SOME PRINCIPLES OF ADAM SMITH’S NEWTONIAN METHODS IN THE WEALTH OF NATIONS

This paper gives an account of important aspects of Smith’s methods in An Inquiry Concerning the Nature and Causes of the Wealth of Nations (WN). I reinterpret Smith’s distinction between natural and market prices, by focusing on Smith’s account of the causes of the discrepancies of market prices from natural prices. I argue that Smith postulates a “natural course” of events in order to stimulate research into institutions that cause actual events to deviate from it. Smith’s employment of the fiction of a natural price should, thus, not be seen merely as an instance of general or partial equilibrium analysis, but, instead, as part of a theoretical framework that will enable observed deviations from expected regularities to improve his theory. For Smith theory is a research tool that allows for a potentially open-ended process of successive approximation. These are the Newtonian elements in Smith. I provide evidence from Smith’s posthumously published Essays on Philosophical Subjects (EPS, 1795), especially “The History of Astronomy” (“Astronomy”), that this accords with Smith’s views on methodology.¹ By way of illumination, Smith’s explanation of the introduction of commerce in Europe is contrasted with that of Hume as presented in “Of Commerce.” I argue that Smith’s treatment is methodologically superior.