Who was Adam Smith?

Adam Smith is a name invoked by many touting the virtues of capitalism but most, when I have asked, “But have you read any of his books?”, will usually admit that they have not.  Many who ought to know better speak of Smith’s metaphor “invisible hand” as though it were a commandment handed down by a deity or that it’s an immutable law of physics operating on physical phenomena in such a way as to by itself create a just society. I suppose it’s not surprising that people who inherit the family fortune are the ones promoting the virtues of hard work and pulling yourself up from your bootstraps since it’s not much different than Kings and Priests who I’m sure must have endorsed “divine right.” From my experience, people who are always touting one political ideology or another have never read any of the original seminal thinkers and their own social and economic status in society is usually the primary influence on their beliefs about what constitutes the best economic system.

Adam Smith (1723-1790) was a Scottish moral philosopher and generally considered the “father” of modern capitalism as expressed in his magnum opus The Wealth of Nations. Smith was a man of the Enlightenment and was good friends with other famous intellectuals of the day such as Hume, Voltaire and Rousseau. But Smith, who also wrote a companion volume called The Theory of Moral Sentiments, would not approve the manner in which capitalism in the past few decades has morphed into an unfettered global “free for all” where greed seems to be the only driving motivational force and where many of the former civilized checks and balances are being removed. It’s quite possible that Smith was influenced by David Hume’s theories on human nature and ethics because there are some similarities in their conceptions of compassion, sympathy and social justice. Hume’s moral theory entails a total rejection of the divine authority idea in ethics. It is considered the first in modern philosophy to be completely secular, without reference to God's will, a divine creative plan, or an afterlife. Hume rightly argues that key moral values are matters of social convention and not on any authority, divine or otherwise. Hume was a thoroughgoing skeptic, naturalist and empiricist and his views spawned both praise and indignation in writings of commentators in subsequent years.

I don’t think it incorrect to say that Smith was just as concerned as was Karl Marx 100 years later about the real inherent potential for exploitation and dehumanization in a laissez-faire socio-economic system based on some of the worst human attributes. Both Smith and Marx for example realized the dehumanizing impact of division of labor. Smith would surely be appalled at the outrageous remuneration commanded by corporate leaders in the form of multi-million dollar salaries, stock options and golden handshakes and the ever-increasing gap between the super rich and the rest of us. He would consider the remuneration of corporate leaders these days as grand larceny. It’s conceivable that despite its flaws, the best socio-economic system conceived by man will be destroyed from within by financial elites whose greed seems limitless. The most corrupt societies have always been those where the gap in wealth has been the largest and if the present trend continues we may be propelled back to the era of Robber Barons of the late nineteenth century.

Adam Smith would have been opposed to the sort of corporation that evolved in the latter part of the 19th Century which legally granted corporations more rights than ordinary citizens. He would especially be against the sort of corporation of today that has power over governments, no sense of social responsibility and where the CEO and CFO are basically hired guns often holding no original stock positions and who only look at the short term. Smith also believed that there are certain realms of human endeavor that should never be in private hands. Both of Smith's books are well worth reading and unfortunately most of the hard line neo-conservatives like Michael Walker of the Fraser Institute have quite obviously never read Smith. It's not unlike many who condemn Marxism without ever having read Karl Marx who was not only an incredibly brilliant intellect, but a man with  very refined moral sensibilities. Marx was surely wrong about many things including his historical determinism about the demise of capitalism (which may still happen the way the world is going) but like Adam Smith he was right about the exploitive nature of capitalism and the intrinsic flaws that he felt had to be addressed. Das Capital, the Communist Manifesto and many of Marx's philosophical writings are still well worth reading.

I don’t really believe that most people on the left are anti-business. They just want governments to put in place the necessary checks and balances against potential abuse and exploitation, something Adam Smith himself never tired of pointing out. Trade unions for example would never have been necessary if employers could always be counted on to pay and treat workers fairly and justly. We just need to go back to the early years of capitalism to see what it was like without those regulations. Child labor and 16 hour days seven days a week were the norm with no protection the environment or safe working conditions. Read any novel by Charles Dickens. Are we heading back to that?

Below is an excellent piece by a writer on the Common Dreams Web Site, a site I visit frequently for antidotes to the right wing bias of our corporate media.

Who Owns Adam Smith?

by Rick Wilson

Adam Smith is widely regarded as the patron saint of capitalism. His 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations is still widely and justly celebrated. This wasn’t his only accomplishment. He was part of a larger intellectual movement known as the Scottish Enlightenment, along with such thinkers as David Hume and Frances Hutcheson. They were fascinated with questions that would later be taken up by the social sciences. Smith also wrote on the subject of jurisprudence and moral philosophy, or what we might call political science and psychology today.

His views on sympathy as the basis for morality, as developed in his “Theory of Moral Sentiments,” actually hold up pretty well in the light of recent research in biology, psychology and brain research.

Smith’s enemy in Wealth of Nations was mercantilist economic theory, which held that the health of a national economy depended on the accumulation of precious metals and a favorable balance of trade. Mercantilism was often supported by powerful economic interests allied with the state and enjoying monopolies and special privileges. In opposition to this policy, Smith favored a system of free trade and open, competitive markets.

The system he describes and advocates in his most famous work is one of small proprietors, artisans and traders, each of whom, in pursuit of self-interest, promotes the public good.

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest,” he wrote. “We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” In doing so under conditions of true competition, the public good is often promoted as if by “an invisible hand.”

Smith died in 1790, before the industrial revolution, mechanization, and the rise of large-scale businesses, let alone the government-sanctioned corporations, trusts, and giant global industrial or financial organizations that were light years from his world of small-scale competition. These often distort outcomes and result in what economists call market failures, such as monopolies, oligopolies and externalities that can cause a lot of damage to individuals and the public but don’t show up on a corporation’s bottom line.

One problem with becoming an icon is that people often honor and remember the symbol rather than the real person. Such was the case with Adam Smith, who said some things that might surprise people.

First, while he celebrated truly competitive capitalism, he didn’t trust capitalists very much. Consider these quotes:

· “All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”

· “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Second, he believed that workers deserve a living wage:

· “It is but equity … that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerable well fed, clothed and lodged.”

Third - and here’s a real shocker - he believed that the wealthy should pay more in taxes:

“The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”

Fourth, he believed in the necessity of public investments in infrastructure and public goods. He spoke of the duty of government to support “public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.”

If he were alive today, he would probably consider education and health care as examples of this kind of public goods.

Smith and his Scottish Enlightenment allies were not ideologues and were better psychologists than those today who view humans as organic calculating machines. They were pretty, well, enlightened. They recognized that a good society and a healthy capitalist economy depended on a shared prosperity.

As his dear friend the philosopher David Hume put it in 1752, “Every person, if possible, ought to enjoy the fruits of his labour, in a full possession of all the necessaries, and many of the conveniences of life. No one can doubt, but such an equality is most suitable to human nature, and diminishes much less from the happiness of the rich than it adds to that of the poor.”

I suggest we unleash some of that.

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 In my view, the next essay below by the right wing libertarian P J O’Rourke is deficient in many ways but for a piece like this to appear in The National Post, Canada’s platform and propaganda vehicle for the Fraser Institute, suggesting  the remote possibility that something may be morally amiss in today’s version of capitalism, is at least somewhat refreshing. But don’t mistake O’Rourke for a left leaning liberal espousing social justice because a writer with such views has never and will never be featured in The National Post.

 

Adam Smith: Capitalism's Critic

The Wealth of Nations is history's most important economic text. Yet few have read the dense tome's full 1,100 pages

Thursday, July 19, 2007

Adam Smith cannot be said to have constructed the capitalist system. What he did was provide the logic of a level ground of economic rights upon which free enterprise could be built more easily. And he suggested to the builders that they use the wheelbarrow of free trade, the plumb bob of self-interest, and all the specialized tools of specialization. However, when Smith undertook to consider how free enterprise allocates what it produces -- "the Order according to which its Produce is naturally distributed" -- he hit capitalism hard enough to make its boiled shirt front roll up like a window shade.

Some acolytes of Smith might be surprised if they ever read him. He wrote that "the oppression of the poor must establish the monopoly of the rich," and that profit "is always highest in the countries which are going fastest to ruin." About concepts such as "full employment," Smith could make a noise like a John Kenneth Galbraith: "If the society were annually to employ all the labour which it can annually purchase ? the produce of every succeeding year would be of vastly greater value than that of the foregoing."

Adam Smith was tough on the landed gentry, too: "As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed." (He would have been amused to see the dukes and duchesses of England reduced to keeping circus animals and other attractions on their great estates and letting fat day trippers waddle through their stately homes, cam-cording the noble ancestors on the walls.)

Smith was tougher yet on the very people who, in his time, were beginning to generate the wealth of nations that he proposed to increase. Despite his friendship with merchants and manufacturers in Edinburgh and Glasgow, Smith had a cool loathing for the class: "Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour."

Elsewhere, he wrote: "Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people ? The interest of the dealers in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public."

And Smith was no enthusiast for the privatization of government functions. Concerning the East India Company and its rule of Bengal, Smith wrote, "The government of an exclusive company of merchants is, perhaps, the worst of all governments for any country whatever."

What made Adam Smith different from the later and more foolish critics of capitalism was that he never reasoned backward about the cause of economic disparity. "It is not," Smith wrote, "because one man keeps a coach while his neighbour walks a-foot, that the one is rich and the other poor."

Smith also possessed none of the moral contempt for profit itself that would soon become the laurel wreath crowning every philosophical pretension. It crowned the pretension of Percy Bysshe Shelley, to give a comic example, and that of Pol Pot, to give a tragic one. (The first insurrection in history to style itself "communist" would occur within a few years of Smith's death. It aimed to overthrow the French Revolution's Directory, of all things. The uprising was led by Francois-Noel Babeuf, who took the name "Gracchus" after Tiberius Gracchus the younger, the second-century BC radical land reformer and would-be dictator of Rome. Tiberius, predictably, was murdered by his opponents. And, predictably, so was Babeuf.)

Instead of this sort of thing -- sadly familiar to students of modern history -- Smith wanted "the establishment of a government which afforded to industry the only encouragement which it requires, some tolerable security that it shall enjoy the fruits of its own labour." Smith did not consider profits to be the same as "pernicious gains." He held that excessive profits were the result of laws that limited or guaranteed trade. A "violent police" was the term he used for such legislative interference in free enterprise.

And even with a brutal constabulary of trade regulations, pernicious gains are to be preferred to pernicious losses. Imagine a world where we went about our daily activities deliberately intending not to profit by them -- eating pebbles, wooing the furniture, getting in our car for the sole purpose of driving into a tree.

Smith saw an ordinary rate of profit not as what it ideologically is to the ideological, but as what it actually is to the profit maker, "his revenue, the proper fund of his subsistence." The freedoms of competition force the price the profit-maker charges for his goods to be "the lowest at which he is likely to sell them at least where there is perfect liberty."

The italics are added and the phrase cannot be underscored too heavily. Smith was fostering free enterprise, and he was also nurturing -- just in time -- resistance to socialism. "Nothing can be more absurd," he wrote, "than to imagine that men in general should work less when they work for themselves, than when they work for other people." And when other people are "The People" -- not individuals but an abstraction -- the absurdity becomes an insanity.

Adam Smith was not a modern libertarian, but he was a libertarian critic of capitalism. Problems of equality were not to be solved with more laws. In a free market, wages may be too low, but, Smith wrote, "law can never regulate them properly, though it has often pretended to do so." Greater capitalist equality was to be achieved with greater equity capital, so that "in consequence of the flourishing circumstances of the society, the real price of labour should rise very considerably."

Likewise the problems of free markets were not to be solved by increased regulation of those markets, but by increased freedom in them: "To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it." Every law concerning commerce -- even the most beneficent, such as the Pure Food and Drug Act -- contains an element of narrowing the competition and should be "examined with the most suspicious attention."

Congress banned cigarette advertising on radio and TV in 1970, about the same time that the entire nation got stoned on pot. Was Nixon's drug dealer behind the legislation?

Excerpted, with permission, from On The Wealth of Nations (Books That Shook the World), by P. J. O'Rourke.

 2007 by P.J. O'Rourke. Published in Canada by Douglas & McIntyre.