Anthony J. Pennings, PhD


The Smith Effect I: Markets, Governments, and the Rise of Information Technologies

Posted on | August 30, 2010 | No Comments

This is the first in a three part exploration of Adam Smith and how his ideas laid the foundation for modern information technology (IT)

In his book, Reading “Adam Smith” (2002), Michael Shapiro states that because of Adam Smith’s contributions, “he is always at least implicitly present when one negotiates modernity’s codes and arrangements.” What he means is that not only have Smith’s writings become richly woven into the fabric of modern thought, its economics, its philosophies, but also its government and economic institutions.[1] Shapiro’s “Smith Effect” can be used to understand the influence Adam Smith has had on both the modern emphasis on economic markets as well as the role and the growth of government. Integral to both these processes has been a wide range of information management imperatives that have spurred the development of computers and communications technologies.

Smith wrote his classic text, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), commonly known as The Wealth of Nations, in a time when much of modern thought was being introduced and discussed. Intellectuals in the 18th Century were obsessed with challenging the reigning political authority and the basis from which it derived its political legitimacy, namely a vertically oriented, religion-based ruling system. For example, while the emerging United States of America would remain one nation “under God,” it instituted a set of horizontally oriented checks and balances based on the machine metaphors of the nascent industrialization age.

Smith took aim at the hierarchically oriented mercantile structure that was characterized by a governing sovereignty that derived its authority from the rhetoric of divine origins. His book became a major force in the liberalization of this ruling structure. In the process, he helped create the impetus for a new rationality that would change modern government and how the economy was viewed. This new rationality would both liberalize the economy and draw nations into a new type of governance, the management of populations.

From Treasure to Laboring Energies

European monarchies maintained a strong grip on the land and their subjects by invoking a privileged place in society. By claiming divine legitimacy, they justified their positions in a stationary order. Consequently, early imperial mercantilism conceived of wealth as static hoarding for the monarch and feudal lords, not as a process of dynamic practices involving the enterprise of labor and capital investment, as Smith would later argue. In challenging this organization, Smith’s writings helped “recast divine will as a set of dynamic mechanisms regulating the process of production.”[2]

His argument was based on the protest ideas of the time, which challenged the Catholic church’s role and their teachings that God could be petitioned to intervene in worldly affairs. For Smith, divinity was infused in earthly nature and demonstrated by the harmonious order of economic markets based on human desiring. Smith was particularly comfortable with using musical metaphors to talk about the workings of the economy. Markets ensured the harmonious working of the world as long as those involved worked to their own benefit. In making this philosophical and political leap, Smith helped shape the moral, political, and social dimensions which have become integral to modern capitalist political economies.

Smith’s often-quoted “invisible hand” was mentioned only once in the Wealth of Nations. Still, it has continued to function as powerful currency for his train of thought that relocated the problem of wealth from the realm of the sovereign purse to the processes involved in economic production. For Smith, the nation’s wealth was not what could be accumulated for the monarch but rather the sum of goods and services that were available per capita for the population.

Hailing from Scotland, on the periphery of the British kingdom, Smith objected to the hoarding mercantile practices of the English monarchy because it made the people he saw poorer. Smith’s writings were significant because he located value in the act of production and in the creative and energetic expenditures of laboring people, not the result of amassing wealth.

Adam Smith set the stage for Karl Marx, not one of his direct students, but certainly one of his most dedicated. What intrigued Marx was that Smith conceptualized the plight of laboring bodies. This meant that Smith, “shifted the focus from national rivalries to the conditions of work, thereby helping to enfranchise a neglected constituency, the working poor, and to draw them into a new conversation on problems of inequity, a conversation which could not be held with the old mercantilist conversation on value.”[3]

In doing so, Smith intellectually recognized the working population and helped transgress certain prejudices against working activities and those engaged in them. As Zuboff argued, “The Middle Ages produced a conception of labor infused with a loathing drawn from three traditions: (1) the Greco-Roman legacy that associated labor with slavery, (2) the barbarian heritage that disdained those who worked the land and extolled the warrior who gained his livelihood in bloody booty, and (3) the Judeo-Christian theology that admired contemplation over action.” Smith’s new intellectual negotiations set the stage for empowering labor and a historic wealth boom based on new types of industrial production and the distribution of affluence among the classes.[4]

The “Invisible Hand” and the Escape from History

To better understand the “invisible hand,” one of modernity’s most prevalent truisms, it is vital to examine Smith’s philosophy of religion and nature. Smith conceived of God as the “Author” of the world, but one that had retreated from the day-to-day world and left behind a structural guarantee that the self and the social order would remain attuned. This guarantee is a form of human desiring we call “enterprise” at its best and “greed” at its worst.

Smith’s upbeat version of the world was one that resulted in an aggregated “harmony” when individuals followed their passions. Shapiro explains, “Among what Smith’s ‘Author’ had left behind as “nature” was the regulative mechanism of a socially felicitous tendency in individual human desiring, which along with some inevitable tendencies in collective arrangements, would eventuate an order that progressed toward general prosperity and broadly distributed human contentment.”[5] What has become commonly known as the “market” was Smith’s divine mechanism that was “infused in nature” to produce a harmonious aggregate outcome when individuals act on their passions.[6]

The “Smith Effect” provides an opportunity for new ways to analyze the social field and the overlap between economic, social, and political spheres. Smith was a crucial critical theorist in his rejection of mercantile thought, and his writings were a forerunner of modern political economy. Two major bodies of economic analysis would emerge from Smith’s writings.

One was the classical liberal tradition that combined Smith’s anti-mercantile stance in favor of “markets” with an increasing emphasis on empirical and quantitative calculation. This stance focused largely on theoretically reconceptualizing Smith’s divinely gifted “invisible hand” in terms of more naturalistic and physics-derived metaphors.

One such metaphor was “equilibrium” that allowed political economy “to escape from history.”[7] By focusing on economic tendencies to revert to one price among many competitors, economics was able to devise a theoretical system that could marginalize historical events and focus exclusively on modelling forces of supply and demand. Economic, or market equilibrium was conceived as a condition or state in which economic forces become balanced. This philosophical foundation informs mainstream liberal economics in both Keynesian and Monetarist (Austrian) traditions.

The other body of analysis was the Marxist tradition that drew its investigation from Smith’s concern for the worker and the processes of valuing commodity forms and accumulating capital. This latter posture organized the history of the economy around the role of labor and its role in the “mode of production.” Class struggle between laboring forces and capitalist owners drive the ebb and flow of history. Marx combined Smith’s political economy with German dialectical philosophy and French utopian theory to create a unique and radical analytical perspective.

These two ways of viewing the political economy helped shape the next few centuries. This included the classic division during the Cold War as the West developed a form of capitalist industrialization based on the New Deal’s negotiated relationship between government and business. In the “East,” forms of state-controlled communism emerged in China, Cuba, North Korea and the USSR. In the 1970s, liberalism re-emerged in reaction to Keynesian/New Deal macromanagement of the economy as neo-liberalism and once again stressed market forces, particularly in the financial sphere.

While Smith opened up new areas for investigating the economy, it would be a mistake to equate his writings with the anti-state rhetoric of modern neoliberalism. His writings marked not so much the end of the state, or even a way of curbing its power, but rather a way of theorizing the economy so that it could be even more productive for the nation. More than ever, the intervention of the state in the economy was legitimized.

This came about largely because the theoretical conversations he set in motion changed the connotations associated with both the state and the economy. For the former, it meant a state with a powerful new system of calculable observations that could be used to guide its actions. To help with these observations, “political arithmetik” or “statistics” emerged as a focus of knowledge that could record a wide range of demographic and epidemiological events and processes. These new economic and social surveillance techniques provided new ways to scrutinize, and consequently, new ways emerged to intervene in social activities.


Smith wrote extensively on the proper expenditures of the state, including defense, education, justice, public works, the dignity of the sovereign, and institutions for facilitating the commerce of society. For the latter, it meant a redefinition of the economy from that based on the model of a household to a larger set of social activities covering a wide range of laboring activities and entrepreneurial production. While no doubt a significant contributor to modern liberalism and its commitment to international comparative advantage and “free enterprise,” Smith’s writings helped conceive a more prominent role for government in managing the economy, not a smaller one. In the process, calculating tools and information management practices would be created to facilitate this control.

Preview to The Smith Effect II: Calculating Practices and the Rise of IT

Smith’s writings legitimized the state’s intervention in the economy by identifying the crucial role of managing populations for national prosperity. His contention that the natural order channels individual desires into positive collective outcomes helped to open up flows of capital in service of manufactures. It set in motion conversations that changed the connotations associated with the state and the economy.

A body of knowledge known as statistics emerged as a set of techniques for amassing important data on a wide range of demographic information important to the state and the emergence of democratic governance. It provided new economic and social surveillance techniques provided ways to analyze and scrutinize the political economy. Consequently, these new techniques and the indicators they enabled suggested ways to intervene in social activities to improve the conditions and productivity of national populations.

These techniques eventually found mechanical enhancement with the invention of the tabulating machine and telegraphy that were used to collect data from a wide geographical area in service of the wealth of a nation. Herman Hollerith invented the census machine, used to tabulate and calculate the US population in accordance with the specifications of the US Constitution. He went on to form companies that were merged into International Business Machines (IBM), the dominant information machine company of the big computer era and whose personal computer (PC) solidified the market for “microcomputers.”


[1] Shapiro, M.J. (1993) Reading “Adam Smith”: Desire, History, and Value. p. xxix.
[2] Shapiro, M.J. (1992) Reading the Postmodern Polity: Political Theory as Textual Practice.
[3] Quote on Smith and his perspective on labor. Shapiro in Reading “Adam Smith”. p. xxxi.
[4] Three traditions that influenced the contempt for labor from Shoshana Zuboff’s In the Age of the Smart Machine: The Future of Work and Power. (1988) pp. 25-26.
[5] Smith regulative mechanism left behind by the “Author”. Shapiro, Reading “Adam Smith” p. xxxii.
[6] Shapiro on Smith’s “market”. Ibid, p. 79.
[7] Peter Manicus on equilibrium as the vehicle for political economy’s escape from history. A History and Philosophy of the Social Sciences. Oxford: Basil Blackwell. p. 40.

Citation APA (7th Edition)

Pennings, A.J. (2010, Aug 30). The Smith Effect: Markets, Governments, and the Rise of Information Technologies.



AnthonybwAnthony J. Pennings, PhD is a professor at the State University of New York (SUNY) in South Korea. Previously, he taught in the MBA program at St. Edwards University in Austin, Texas and comparative and digital economies at New York University from 2002-2012. He also taught at Victoria University in Wellington, New Zealand and was a Fellow at the East-West Center in Hawaii in the 1990s.


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