Whereas Austrian economist Carl Menger was a fan of Adam Smith and defended Smith’s favored financial insurance policies in an article on the a centesimal anniversary of Smith’s dying, I used to be stunned, on studying Menger, by how vital Menger was of Smith. Furthermore, I assumed that his two primary criticisms have been off base.
On web page 73 of his Ideas of Economics, Menger, in explicitly criticizing Smith, writes:
Certainly, the division of labor can’t even be designated as a very powerful reason for the financial progress of mankind. Accurately, it ought to be regarded solely as one issue among the many nice influences that lead mankind from barbarism and distress to civilization and wealth.
This needs to be false. Menger argues after this quote that the rise in human data is and will likely be an vital contributor to financial progress. True. However a prerequisite for human data having this impact is an in depth division of labor. Thomas Edison was an enormous contributor to financial progress. How far would he have gotten if he had needed to do all the things himself, together with producing gentle bulbs? In such a case, we’d again to Smith’s instance of 1 individual finishing up all of the steps of constructing a pin and, subsequently, producing fewer than 20 pins a day. Whereas 10 folks, every specializing in a few steps, might produce 48,000 pins a day.
On web page 172 of Investigations into the Methodology of the Social Sciences, Menger writes:
What Adam Smith and even these of his followers who’ve most efficiently developed political economic system can really be charged with isn’t the failure to acknowledge the plain significance of the research of historical past for the politician. Neither is it failure to acknowledge the simply as apparent precept that numerous financial establishments and governmental measures correspond to varied temporal and spatial situations of economic system. It’s their faulty understanding of the unintentionally created social establishments and their significance for economic system. It’s the opinion showing mainly of their writings that the establishments of economic system are all the time the supposed product of the frequent will of society as such, outcomes of expressed settlement of members of society or of optimistic laws. (italics added by me.)
This appears to me to be the alternative of the reality.