Saturday, 14 May 2011

Thoughts on Adam Smith.

Capitalism and the Illth of Nations.

You may recognise this fella from the £20 note in your pocket, that's if you're British and you often carry such notes around with you, his name was Adam Smith. I recall when his mug was first put on the £20 note in 2006 there were not that many people who knew who he was. There were even some who thought he might have had something to do with John Smith, which may say something about the drinking culture of Great Britain. Adam Smith was a figure in the Scottish Enlightenment, a philosopher and an economist. The people who know him or his work are typically in the area of economics for the reason that Adam Smith is the founding father of classical economics. For some Wealth of Nations is the Bible of economic science. But Adam Smith was not just the father of economics he was also a political and moral philosopher, he worked hard to construct the Philosophy of Society, which can be divided into politics, ethics and economics.

We have The Theory of Moral Sentiments to go along with the Bible of economics, as well as lecture notes and notebooks, though he never completed his work on politics and had the incomplete drafts of it burned before he died. When it came to morality Smith is of the Aristotelian tradition, he thought that the moral judgements we make can be at harmony with our natural inclination to self-interest and the key is sympathy for others. As he was an Aristotelian the marketplace was a means to ends, the realisation of human capacities in conditions of which perfect liberty tends towards perfect equality. The work he did in economics was only a small part of his academic life and yet it is Smith's economic theories which have had the most impact on society. Almost half of his writings, especially his lectures and notebooks, were not discovered until the 1970s in a second-hand bookshop and were edited in the 1980s. So we have only recently developed an all encompassing understanding of the thought of Adam Smith.

"Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all." — Adam Smith

Adam Smith was a proponent of the free-market because he thought it would lead to conditions of perfect liberty and perfect equality. Smith was an advocate of capitalism in a humane, polite and decent conception. For him capitalism is the best system to generate growth in a country, but to accumulate wealth in general and once it has been accumulated it can spread around. Wealth is to be understood as well-being, it is not just money and this is where the Adam Smith Institute goes so wrong. Wealth is the opposite of Ruskin's idea of 'Illth' which is everything that detracts from life, it is the persecution of minorities, warfare and social stratification etc, by wealth Smith meant everything that contributes to life - equality, poetry, music and satisfaction etc. For Smith charity is an insufficient means for resolving poverty and for providing the essentials for living, here he thought self-interest was better. But he never said that the free-market should operate without state-intervention or supervision. These aspects of Smith's thought are all too often overlooked.

This might be the reason that the Founding Fathers of the US never took on board the theories of Adam Smith as compiled in Wealth of Nations even after he had written to them. The economic theories of Alexander Hamilton were a lot more popular with the Founding Fathers as embodied in his Report on Manufactures which called for: tariffs, prevention of monopolies, subsidy of important industries, among other federal regulation of commerce. In those days the aim of a prosperous and independent country like America was to maintain it's autonomy, free trade would have led to the US becoming an economic appendage of Britain. By 1791 Congress had formally endorsed Hamilton's theory, it was the basis of the economic platforms of Henry Clay, the Whig Party, and later the Republican Party under Abraham Lincoln. Incidentally, the Republicans were not only abolitionists when it came to chattel slavery but also wage slavery.

For Milton Friedman, the principles of Adam Smith of every bit as valid today as they were in 1776 and we know a lot more today than Adam Smith about economics. Interestingly, Milton Friedman once said that Adam Smith was "wrong" in many details of his vision but overall he was right. Where Adam Smith was "right", according to Friedman, was in his conception of how millions of people can coordinate their activities in a way which is mutually beneficial for all of them and without a large intrusive state. Notice how this conveniently removes all of the aspects of Adam Smith which would be problematic for a right-wing libertarian. No doubt Friedman would dismiss Smith when he says "The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion." Smith supported the division of labour early in Wealth of Nations but later explained that it would lead to misery, stupidity and ignorance on a huge scale.

The Progress of History.

Adam Smith was a believer in history as progress, particularly in economic terms, that we are on the right track and human society will develop towards wealth. The trick is to be able to move all obstacles out of the way as we move forward. This is the view of history held commonly by Enlightenment thinkers. There are specific conditions that are conducive to economic progress: peace, easy taxes and tolerable administration of justice. The rest would be brought about by the natural courses of things. In other words, political stability is the key to bringing a society from the lowest barbarism to the highest opulence. Through commerce we can achieve civility and attain the bourgeois values of shopkeepers. Prosperity for Adam Smith can be measured by the standard of living enjoyed or endured by the working-class, who have a right to creative work in Smith's mind.

The Enlightenment view of history is conservative, in the same way that Richard Dawkins is conservative, as the implications are that there is no need for a radical intervention except only to secure the progress of historical change. At the same time, there is a pessimism in the work of Adam Smith as he felt the agrarian civilisation was inescapable and we would be trapped at a high-level equilibrium. In his day, China and Holland had hit it because of the fall in the rate of profit and the law of diminishing returns. Smith anticipated that every growth in prosperity and technology would feed into a growth in population. But the world could only sustain around 500 million through agriculture, which utilises a certain amount of the energy from the sun as part of production. With the development of capitalism, we have seen the population explode to 6.5 billion, we have become embedded in a system which requires 3% compound growth to perpetuate itself every year.

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