Adam Smith: Experimental Innovator

In this article, we employ David Galenson’s approach to innovation and draw a parallel with the art world to assert that the oversimplification of Smith’s ideas may be partly attributed to the prevalence of conceptual innovators in economics during the 20th century. These innovators tend to simplify economic concepts through abstraction. Much as Paul Cézanne approached art as an experimental innovator, Adam Smith can be seen as an experimental innovator in economics. Similarly, just as Picasso and other modern artists embraced and expanded upon Cézanne’s experimental ideas using a conceptual approach, modern economics incorporated and was built upon Adam Smith’s ideas.

Conceptual and Experimental Innovators

In his quest to understand creativity, David Galenson of the University of Chicago realized that art is an excellent laboratory to study creativity from an economic perspective. As in the case of researchers, great artists are also great innovators. Significant works of art contain substantial innovations. Regardless of the nature of the innovation, its relevance ultimately lies in its degree of influence on other artists.

From detailed study of more than two hundred artists’ careers, Galenson establishes that there are two very different types of innovators in art: conceptual innovators, who plan in detail before making a work, and experimental innovators, who take the most important decisions about their work while they are making it.

Conceptual innovators use their art to accurately express ideas. The precision of their objectives allows them to plan their work and execute it decisively. Pablo Picasso, Andy Warhol, and Frida Kahlo were great conceptual innovators. Their conceptual innovations usually consist of something completely different, which breaks the conventional rules of the discipline. Their most radical new ideas, and consequently their greatest innovations, tend to appear early in their careers.

In contrast, experimental innovators seek to record their visual perceptions and lack a clear goal. They proceed tentatively, through trial and error, gradually building their skills while doing their work, and tend to make their greatest contributions late in their careers. Paul Cézanne, Georgia O’Keeffe, and Jackson Pollock are some examples of great experimental innovators.

The categories of conceptual innovator and experimental innovator do not apply only to the art world. Later work shows that the same patterns are repeated in other areas, such as literature (Galenson 2005, Elias, 2013), music (Galenson 2009), the quality wine industry (Elias et al, 2020), and gastronomy (Elias et al, 2022). Bruce Weinberg and David Galenson (2019) show that economists can also be divided into these two types of innovators. Conceptual economists are those who identify specific problems and solve them using deductive reasoning. They tend to make their most important innovations early in their careers, when they are more likely to challenge established ideas. On the other hand, experimental economists ask broader questions and solve them by accumulating evidence. Their most significant innovations often come after long periods of research, as they analyze more and more evidence.

Experimental innovators use inductive reasoning and base their innovations on accumulated experiential knowledge. Empirical research often involves generalizing from evidence, so empirical innovators are often experimental. A conceptual empiricist would be an example of an empirical innovator whose primary contribution was testing hypotheses formulated a priori. Douglass North, Robert Fogel, Friedrich Hayek were great experimental innovators.

On the other hand, conceptual innovators use deductive reasoning and their innovations stem mainly from a priori logic, often in response to existing work. Theorists are typically conceptual, and the most abstract and mathematical theorists tend to be the most conceptual. Kenneth Arrow, Paul Samuelson, Harry Markowitz were great conceptual innovators.

Adam Smith: Experimental Innovator

Adam Smith possessed most of the attributes of an experimental innovator. He developed most of his ideas based on empirical and experiential evidence. He was a perfectionist, who made progress slowly, constantly revising and refining his writings. An Inquiry into the Nature and Causes of the Wealth of Nations, written late in his career when he was 53, is considered, by any measure of influence, his most important contribution.

Smith’s concept of competition and the division of labor are examples of important ideas rooted in observation. According to George Stigler (1957), Smith’s concept of competition was “in the sense of rivalry in a race—a race to get limited supplies or a race to be rid of excess supplies… Smith did not state how he was led to these elements of a concept of competition. We may reasonably infer that the conditions of numerous rivals and of independence of action of these rivals were matters of direct observation.”

In elaborating on the Division of Labor, Smith recounts “I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day.”

Drawing a parallel to the art world, Paul Cézanne, an archetype of the experimental innovator, shared a similar approach to Smith. Cézanne, known for his meticulousness and constant pursuit of improvement, expressed his longing for attaining his artistic goals and the accompanying sense of uneasiness until he reached his desired level of accomplishment.

Smith’s correspondence with Thomas Cadell further emphasized his meticulous nature and his dedication to perfecting his works. In a letter of March 1788, two years before his death, he acknowledged his slow progress, the numerous revisions he made to The Theory of Moral Sentiments, and his intention to leave behind his published works in the best possible state.

According to Galenson (2006), Cézanne’s apprehensions in his final years were ironically misplaced, as his last body of work became highly regarded and influential, shaping future artistic developments. Similarly, Smith’s late contribution, The Wealth of Nations, attained immense influence and ranks among the most cited books in the field of Social Sciences. It is widely taught in colleges, with over 5,500 syllabi featuring it, while The Theory of Moral Sentiments enjoys less prominence, appearing in approximately 1,300 syllabi. The significant disparity in reprint numbers further highlights the differential recognition of Smith’s works during the 20th century (Montes, 2006).

Adam Smith’s Legacy through the Lenses of Conceptual Innovators

After World War II, economics experienced a shift similar to the art world in the 20th century, where conceptual innovators became dominant. During this period, economics heavily incorporated mathematics to formalize established economic ideas and address social and economic issues. The modern understanding of Adam Smith in economics is rooted in the work of these conceptual innovators who formalized and interpreted his ideas.

Paul Samuelson was a great conceptual innovator, who made discoveries through highly abstract reasoning, and made his greatest contributions early in his career. In his commemoration of Samuelson, Avinash Dixit (2009) asserts that, much like Sir Isaac Newton, Samuelson had the remarkable ability to extract the hidden principles of economics, which had been shrouded in convoluted language by earlier generations, and reframe them with remarkable clarity using the language of mathematics.

“I loved the Foundations [Paul Samuelson, 1947],” Robert Lucas wrote in a 2001 memoir. “Like so many others in my cohort, I internalized its view that if I couldn’t formulate a problem in economic theory mathematically, I didn’t know what I was doing. I came to the position that mathematical analysis is not one of many ways of doing economic theory: It is the only way. Economic theory is mathematical analysis. Everything else is just pictures and talk.”

For example, when writing his best-selling textbook Economics, Samuelson conceptualizes the “invisible hand” as perfect competition and elucidates its welfare implications:

• Even Adam Smith, the canny Scot whose monumental book, The Wealth of Nations (1776), represents the beginning of modern economics or political economy—even he was so thrilled by the recognition of an order in the economic system that he proclaimed the mystical principle of the “invisible hand”: that each individual in pursuing his own selfish good was led, as if by an invisible hand, to achieve the best good of all, so that any interference with free competition by government was almost certain to be injurious. This unguarded conclusion has done almost as much harm as good in the past century and a half, especially since too often it is all that some of our leading citizens remember, 30 years later, of their college course in economics.

Along the same line, in his Foundations of Economics Analysis (1947) in Chapter VIII on Welfare Economics, he wrote:

• Beginning as it did in the writings of philosophers, theologians, pamphleteers, special pleaders, and reformers, economics has always been concerned with problems of public policy and welfare. And at least from the time of the physiocrats and Adam Smith there has never been absent from the main body of economic literature the feeling that in some sense perfect competition represented an optimal situation.

George Stigler (1982) described The Wealth of Nations as a “a stupendous palace erected upon the granite of self-interest.” Even though it can be argued that for “Adam Smith human nature was predominantly social, which explains the relevance of the impartial spectator, and human conduct is fundamentally ethical, which is determined by the social interaction that leads to moral rules” (Montes, 2004), the idea of Stigler is powerful and simple. As a conceptual innovator like Samuelson, he took from Smith what allowed him to simplify and develop a complete theory.

Robert Lucas (2003) posits that the fundamental framework of economics, as established by David Hume, Adam Smith, and David Ricardo, revolves around the idea of individuals being essentially similar and driven by simple objectives. Differences in behavior are attributed to situational factors rather than cultural, biological, racial, or class-based disparities. Lucas asserts that this viewpoint has remained unchanged for two centuries, with no new paradigms or shifts. However, he acknowledges progress in economics as primarily technical, involving advancements in mathematics, data analysis, statistics, and computational methods. This progress aims to enhance the empirical foundation and problem-solving capabilities of economic theory while remaining aligned with the initial goals set by Hume, Smith, and Ricardo.

In a second stage, The Theory of Moral Sentiments has been influential in extending modern economics. As Leonidas Zelmanovitz discusses in a recent article at Econlib,1 there was an effort to consider more realistic assumptions about human motivations and the limitations to the knowledge of economic agents has been going on in mainstream economics.

Gary Becker made substantial contributions to integrating the complexities of human behavior into economic models by drawing inspiration from Adam Smith’s concepts in The Theory of Moral Sentiments. For example, in his book Accounting for Tastes (1996), Becker utilizes Smith’s insights to enhance economic analysis. In the book Becker explores the role of habits in shaping personal and social capital. He highlights Smith’s explanation of the affection for family members through habit, quoting Smith’s statement that individuals are naturally inclined to have warmer affections toward their own family members due to the habit of sympathizing with them.

Conceptual Innovations in Economics and the Arts: Building on the Shoulders of Great Experimental Innovators

The formalization of Adam Smith’s ideas using mathematics helps explain the simplification of his concepts found in both The Wealth of Nations and The Theory of Moral Sentiments. This formalization occurred due to the influence of conceptual innovators in economics, who sought to enhance economic analysis and make it more rigorous.

Paul Cézanne revolutionized modern art through his breakthroughs. His concept of portraying multiple perspectives on a single canvas influenced artists like Picasso and Braque, who developed cubism by simplifying and abstracting Cézanne’s ideas. Cézanne’s meticulous approach to his craft, seen in his deliberate strokes and deep contemplation, left a profound impact. Similarly, to the innovation in economics, where conceptual innovators enhanced analysis, Picasso and his contemporaries reshaped artistic expression, pushing the boundaries of representation.

References

Becker, Gary S. Accounting for Tastes. Harvard U. Press, 1996.

Dixit, Avinash. 2009. Paul Samuelson 1915–2009″. PDF file.

Elías, Julio; Garcia, Alvaro; Ferro, Gustavo; De Salvo, Carmine Paolo. “Knowledge and Innovation Analysis in the Wine Industry in Argentina,” Monography, Interamerican Development Bank, May 2020.

Elías, Julio; Garcia, Alvaro; Schiling, Maja; Mount, Ian. “Analysis of Innovation in the Gastronomic Sector of Peru,” Monography, Interamerican Development Bank, May 2022.

Galenson, David W. 2007. “Old Masters and Young Geniuses: The Two Life Cycles of Artistic Creativity,” Princeton, NJ: Princeton University Press.

Galenson, David W. 2009. “Innovators: Songwriters,” NBER Working Paper No. 15511.

Galenson, David W., 2005. “Literary Life Cycles,” Historical Methods: A Journal of Quantitative and Interdisciplinary History, vol 38(2), pages 45-60.

Liu, Glory. Adam Smith’s America. Princeton U. Press. 2022

Lucas, Robert E. Keynote Address to the 2003 HOPE Conference: “My Keynesian Education.”

Montes, Leonidas. (2004). Adam Smith in Context: A Critical Reassessment of Some Central Components of His Thought.

Stigler, George J. 1971, “Smith’s Travels on the Ship of State,” History of Political Economy, 3(2): 265-277

Stigler, George J. “Perfect Competition, Historically Contemplated.” Journal of Political Economy 65, no. 1 (1957): 1–17.

Weinberg, B.A. and Galenson, “D.W. Creative Careers: The Life Cycles of Nobel Laureates in Economics.” De Economist 167, 221–239 (2019).

Footnotes

[1] “Behavioral Versus Free Market Economics,” by Leonidas Zelmanovitz. Library of Economics and Liberty, Jan. 2, 2023.