5 Smith's Philosophy and Economic Methodology

The only uses of this work permitted are private study or research. Introduction Adam Smith is a towering fi gure in the history of economic thought. While he was by no means the fi rst to develop many of the ideas which underpinned the development of modern economics, nevertheless it is often the case that earlier thinkers are discussed in terms of the extent to which they anticipated Smith, or more directly infl uenced him. While others, such as Quesnay and Hutcheson, for example, developed ideas on the functioning of the macroeconomy and value respectively, there was something distinctive about the way in which Smith put his ideas together and communicated them which made such an impact on the development of economics. The purpose of this contribution is to put the focus on Smith's distinctive approach to economic methodology. Just as Smith developed others' economic ideas, his methodology too has its own history. Smith's philosophical background, notably the Scottish Enlightenment and the work of his friend David Hume, is something I will explore fi rst in order to understand the basis of his methodology. I will draw on his essay on the 'History of Astronomy' for evidence of the philosophical background on which Smith drew. I will then consider three particular aspects of his methodology which arise from this philosophy: the analytical historical approach; the notion of system; and the nature and role of principles. The nature of Smith's infl uence on the development of modern economics has been coloured by the ways in which his work has been interpreted. In particular, Smith has been widely seen as the inspiration for general equilibrium theory (Arrow and Hahn, 1971), an interpretation which has increasingly been challenged (for example by Winch, 1997). The possibility is explored in the concluding section that a signifi cant element of such interpretive diff erences is methodological, including a lack of appreciation for the distinction between theory formulation and rhetoric. Before I proceed, there is a refl exive need to be explicit about the interpretive approach being adopted in this chapter. The analysis of Smith's methodology owes much to the seminal work of Andrew Skinner (notably 1965, 1972, 1996). The particular historio-graphic approach that I adopt, further, is consistent with the Scottish historical approach. It has been developed most fully in modern discourse by Quentin Skinner (1969, 1988), who advocates a focus on the context of the …