuresof wealthis
one of the most importantfeaturesof man's psychologicalendowment,
sinceit has furnishedthepropellingforceforthegreaterpartof hisearthly

spendsa greatpartofhisrevenuein purchasing

naturally thoseluxuries.His ownand
theneighbouring countriessupplyhimabundantlywithall thecostlytrinkets which
pageantry
composethesplendid,butinsignificant ofa court.For thesakeofan inferior
pageantryof thesame kind,hisnoblesdismisstheirretainers,maketheirtenantsin-
dependent,and becomegraduallythemselves as thegreaterpartofthe
as insignificant
wealthyburghersin his dominions.The same frivolouspassions,whichinfluence
theirconduct, influencehis" (Smith, 1937, pp. 414, 861; see also pp. 859-60).
See n. 14.
16

The role of legal and institutional

17
economicbehavioris
factorsin conditioning
discussedat greaterlengthin Rosenberg(1960).
ADAM SMITH, CONSUMER TASTES, AND ECONOMIC GROWTH 371

achievements.It is fortunateforsocietythat most men are incapable of

making an accurate appraisal of the satisfactionsto be derivedfrom
successin thepursuitof wealth.18
We must now confronta furtherimplicationof Smith'sproposition
that"some formsof expence... seemto contributemoreto thegrowthof
publicopulencethanothers"(Smith,1937,p. 329). Fromthepointof view
of economicgrowth,Smith'spositionis not onlythata tasteforgoods is
preferableto a tasteforservices.19
It is also thecase thata tastefordurable
goods is betterthana tastefornon-durables:

A man of fortune...mayeitherspendhis revenuein a profuse

and sumptuoustable, and in maintaininga great numberof
menialservants,and a multitudeof dogs and horses; or content-
ing himselfwitha frugaltable and fewattendants,he may lay
out the greaterpart of it in adorninghis house or his country
villa,in usefulor ornamentalbuildings,in usefulor ornamental
furniture,in collectingbooks,statues,pictures;or in thingsmore
frivolous,jewels, baubles, ingenioustrinketsof differentkinds;
or, what is mosttrifling of all, in amassinga greatwardrobeof
fineclothes(Smith,1937,p. 329).

A manwho purchasesdurablesis everyday addingto thestockofuseful

assetswhichwillbe availableinthefuture.20 fordurables
Smith'spreference
18 "And it is wellthatnatureimposesupon us in thismanner. It is thisdeception
whichrousesand keepsin continualmotiontheindustry of mankind.It is thiswhich
firstpromptedthemto cultivatethe ground,to build houses,to foundcitiesand
commonwealths, and to inventand improveall thesciencesand arts,whichennoble
and embellishhumanlife;whichhave entirely changedthewholefaceof the globe,
haveturnedtherudeforestsofnatureintoagreeableand fertile plains,and madethe
tracklessand barrenocean a new fundof subsistence, and the greathighroad of
communication to thedifferentnationsof theearth.The earth,by theselaboursof
mankind, and to maintaina greater
has beenobligedto redoublehernaturalfertility,
multitude of inhabitants"(Smith,1817,p. 295).
19Here we confront, fromtheoutputside,Smith'sdistinction betweenproductive
and unproductive labor.We haveno intention ofenteringintothattortured and pro-
tractedcontroversy, or defendingSmith'sratherconfusedand inconsistent treatment.
It will be sufficientto state that,fromthepoint of view of Smith's interestin economic
growth,therewas as much conceptualjustification for attemptingto distinguish
betweenthetwotypesof labor as thereis forclassifying expendituresin "consump-
tion"and "investment" categoriesin thenationalincomeaccounts.
Noticethateducationalservicesare an exceptionto Smith'sgeneralpreference for
goods over services.Working-class parents,he pointsout, typicallypurchasein-
sufficienteducationalservicesfortheirchildren(Smith,1956,p. 256; Smith,1937,
pp. 736-37). Althoughteachersproducea service,it is one which,as he elsewhere
recognizes, is capable ofbeingaccumulated.In hischapteron capital(Book II, chap.
i), he explicitlyrecognizesthattalentsand skillsacquiredthrougheducationcon-
stitutepartof thefixedcapitalof society(pp. 265-66).
20 "A stockofclothesmaylastseveral years:a stockoffurniturehalfa centuryor a
century:buta stockof houses,wellbuiltand properly takencare of,maylast many
centuries"(Smith,1937,p. 265; cf. Smith,1817,pp. 314-15).
372 JOURNAL OF POLITICAL ECONOMY

is, of course,in a sensean extensionof thelogic underlying his distinction

betweenproductiveand unproductivelabor. Althoughthe effectsof the
expenditures ofthewealthyon non-durablesdo notperishquiteso quickly
as the"declamationof theactor,theharangueoftheorator,or thetuneof
themusician"(whichperish"in theveryinstant"of production)(Smith,
1937,p. 315), theydo not add directlyto thefuturestockof usefulthings.
Similarly,nationsare betteroffwhen "men of fortune"shifttheirex-
pendituresto durablegoods. For the currentpurchasesof the richin this
fashionaugmentthe supplyof usefulgoods at some futuredate. These
goodsthenbecomeavailableto the" inferior and middlingranksofpeople"
whentheyare eventuallycast offbythewealthy(Smith,1937,p. 330).21If
we look upon economicgrowthas a matterof accumulatingthingswhich
willprovidea flowof usefulservicesin thefuture,thenit is clear thatthe
greaterthedurability of an item,themoreit approximatesthecharacteris-
tics of an investment good. A growingtaste for durables is, therefore,
favorableto economicgrowth.22
It is worthnotingthatSmithtreatstasteitselfas a phenomenonwhich
becomes importantonly in civilizedsocietieswheresubsistenceis easily
acquired.His treatment oftheconductof people in savage societies,which
are preoccupiedwithprocuringa bare subsistence,suggeststhattheyare
controlledby social values and attitudeswhichprovideas littlescope as
possiblefortheexpressionof personaltastes(Smith,1817,Part V, chap.
ii). Furthermore, in his own discussionof theinfluenceof tastein societies
whereits exerciseis allowed some importance,he is usuallyconcerned
withconsumerdurables furniture, equipage,clothing,watches,palaces,
ear-pickers, etc.This is,ofcourse,consistent withtheuniformity ofcontent
of food consumptionimpliedby his curiousstatementthat"the desireof
food is limitedin every man by the narrow capacity of the human
stomach."
Moreover,thegrowingtasteforgoods as opposed to servicesis crucial
for economic growthbecause it is responsiblefor the expansionof the
capitalistsectorof theeconomy.In partthiswas a reflection of thetech-
nologicalfactthatmaterialgoods requireda substantialaccumulationof
capital for theirproduction,whereasthe provisionof servicestypically
requiredlittlecapital.This growingpreference, therefore,was responsible
forfundamental structural changesin boththeeconomyand society.The
21 "What was formerly a seat of thefamilyof Seymour,is now an inn upon the
Bath road. The marriage-bed of JamestheFirstof GreatBritain,whichhis Queen
brought withherfromDenmark,as a present to maketo a sovereign,
fitfora sovereign
was,a fewyearsago, theornamentof an ale-houseat Dunfermline. In some ancient
cities,whicheitherhave beenlongstationary, or have gonesomewhatto decay,you
willsometimes scarcefinda singlehousewhichcould have beenbuiltforits present
inhabitants" (Smith,1937,p. 330).
22 Cf. Nassau Senior:" The wealthofa Country willmuchdependon thequestion,
whetherthetastesof its inhabitants lead themto preferobjectsof slow or of rapid
destruction" (Senior,1951,p. 54).
ADAM SMITH, CONSUMER TASTES, AND ECONOMIC GROWTH 373

resulting enlargement ofthecapitalistsectorand a growthin a middleclass

in turnled to a risein theshareof profitsin thenationalincome;withthis,
of course,wenta higherproportionof savingand capitalaccumulation.23
The growthof the capitalistsectorwas importantalso because it in-
culcatedotherqualities-thrift, honesty,industry-
discipline,orderliness,
and provideda new model(the abstemiousand industriouscapitalist)for
theold one (thedissoluteand profligate landowner).Smithseemsto have
regardedthe merepresenceof greatwealthas exertinga demoralizingin-
fluenceon the population.24He advances the generalizationthat, in
mercantileand manufacturing towns,the poor will be foundto be 'in
generalindustrious, sober,and thriving";whereas,in courttownswhere
thepopulationis supportedout of revenueratherthancapital," theyare in
generalidle,dissoluteand poor" (Smith,1937,p. 319).25
Finally,the growthof commerceand manufactures producesstability
in the politicaland institutional structureof societyand securityof ex-
pectationson the partof the individualwhichSmithrefersto as "by far
the mostimportantof all theireffects."Hume is citedas the onlywriter
who had previouslynotedthisrelationship.Hume's own treatment of the
origin,historicalgrowth,and social consequencesof capitalistinstitutions
is both fascinatingand complex,but thatis anotherstory.26
23 Malthus followed Adam Smith veryclosely here (see Malthus, 1951, pp. 42-43).

For an illuminatingdiscussion of the historical background, contemporary obser-

vations, and intellectualantecedentsforSmith's treatmentof profitas a distinctincome
category,see Meek (1954).
24 Even capitalistsare so corrupted.When profitsare too high,that is, in the absence
of competitiveconditions, the capitalist behaves, in effect,like a large landowner.
"The high rate of profitseems everywhere to destroythat parsimonywhich in other
circumstancesis natural to the character of the merchant.When profitsare high,that
sober virtueseems to be superfluous,and expensive luxuryto suit betterthe affluence
of his situation.... Compare and you will be sensible how differently the conduct and
character of merchantsare affectedby the high and by the low profitsof stock....
Light come, lightgo, says the proverb; and the ordinarytone of expence seems every
where to be regulated,not so much according to the real abilityof spending as to the
supposed facilityof getting money to spend" (Smith, 1937, pp. 578-79; see the
dissentingopinion of Malthus, 1951, p. 192).
25 He adds: "The idleness of the greaterpart of the people who are maintained by

the expence of revenue,corrupts,it is probable, the industryof those who ought to be

maintained by the employmentof capital, and rendersit less advantageous to employ
a capital therethan in otherplaces" (Smith, 1937, p. 320). Smith accounts forthe past
superiorityof Glasgow over Edinburgh in these terms. The corrupting effectsof
wealth can, apparently, nullifyor reverse the effectsof earlier progress. "The in-
habitants of a large village, it has sometimes been observed, afterhaving made con-
siderable progress in manufactures,havc become idle and poor, in consequence of a
great lord's having taken up his residence in theirneighbourhood" (Smith, 1937, p.
320; see also Rae, 1895, pp. 180-81).
26 " Commerce and manufacturesgradually introducedorder and good government

and with them,the libertyand securityof individuals, among the inhabitants of the
country,who had beforelived almost in a continual state of war withtheirneighbours,
and of servile dependency upon their superiors. This, though it has been the least
observed, is by far the most important of all their effects.Mr. Hume is the only
writerwho, so far as I know, has hithertotaken notice of it" (Smith, 1937, p. 385).
374 JOURNAL OF POLITICAL ECONOMY

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Davis, Joseph S. "Adam Smith and the Human Stomach," Q.J.E., LXVIII,
No. 2 (May, 1954), 275-86.
Malthus,T. R. PrinciplesofPoliticalEconomy.New York: AugustusM. Kelley,
1951.
Meek, Ronald. "Adam Smith and the Classical Concept of Profit,"Scottish
J. Polit. Econ., I, No. 2 (June, 1954), 138-53.
Rae, John.Life of Adam Smith.London: Macmillan Co., 1895.
Rosenberg,Nathan. "Some InstitutionalAspects of The Wealthof Nations,"
J.P.E., LXVIII, No. 6 (December, 1960), 557-70.
Schumpeter, Joseph. History of Economic Analysis. New York: Oxford
UniversityPress, 1954.
Senior, Nassau. An Outline of the Science of Political Economy. New York:
Augustus M. Kelley, 1951.
Smith,Adam. The Theoryof Moral Sentiments.Philadelphia: AnthonyFinley,
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The Wealthof Nations. New York: Random House, 1937.
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