The Competitiveness of Nations in a Global Knowledge-Based Economy

Peter C. Dooley *

Hutcheson, Smith, and the Division of Labour



1.0 Introduction.

2.0 Hutcheson’s philosophical origins.

3.0 The Idea of the Division of Labor.

4.0 The State of Nature.

5.0 Division of Labor.

6.0 The Necessity of Barter.

7.0 The Invention of Money.

8.0 The Measure of Value.

9.0 The Origin and Regulation of Value.

10.0 Conclusion.











Discussion Paper 2000-3

Department of Economics

University of Saskatchewan



The originality of Adam Smith has often been questioned.  J.A. Schumpeter commented “that the Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776.”  W.R. Scott went further when he observed “that the order of topics discussed in the economic portions of Hutcheson’s System is repeated in Smith’s Glasgow Lectures and again in the Wealth of Nations.”  This paper will show how the ideas on the division of labour discussed by Hutcheson reappear more fully developed in the Wealth of Nations: how the division of labour increases output due to the invention of machines, to the increased dexterity of labour, and to less time being wasted between tasks; how the division of labour gives rise to the buying and selling, which leads to the invention of money; how the accumulation of capital relates to the division of labour; and how the existence of capital presupposes the institution of private property, which Hutcheson justified on the Lockean grounds that “each one should have the free use and disposal of what he has acquired by his own labour.”

* University of Saskatchewan.  Mailing address: P. Dooley, Department of Economics. University of Saskatchewan. 9 Campus Drive. Saskatoon SK S7N 5A5.  An earlier draft of this paper was presented at the History of Economics Society Conference at Duke University in Durham, North Carolina, on 5 July 2003 and at the Third Annual Economics Research Symposium at the University of Saskatchewan in Saskatoon, Saskatchewan, on 20 September 2003.


1.0 Introduction

Adam Smith first learned his economics from Francis Hutcheson, his professor of moral philosophy at the University of Glasgow. [1]  Hutcheson’ s lectures were published posthumously as A System Of Moral Philosophy in 1755, by which time Smith had become professor of’ moral philosophy.  W.R. Scott (1966 [1900]: 231) reported that the manuscript of the System “was used by Hutcheson for his class lectures about 1737.”  Smith attended these lectures in 1738-39.  William Leechman (2000 [1755], xxxiii), who wrote the Preface to Hutcheson’s System, mentioned that he lectured on the same material year after year, so the System probably reflects what Smith heard in class.  Hutcheson published much of the same material in his text for undergraduates, [2] A Short introduction to Moral Philosophy (1747).  Even though the Short introduction was published before the System, it appears to have been written later, according to the evidence presented by Scott (1966 [1900]: 244-9).  Hutcheson’s (2002 [1726]) first and most original book, [3] An Inquiry into the Originals of Our Ideas Of Beauty and Virtue, was published over two decades earlier.  His inquiry contains the aesthetic, ethical and economic ideas that he refined in his later books.

Smith had available to him the Inquiry, the Short Introduction and his recollection of the lectures of “the never-to-be-forgotten” Francis Hutcheson when he gave his first lectures on moral philosophy in the 1752-3 session. [4]  Scott (1966 [1900]: 234) has presented a table showing that “the order of topics discussed in the economic portions of Hutcheson’s System is repeated by Smith in his Glasgow Lectures and again in the Wealth of Nations.” [5]  W.L. Taylor (1965) has filled in many informative details of Scott’s table.  He showed that Hutcheson influenced the substance of Smith’s analysis, especially on the division of labor and the origin of money. [6]

As Smith followed Hutcheson, so Hutcheson followed those who went before him.  In the foreword to his Short introduction, Hutcheson (1747, i) declared with all candor that

The learned will at once discern how much of this commend is taken from the writings of others, from Cicero and Aristotle; and to name no other moderns, from Puffendorf’s smaller work, de officio hominis et civis, which that worthy and ingenious man the late Professor Gershom Carmichael of Glasgow, by far the best commentator on that book, has so supplied and corrected that the notes are of much more value than the text.

Gershom Carmichael had been Francis Hutcheson’s professor of moral philosophy.  On theological questions he was more directly influenced by John Samson, his heretical professor of divinity, who sought a new light for the clergy of Scotland.  Carmichael introduced Hutcheson to the treatment of natural law and economics by Samuel von Pufendorf (1927 [1673]) in his De officio.  In his turn, Pufendorf followed Dejure belli ac pacis by Hugo Grotius (1925 [1625]).  Like many other professors, Hutcheson and Smith began by teaching what they had been taught and modified their


material as their ideas matured.  The charge of plagiarism cannot very well be sustained against either of them, however, because they inherited a common tradition in the history of economic ideas.  This paper will show that the opening chapters of Wealth of Nations follow the logic and contain the substance of Hutcheson’s economic analysis, though in a modified and more elaborate form.


2.0 Hutcheson’s philosophical origins.

Hutcheson’s moral philosophy was in the natural law tradition of Grotius, Pufendorl, Hobbes and Locke.  He was also strongly influenced by Shaftesbury.  He believed that the order of nature was established by a benevolent Deity and that mankind could discover the laws of nature by careful observation and by right reason without resorting to supernatural revelation.  This is similar to the natural law philosophy of Quesnay and the Physiocrats, whose ideas shared a similar line of descent.  The first sentence of his System states that “the intention of moral philosophy is to direct men to that course of action which tends most effectually to promote their greatest happiness and perfection.”  Hutcheson (2002 [1726]: 177) put the matter rather more famously in his Inquiry: “that Action is best, which procures the greatest Happiness for the greatest Numbers.”  Utilitarian principles appear repeatedly throughout Hutcheson’s writings.  No doubt this influenced Adam Smith.  It clearly leads to the utilitarian philosophy of Jeremy Bentham.

His Inquiry was written to promote and defend the doctrine of the moral sense presented by Anthony Ashley Cooper, Third Earl of Shaftesbury (1995[171 I]: I, 262), who apparently first introduced the notion of a “natural moral sense.” [7]  Hutcheson’s belief in the inherent benevolence of mankind prompted him to criticize the antithetical views expressed by Bernard Mandeville (1924 [1714]) in The Fable of the Bees: or, Private Vices, Publick Benefits, originally published in 1705 under the title of The Grumbling Hive: or Knave Turn‘d Honest.  Hutcheson was offended by the notion that selfish motives lie behind virtuous actions - that, for example, vanity inflated by a love of praise prompts men to act benevolently. [8]  He believed that people perceive moral excellence with an instinctive moral sense, like the sense of touch or taste.  Hutcheson also criticized Mandeville in his Observations on “The Fable of the Bees,” published in 1726. [9]  Hutcheson (2002 [1726]: 114) recognized that self-interest leads people to desire natural goods because our senses show that “meats, drink, harmony, fine prospects, painting, statutes” are immediately good and because our reason shows that “riches and power” are a means to improve our well-being, but he maintained that selfish motives should be subordinate to generous and social principles.’0


3.0 The Idea of the Division of Labor.

Mandeville (1924 [17141: II, 284) may have been the first to use the metaphor of “dividing labour” in reference to the specialization of work: “No number of Men, when once they enjoy Quiet, and no Man needs to fear his Neighbour, will be long without learning to divide and subdivide their Labour.”  He then continued with a passage that sounds like Adam Smith:


if one will wholly apply himself to the making of Bows and Arrows, whilst another provides Food, a third builds Huts, a fourth makes Garments, and a fifth Utensils, they not only become useful to one another, but the Callings and Employments themselves will in the same Number of Years receive much greater Improvements, than if all had been promiscuously follow’d by every one of the Five. (Mandeville, 1924 [1714]: II, 284).

He also mentioned “Watch-making” on the same page.  Since, a few decades earlier, Sir William Petty (1964 [1682]: 473) illustrated the advantages of the division of labor with the empirical example of manufacturing a watch, a separate part being made by each laborer, Mandeville may have derived his ideas from Petty.  However new the metaphor may have been, the concept can be traced back to antiquity.  In his Republic, Plato (1941: 52-9) related how the desire for a variety of different things and the superior productivity of specialized labor gave rise to buying and selling, the invention of money, and the origin of the City of Pigs.  In his System, Hutcheson (2000 [1755]: I, 289-90) paraphrased and recommended to his readers the discussion of the division of labor in De officiis by Cicero (1967:103-4), who had argued that the co-operation of many skilled laborers not only gives rise to the economic benefits of food, clothing, housing, health and security but also the customs, laws, rules of justice and conventions of civil society.  Later, David Hume (1964 [1739-40]: II, 259) gave a metaphysical explanation of how “the partition of employments” allowed mankind to rise above the cruel and necessitous state of nature.  Like Cicero and Hutcheson, Hume traced the origin of justice, private property, and the state back to the division of labor.

Hutcheson treated the division of labor in his Inquiry and in his Observations, both of which were written in Dublin where, in the early 1720s, he established an academy for dissenters and nonconformists.  His ideas were more filly developed after he became professor of moral philosophy at Glasgow, where he wrote both his System and his Short Introduction.  In all these publications, he began his economic analysis in a state of nature that preceded the establishment of civil society.  In the rudest state of nature people lived in caves and dressed in animal skins, but they wanted a variety of many different things.  The utilitarian desire to better their economic condition led to the division of labor, which produced of a surplus of goods in the hands of each laborer.  These separate surpluses made barter immediately necessary, which led to the invention of money.  By this line of reasoning, the division of labor leads to the establishment of civil society.


4.0 The State of Nature.

Like Thomas Hobbes, Adam Smith and many other natural law philosophers, Hutcheson began his hypothetical history of man in a state of nature, but his view of the state of nature was remarkably different from the famous conditions depicted by Hobbes and by Smith.  Hobbes (1968 [1651]: 186) believed that the original condition of man was war, “where every man is Enemy to every man.”  According to the economic analysis of Hobbes, progress is not possible under such conditions:


there is no place for Industry; because the fruit thereof is uncertain: and consequently no Culture of the Earth; no Navigation, nor use of the commodities that may be imported by Sea; no commodious Building; no Instruments of moving, and removing such things as require much force; no Knowledge of the face of the Earth; no account of Time; no Arts; no Letters; no Society; and which is worst of all, continual feare, and danger of violent death; And the life of man, solitary, poor, nasty, brutish, and short.

Hutcheson criticized Hobbes.  He claimed that our moral faculty naturally binds all mankind together with benevolence and humanity.  “This first state founded by nature is so far from being that of war and enmity,” Hutcheson (2000 [1755]: I, 281) claimed, “that it is a state where we are all obliged by the natural feelings of our hearts, and by many tender affections, to innocence and beneficence to all.”  He called this a state of natural liberty.  It prevails where the members of society have no superior or magistrate.  They are subject only to God and the law of nature.

The tradition of Plato, Cicero, Hutcheson, Hume and many others suggests that Smith began the Wealth of Nations with his chapter Of the Division of Labour, because it lies at the economic foundation of civil society.  Adam Smith called his state of nature the “early and rude state of society,” which he defined as that society which precedes the accumulation of stock and the appropriation of land.  He thought that the condition of mankind in the earliest ages of society would be miserably poor.  Thus, in the last sentence of his first chapter Smith (1976 [1776]: 24) remarked that

the accommodation of a European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute master of the lives and liberties often thousand naked savages.

Hutcheson thought, to the contrary, that in the earliest ages of mankind society would be based on the family and that families would join together in small communities for their mutual protection and to benefit from the advantages of the division of labor.

In his System, Hutcheson (2000 [1755]: I, 287) agreed with Smith and other natural law philosophers that a solitary individual could scarcely survive in a state of nature:

tis plain that a man in absolute solitude, tho’ he were of mature strength, and fully instructed in all our arts of life, could scarcely procure to himself the bare necessaries of life, even in the best soils or climates; much less could he procure any grateful conveniencies.  One uninstructed in the arts of life, tho’ he had full strength, would be still more incapable of subsisting in solitude: and it would be absolutely impossible, without a miracle, that one could subsist in this condition from his infancy.

Earlier he had written in his Observations on “The Fable of the Bees” that, even if a man could survive on a minimum subsistence, he would gladly endure the toils of labor to obtain some of the pleasures of life.  He rejected the notion of a bygone Golden Age of idleness, abundance, and


wealth.  Hutcheson thought that laborers would willingly trade their leisure for a great variety of conveniences, even beyond the necessities of life.

What man, who had only the absolute necessaries of meat and drink, and a cave or a beast’s skin to cover him, would not, when he had leisure, labour for farther conveniences, or more grateful food?  Would not every mortal do so, except some few pretended gentlemen inured to sloth from their infancy, of weak bodies and weaker minds, who imagine the lower employments below their dignity?  Does not the universal choice of mankind, in preferring to bear labour for the conveniences and elegancies of life, shew that their pleasures are greater than those of sloth, and that industry, notwithstanding its toils, does really increase the happiness of mankind?  Hence it is that in every nation great numbers support themselves by mechanic arts not absolutely necessary since the husbandman is always ready to purchase their manufactures by the fruits of his labours, without any constraint; which they would not do if the pleasures or happiness of idleness were greater. (Hutcheson, 1989 [1758]: 7 1-2)

People employ the principle of opportunity cost when they compare one alternative to another  The utilitarian principle of self-gratification leads them to trade their leisure time for the material pleasures of life.  Thus, individual choice drives the economic progress of mankind.  Prosperity requires self-interest, though Hutcheson believed that men naturally temper their self-love with altruism.


5.0 Division of Labor

In the Wealth of Nations, Adam Smith (1937 [1776]: 7) gave three reasons why the division of labor increases the volume of output that any group of laborers can produce.  It is due

first, to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and lastly, to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many.

Hutcheson (2000 [1755]: I, 287) gave three analogous reasons in his System.  He observed that

‘tis well known that the produce of the labours of any given number, twenty, for instance, in providing the necessaries or conveniences of life, shall be much greater by assigning to one, a certain sort of work of one kind, in which he will soon acquire skill and dexterity, and to another assigning work of a different kind, than if each one of the twenty were obliged to employ himself, by turns, in all the different sorts of labour requisite for his subsistence, without sufficient dexterity in any.

Smith treated the time saved by specialization as an independent source of improved productivity, because a little time is generally wasted when a worker puts down one tool and picks up another.


Hutcheson attributed the improvement in dexterity to staying at a single task and not changing jobs, so their accounts are analogous, but not quite the same.  Hutcheson (2000 [1755]: I, 289) also made Smith’s third point that the division of labor gives rise to inventions: “The inventions, experience, and arts of multitudes are communicated; knowledge is increased, and social affections more diffused.” [11]  Among the ancients, Lucretius (1951) emphasized inventions and discoveries above all else.

Following Cicero, Hutcheson (2000 [1755]: I, 289) went beyond the scope of Smith’s analysis where he noted that “larger associations may further enlarge our means of enjoyment, and give more extensive and delightful exercise to our powers of every kind.”  The joint effort of many individuals can execute greater designs of more permanent and extensive benefit to society.

Some works of the highest use to multitudes can be effectually executed by the joint labours of many, which the separate labours of the same number could never have executed.  The joint force of many can repel dangers arising from savage beasts or bands of robbers, which might have been fatal to many individuals were they separately to encounter them.  The joint labours of twenty men will cultivate forests, or drain marshes, for farms to each one, and provide houses for habitation, and inclosures for their flocks, much sooner than the separate lahours of the same number.  By concert, and alternate relief, they can keep a perpetual watch, which without concert they could not accomplish. (Hutcheson, 2000 [1755]: I, 289)

Thus, the benefits of the division of labor extends beyond the production of necessaries and conveniences.  Mankind can have some of the finer pleasures and social joys of life as well as defense against the violence of man and beast.


6.0 The Necessity of Barter.

When laborers specialize in the production of a single commodity, they can produce not only a much greater quantity of things than if each became a jack-of-all-trades and tried to produce a little of everything, they will also produce a surplus of a single commodity that is far beyond their needs.  As Hutcheson (2002 [1726]: 287) put it in his Inquiry:

The Labour of each Man cannot furnish him with all Necessarys, tho it may furnish him with needless Plenty of one sort; Hence the Right of Commerce, and alienating our Goods; and also the Rights from Contracts and Promises, either to Goods acquir’d by others, or to their Labours.

The division of labor, therefore, requires a means of exchanging individual surpluses, otherwise the surplus product of each laborer would stale in abundance.  Exchange, whether by barter or by gift, requires in its turn the institutions of property and contract, which Hutcheson thought would arise naturally prior to the establishment of civil society.


In his System, he elaborated on the relation between the division of labor and barter.  With the extension of the division of labor, Hutcheson (2000 [17551: 1, 288-9) thought

each procures a great quantity of goods of one kind, and can exchange a part of it: for such goods obtained by the labours of others as he shall stand in need of.  One grows expert in tillage, another in pasture and breeding cattle, a third in masonry, a fourth in the chace, a fifth in iron-works, a sixth in the arts of the loom, and so on throughout the rest.  Thus all are supplied by means of barter with the works of complete artists.

Without the division of labor, Hutcheson (2000 [1755]: I, 289) emphasized “scarce any one could be dextrous and skilful in any one sort of labour.”

Adam Smith (1976 [1776]: 25-6) repeated a similar story in his second chapter, Of the Principle which gives occasion to the Division of Labour.  He began by attributing the division of labor to “a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter and exchange one thing for another.”  Later, however, he echoed Hutcheson’ s words where he wrote that:

man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only.  He will be more likely to prevail if he can interest their self-love in their favour, and show them that it is for their advantage to do for him what he requires of them.

Hutcheson made the same distinction in his Inquiry.  Edwin Cannan (1937 [1776]: lii-liv) argued that Mandeville made Smith see that “it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from a regard to their own self-interest.”  However, Smith’s language closely follows the words of Hutcheson (2002 [1726]: 284): “Benevolence alone is not a Motive strong enough to Industry, to bear Labour and toil... Self-love is really as necessary to the Good of the Whole, as Benevolence.” [12]  Hutcheson and Smith both claimed that benevolence was too weak a motive to promote trade. [13]  Both held that self-love induces people to barter.

In the early stages of society, Hutcheson and Smith viewed each laborer as an independent entrepreneur, who undertakes to specialize in the production of a single commodity.  They each produce a surplus that is beyond their own needs.  This leads to barter.  Once a system of exchanging their individual surpluses is established, people satisfy most of their needs from the produce of other laborers:

the certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for the surplus produce of other men’s labour as he may have occasion for, encourages every man to apply himself to a particular occupation, and to cultivate and bring to perfection whatever talent or genius he may posses for that particular species of business. (Smith, 1976 [17761: 28)


Thus, Smith followed the analysis of Hutcheson for the early stages of civil society.  The laborer appears as an independent business man as well as a productive craftsman or farmer.  When more capital has accumulated, laborers are employed by masters who advance them their wages and provided them with the tools and materials of their work, as in Smith’s famous example of the pin factory.

Hutcheson traced both the origin of private property and the accumulation of wealth to the division of labor.  Each separate laborer produces a surplus of his own product.  These surpluses are, on the one hand, an accumulation of wealth or capital; and, on the other hand, they are private property.  Without a claim to the surplus, labor would not specialize in production and produce a surplus.  In his Inquiry, Hutcheson (2002 [1726]: 285-6) explained that

Depriving any person of the Fruits of his own innocent Labour, takes away all motives to Industry from Self-love, or nearer ties; and leaves us no other motive than general Benevolence: nay, it exposes the Industrious as a constant Prey to the Slothful, and sets Self-love against Industry.  This is the Ground of our Right of Dominion and Property in the Fruits of our Labours; without which Right, we could scarce hope for any Industry, or any thing beyond the Product of uncultivated Nature.  Industry will be confin’d to our present Necessitys, and cease when they are provided for; at least it will only continue from the weak Motive of general Benevolence, if we are not allow’d to store up beyond present Necessity, and dispose of what is above our Necessitys, either in Barter for other kinds of Necessarys, or for the service of our Friends and Familys.

Hutcheson justified private property by the right of first occupancy and by the right to the fruits of labor.  Both of these ideas came from Locke and were emphasized by Carmichael (2002 [1724]: 92-94) in his notes on Pufendorf.  Occupancy may, of course, be considered a prelude to labor.  Hutcheson (2000 [1755]: 319-220) reconciled the utilitarian principle of the greatest good for the greatest number with the Lockean right to the fruits of labor by arguing that property is an incentive to work, while the produce of labor is a benefit to society. [14]  In a similar manner, Smith (1976 [1776]: 428) invoked utilitarian ethics when he defined political economy as proposing “to enrich both the people and the sovereign,” while he also endorsed the Lockean theory of property rights: “The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable (Smith, 1976 [1776]: 138).”

Hutcheson gave a different account of the accumulation of things from Adam Smith (1976 [1776]: 277), who claimed that “the accumulation of stock must, in the nature of things, be previous to the division of labour.”  Smith does not address the question of who produced the original stocks of things that supplied the weaver with his tools, his materials and his maintenance.  His theory of accumulation apparently takes place in the advanced state of civil society.  Hutcheson thought that surpluses of different things accumulate in the hands of individual laborers as soon as they specialize in production.  In his System, Hutcheson (2000 [1755]: I, 328-9) declared


‘tis plain that our acquisition by labour in any one sort of goods may extend far beyond our own present consumption and that of our families; and they may be stored up for the future: nay it may extend beyond all present and future consumption; as we may employ the surplus as a matter of beneficence, or of barter for goods of different kinds which we may need.  Otherways each one would be obliged to practice all sorts of mechanick arts by turns, without attaining dexterity in any; which would be a publick detriment.

Goods accumulated beyond consumption are, by definition, saved as capital.  The accumulation of capital arises simultaneously with the division of labor.  They are part of the same process.  The division of labor produces a surplus of the product of each laborer that is beyond the needs in present consumption.  Thus, barter becomes a necessity.


7.0 The Invention of Money.

The difficulty of barter leads to the invention money, as Aristotle (1912:16) said long ago: “barter introduced the use of money.”  Barter requires a double coincidence: a person who wants to buy one product must find a seller who wants to buy an equal value of his product.  This condition is not easily satisfied, as Hutcheson (2000 [1755]: II, 56) explained by way of example: “The man who wants a small quantity of my corn will not give me a work-beast for it, and his beast does not admit division.  I want perhaps a pair of shoes, but my ox is of far greater value, and the other may not need him.”  Many authorities discussed this problem before Hutcheson, so it was not original with him. Pufendorf (1927 [1673]: 72) wrote, for example:

But after we began to desire such a variety of things for convenience or pleasure, it was certainly not easy for every man to possess the things which another would wish to exchange for his own, or which were equal in value to the other’s things.

Money allows laborers to sell their surplus produce for money and buy the products of other laborers with money.  For a commodity to serve as money, Hutcheson (2000 [1755]: II, 55) argued “it must be generally desired so that men are generally willing to take it in exchange.”  Thus, money is a general claim on commodities that everyone will accept, which is Aristotle’s definition of money. [15]  Gold and silver satisfy this condition better that other commodities, according to Hutcheson (2000 [1755]: II, 55-6), because they are portable, scarce, divisible and durable.  Here, he was also probably following Pufendorf (1927 [1673]: 73), who made the same points about gold and silver.

In his fourth chapter, Of the Origin and Use of Money, Adam Smith presented the same theory of the origin of money as Hutcheson, Pufendorf, and Aristotle.  In order to avoid the inconvenience of barter, Smith (1976 [1776]: 37-8) described how

every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs is such a manner, as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of


some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.

After the division of labor is well established, laborers exchange their surpluses for money rather than by barter.  Money becomes a general claim on commodities that everyone accepts.  It can serve as a store of value as well as a medium of exchange.  Hutcheson also presented a brief history of money.  Smith gave a more detailed account of the history and origin of money from Homeric to modern times.


8.0 The Measure of Value.

Money is a measure of value as well as a medium of exchange and a store of value.  Smith’s fourth chapter on the origin of money, therefore, logically leads to his fifth chapter on the measure of value: Of the real and nominal price of Commodities, or of their price in Labour and their Price in Money.  Since gold and silver vary in their value like every other commodity, Smith (1976 [1776] 50-1) adopted labor sacrifice as his real price of commodities on the assumption that the sacrifice of the laborer is the same at all times and places.

Equal quantities of labour, at all times and place, may be said to be of equal value to the labourer.  In his ordinary state of health, strength and spirits; in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, and his happiness.  The price which he pays must always be the same, whatever may be the quantity of goods which he receives in return for it.  Of these, indeed, it may sometimes purchase a greater and sometimes a smaller quantity; but it is their value which varies, not that of the labour which purchases them.

Thus, since labor sacrifice never varies in value, labor is his ultimate, real, or universal measure of value.  It is his real price of commodities.  Money measures their nominal value only.  In contrast, the real price of labor is the wages or subsistence of labor, which varies with the wealth of the nation.  The real price of commodities (measured by the sacrifice of labor) and the real price of labor (equal to the wages or subsistence of labor) are distinct and different measures of value.

In his System, Hutcheson (2000 [1755]: II, 58) presented a measure of value that hinted at Smith’s real price of commodities:

But a days digging or ploughing was as uneasy to a man a thousand years ago as it is now, tho’ he could not then get so much silver for it: and a barrel of wheat, or beef, was then of the same use to support the human body, as it is now when it is exchanged for four times as much silver.  Properly, the value of labour, grain, and cattle, are always pretty much the same, as they afford the same uses in life, where no new inventions of tillage, or, pasturage, cause a greater quantity in proportion to the demand.  Tis the metal chiefly that has undergone the great change of value, since there metals have been in greater plenty, the value of the coin is altered tho it keeps the old names.


Hutcheson was a long way from stating that labor sacrifice is a universal measure of value.  He restricted his examples to agriculture.  Grain and beef, however, were his measures of value precisely because they require a constant sacrifice of labor to produce them, assuming technology does not change.  A few pages later Hutcheson (2000 [1755]: II, 62-3) equated “so many days labour” with “a fixed quantity of goods:”  “The most invariable salary would be so many days labour, or a fixed quantity of goods produced by plain inartificial labourers, such goods as answer the ordinary purposes of life.  Quantities of grain come nearest to such a standard.”  Smith (1976 [1776]: 53) supported the notion that rents payable in grain tend to be more stable than rents payable in money, because “the real value of a corn rent ... varies much less from century to century than that of a money rent.”  For this reason, a landlord would preserve the real value of his rental income better on a long term lease by stipulating payment in kind rather than payment in money.  Grain had been recommended earlier by John Locke (1991 [1691]: 263): “Wheat here, Rice in Turkey, &c. is the fittest thing to reserve a Rent in.”


9.0 The Origin and Regulation of Value.

How values are measured is conceptually distinct from two related questions: (1) the metaphysical question of what is the origin, cause or essence of value, and (2) the empirical question of what regulates or determines relative values in the market place.  Hutcheson did not influence Smith much on either the origin or regulation of value.  Smith (1976 [1776]: 47) began chapter five on the component parts of price with his famous example of the beaver and the deer: “If among an nation of hunters, for example, it usually costs twice the labour to kill a beaver as it does to kill a deer, one beaver should naturally exchange for or be worth two deer.”  This is a pure labor theory of value.  The labor necessary to produce things explains why they have value, what they are worth, and the rule for exchanging them.  Labor accounts for the origin, measure and regulation of value.

Hutcheson (1747: 209) had a metaphysical theory of the origin of value based on utility: “The ground of all price must be some fitness in the things to yield some use or pleasure in life; without this, they can have no value.”  He followed Pufendorf (1927 [1673]: 78), who wrote that things have value “in so far as they bring men some pleasure or use.”  This was in the Aristotlean tradition of the schools.  The origin of value is metaphysical concept because it traces value to a first essence or a cause of causes.  Adam Smith, in contrast to Hutcheson, was closer to the labor theory presented by John Locke (1967 [1690]: 296), who thought it would “be but a very modest Computation to say, that of the Products of the Earth useful to the Life of Man 9/10 are the effects of Labour.”  Smith (1976 [17761: 10) went further than Locke in the first sentence of the Wealth of Nations:

The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always, either in the immediate produce of that labour, or in what is purchased with that produce from other nations.


This is a labor theory of the origin of value.  Labor makes all products that have value at home and that are exported in exchange for imports from abroad.  In his Inquiry, Hutcheson (2002 [1726]: 284) did paraphrase the labor theory of Locke: “probably nine Tenths, at least, of things which are useful to Mankind, are owing to their Labour and Industry.”  This was, however, in a discussion of property rights.  In his chapter on the values of goods in his System, Hutcheson (2000 [1755]:II, 53) made it clear that he held a utility theory of the origin of value: “The natural ground of all value or price is some sort of use which goods afford in life; this is prerequisite to all estimation.” [16]

For civil society, Smith explained the regulation of value in terms of the market price and the natural price in both the Wealth of Nations and his Glasgow Lectures, LJ(A) and LJ(B).  The market price is determined in a Marshallian temporary or market period, when supply comes from a previously produced stock of things.  On any market day, the price of any commodity that is brought to market depends upon the higgling and bargaining of the buyers and sellers.  The natural price corresponds to the Marshallian long run competitive equilibrium price, which tends to equal the cost of production.  All of the inputs necessary for production must be paid at least as much as they can earn elsewhere; otherwise, production will not be forthcoming.  If the market price exceeds ,the natural price, production will tend to expand; when it falls below it, production declines. -

Hutcheson, in contrast, did not go much beyond the analysis of Pufendorf(l927 [1673]: 71), who explained prices in term of demand and the difficulty of acquiring or producing different articles. [17]  Hutcheson (2000 [1755]: II, 54) explained that “we shall find that the prices of goods depend on these two jointly, the demand on account of some use or other which many desire, and the difficulty of acquiring, or cultivating for human use.”  Demand arose from any customary, fanciful, or natural use of things.  The difficulty of acquiring things included the toil of labor, the skill of the laborer, the customary dignity or station of the laborer, [18] the scarcity of the materials, and the bounty of the harvest.  He does not explain Smith’s dynamic adjustment of prices to their equilibrium values.

Smith may, however, have followed either Hutcheson or Pufendorf when he stated his famous paradox of value.  Hutcheson (1747: 210) apparently followed Pufendorf

Some goods of the highest use, yet have either no price or but a small one.  If there’s such a plenty in nature that they are acquired almost without any Labour, they have no price; if they may be acquired by easy common labour, they are of small price.  Such is the goodness of God to us, that the most useful and necessary things are generally very plentiful and, easily acquired.

Smith (1976 [1776]: 44-5) presented a double paradox: not only are some of the most useful goods cheap, but some useless ones are dear.


Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for.  A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods many frequently be had in exchange for it.

This statement by Smith is similar to statements by Hutcheson and Pufendorf in so far as he treats value in use as a matter of conventional taste.  Whether diamonds have any value in use depends on the subjective preferences of the individuals.  In Smith’s personal opinion diamonds are of scarce any use.

Francis Hutcheson influenced Adam Smith on other topics, such as: the tendency of the rate of profits to fall as society progresses, his maxims on taxation, and, most of all, the simple and obvious system of natural liberty.  These topics, however, go beyond the logical consequences of the division of labor.


10.0 Conclusion.

Francis Hutcheson approached economics from the tradition of moral philosophy.  He traced the human condition back to a hypothetical state of nature in order to explain the origin of civil society, private property, justice, and the state.  This conjectural history of mankind began with the division of labor, the necessity of barter, and the invention of money.  Plato, Aristotle, Cicero, Grotius, Hobbes, Pufendorf, Locke, Mandeville, and many others had previously discussed these individual topics.  This was the received tradition in western economic thought.

W.R. Scott showed that the economic topics in the Glasgow Lectures and the Wealth of Nations follow the same order as the System of Moral Philosophy.  This paper shows that the early chapters of Wealth of Nations follow the hypothetical history of mankind advanced by Hutcheson.  Without the division of labour, mankind would live in a necessitous state of nature.  With the division of labour, production increases greatly for three reasons: improved dexterity, not changing tasks, and inventions.  Smith presented an analogous thesis in Chapter One.  Labourers produce surpluses of their own commodities that are beyond their own needs.  Self-love prompts them to exchange one surplus for another so that everyone can enjoy a great variety of different commodities, as in Smith’s Chapter Two.  The inconvenience of barter leads to the invention of money, which is Chapter Four.  Money is a variable standard of value over long periods of time.  Hutcheson hinted that labor sacrifice is an invariable measure of value, which Smith developed in Chapter Five.  The origin of value and the regulation of value, which Smith discussed in Chapters Six and Seven, go beyond the influence of Hutcheson.  With the exception of the extent of the market in Chapter Three, Smith’s analysis in the earlier chapters of the Wealth of Nations follows the logic and contains the substance the ideas presented by Hutcheson.



The author thanks Warren J. Samuels for his helpful comments on this paper at the 2003 Conference of the History of Economics Society at Duke University. Any remaining faults are the authors.

1. The life and times of Francis Hutcheson are treated by W. Leechman (2000 [1755]), J. McCosh (1875), T. Fowler (1882), W.R. Scott (1966 [1900]), H. Jones (1906), W.L. Taylor (1965), and R.S. Downie (1994).  For Adam Smith, see John Rae (1977 [1895]), William Robert Scott (1965 [1937]); and Ian Simpson Ross (1995).

2. Hutcheson (1747, iv) began his A Short Introduction to Moral Philosophy in Three Books; containing the Elements of Ethicks and the Law of Nature with a note “To the Students in Universities,” in which he wrote “These elementary books are for your use who study at Universities, and not for the learned.  When you have considered them well, go on to greater and more important works.”  It was originally published in Latin in 1742.  The “Advertisement” by the Translator states that Hutcheson did not want it translated because he wanted students to learn their Latin.  The prospect of a translation being published in London led Hutcheson to have it translated and published in Glasgow by Robert Foulis, printer to the University.

3.0 Hutcheson’s Inquiry established his reputation as a philosopher.  He was among the first modems to treat aesthetics.

4. H. Mizuta (1967: 106) lists the Inquiry, Illustrations of the Moral Sense, the Short Introduction, and the System among the works by Hutcheson in Adam Smith’s library.  Smith subscribed to two sets of the System when it was first published.

5. The Glasgow Lectures refer to by Scott were given in 1763-64.  They were published by Edwin Cannan (1964 [1896]).  Now they are identified as LJ(B) to differentiate them from the lectures of 1762-63, called LJ(A).  The more polished form of LJ(B) suggests that it was prepared by a copyist, while LJ(A) appears to be student notes.  R.L. Meek et al (1978: 7) believe that LJ(B) “is probably not much inferior to LJ(A) as a record of what may be assumed actually to have been said in the lectures.”

6. Taylor focused on the System and Short Introduction by Hutcheson, but did not treat the economical sections of his Inquiry.

7. Adam Smith (1976 [1759]: 321-24) did not accept Hutcheson’s notion of a moral sense.  He believed that Hutcheson put too much emphasize on the innate benevolence of mankind and did not sufficiently appreciate the importance of self-love.  In his Theory of Moral Sentiments Smith addresses the question Hutcheson asked: how do men make moral judgemdnts?  The very phrase “moral sentiments” appears in Hutcheson’s Inquiry (2002 [1726]: 243).  R.F. Teichgraeber (1986)


gives an informative and persuasive account of the influence of Hutcheson on the moral philosophy of David Hume and Adam Smith.

8. Mandeville (1924 [1714]: II, 345-6) returned criticism by ridiculing Hutcheson’s mathematical metaphysics.  Hutcheson (2002 [1726]: 183-188) presented equations that, for example, measured quantities of Benevolence, Moments of Good and Abilities.

9. The Observations on “The Fable of the Bees” was originally published in 1726 as three letters to a journal in Dublin.  In 1725, Hutcheson published his Thoughts on Laughter as three letters to the same journal.  They were reprinted together in 1758 as Thoughts on Laughter and Observations on “The Fable of the Bees” in Six Letters by Robert and Andrew Foulis.

10. Smith thought Mandeville erred in the opposite direction and classified his theory as a “licentious system,” though he admitted that in some respects the Fable of the Bees “bordered on the truth.”  Smith (1976 [1759]: 312-13) concluded that it was “the great fallacy of Dr. Mandeville’s book to represent every passion as wholly vicious, which is so in any degree and in any direction.”

11. Taylor (1965: 60) noted that these same three reasons appeared in the French Encyclopedie of 1751.  He quotes the passages by Hutcheson that refer to them in his System, but he does not explain their importance.

12. While Mandeville certainly emphasized the role of self-love in the affairs of society, Hutcheson (2000 [1755]: I, 286) did not underestimate it; on the contrary, he argued that “the vehemence of our selfish appetites and passions” were the chief dangers to the public interest unless our moral sense restrained us from injuring others.

13. See J.T. Young (1997: 58-62) for a useful analysis of the role of benevolence and self-love in the Wealth of Nations.

14. MN. Rothbard (1996: 423) argues with some justice that Hutcheson’s utilitarian philosophy weakens his position in favor of natural liberty and natural rights.  The poor are many, while the rich are few, so that, on the principle of the greatest happiness for the greatest number, the poor may feel entitled to the property of the rich.  Hutcheson (2000 [1755]: I, 257) believed, to the contrary, the right to private property that was obtained by honest industry was a perfect right.  The interest of society requires that perfect rights be maintained by force if necessary.  See also P. Bowles (1985).

15. Aristotle (1955: 153) explained that “what money does for us is to act as a sort of pledge or guarantee that a prospective exchange of commodities will in fact take place if the necessity


arises, though in the meantime the necessity is not immediate.”

16. Terrence Hutchison (1988: 399) also contended that Francis Hutcheson, “though maintaining a labour theory of property, upheld a scarcity-and-utility theory of value.”  Compare E. Pesciarelli (1999), however, who finds elements of a labour theory of value in Hutcheson’s System.

17. Andrew Skinner (1999) compares Pufendorf, Hutcheson and Adam Smith.  While he stated that Hutcheson’s utility and scarcity theory of value does not differ significantly from the theory of Pufendorf, like Pesciarelli, he notes that Hutcheson occasionally appears to hold a labor theory of value.  Hutcheson clearly used labour as a measure of value.

18. Smith (1976 [1776]: 122) may be echoing Hutcheson where he argued in his chapter on the inequality of wages and profits that workmen in positions of trust need to paid a premium, because “their reward must be such ... as may give them that rank in society which so important a trust requires.”



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