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RECOVERED HISTORY: MEET THE REAL ADAM SMITH
Progressive Economics - With the current economic climate, there has been much discussion about the origins of the financial crisis and the future of capitalism. In these typically hollow debates, Adam Smith is routinely and thoughtlessly invoked as the founder of modern capitalist though, based on unrestrained trade, limited government, and the mechanics of market economies. To this day, The Wealth of Nations is held up as the espousal tome for free-market ideology that decries government regulation, excessive taxation, and wealth redistribution (in whatever contrived shapes it may take).
But the myth of Adam Smith created by two centuries of advanced industrialization and capitalism is very far from the reality of Adam Smith. The majority of academics and pundits alike generalize on Smith's observations about the invisible hand, the benefits of division of labor, and the growth of wealth through free trade.
Outside of these points, The Wealth of Nations serves as an of his time reaction to the impact of corporations and mercantile interests on economies and governments. More specifically, Smith spent much of his book reacting to the growth of the East India Company, whose stockholders were to be found on every level of government decision making in Great Britain and thought to be adversely effecting foreign policy and internal financial systems. Smith was also appalled at the exploitation under the reign of the East India Company, including the starvation of over 30 million people in modern-day Bangladesh due to British-imposed tariffs.
As Chomsky notes, Smith saw the East India Company and other stockholding corporations as bending state policy towards the good of the few at the expense of the many. Smith to this end was in favor of heavy-handed government regulation to prevent financial and corporate powers from manipulating government policy for their own ends. This led him to conclude on the nefarious impulse of corporate manipulation, that when "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. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."
The legacy of Smith continues to diverge further and further from the reality of Smith's principles which were heavily influenced by Rousseau and other humanist figures of the Enlightenment. Smith advocated for a system of progressive taxation and a political economy centered on the freedom of creative pursuits but protective of the working class. Considering how his legacy is enshrined today, it seems out of place to realize that Smith's chief concern was for economic policy to be secondary to moral and ethical concerns such as economic equality, freedom of speech, and dignified and just labor conditions.
But the myth of Adam Smith created by two centuries of advanced industrialization and capitalism is very far from the reality of Adam Smith. The majority of academics and pundits alike generalize on Smith's observations about the invisible hand, the benefits of division of labor, and the growth of wealth through free trade.
Outside of these points, The Wealth of Nations serves as an of his time reaction to the impact of corporations and mercantile interests on economies and governments. More specifically, Smith spent much of his book reacting to the growth of the East India Company, whose stockholders were to be found on every level of government decision making in Great Britain and thought to be adversely effecting foreign policy and internal financial systems. Smith was also appalled at the exploitation under the reign of the East India Company, including the starvation of over 30 million people in modern-day Bangladesh due to British-imposed tariffs.
As Chomsky notes, Smith saw the East India Company and other stockholding corporations as bending state policy towards the good of the few at the expense of the many. Smith to this end was in favor of heavy-handed government regulation to prevent financial and corporate powers from manipulating government policy for their own ends. This led him to conclude on the nefarious impulse of corporate manipulation, that when "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. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."
The legacy of Smith continues to diverge further and further from the reality of Smith's principles which were heavily influenced by Rousseau and other humanist figures of the Enlightenment. Smith advocated for a system of progressive taxation and a political economy centered on the freedom of creative pursuits but protective of the working class. Considering how his legacy is enshrined today, it seems out of place to realize that Smith's chief concern was for economic policy to be secondary to moral and ethical concerns such as economic equality, freedom of speech, and dignified and just labor conditions.
3 Comments:
Smith is misused by those on the right and left, so they cherry pick its contents. I suspect many are entirely too lazy to read a nearly 900-page treatise.
I have read it and came away with a very different view of Smith, who, from arguments made by those on the left, I thought would be the zealous capitalist (a term he did not coin,I believe). I was quite surprised.
Much quoted, seldom read.
The East India Company was a private company, granted a Royal Charter by government on behalf of the sovereign, which operated nearly a year’s sailing away (nearly two years there and back) in India, and, thereby, well-beyond the ability of the government, and, as important, the ordinary shareholders, to monitor, by Smith’s accounts, the appalling behaviours of its officers and servants. Smith’s strictures against the Company are detailed in Wealth Of Nations (Book IV and V).
However, the quotation offered when: "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.” (WN I.x.2.27: 145)
This is part of a discussion of the role of the ‘towns corporate’ in Britain, where the old Trade Guilds held sway. To be employed in commercial activity in towns, the person had to serve a seven-year apprenticeship under a master, who was restricted to two apprentices only. Without an apprenticeship, served in the town, nobody could open a shop for trade (this happened to James Watt in Glasgow – he had served his apprenticeship elsewhere).
It was to these ‘tradesmen’ that Smith referred – small, single-trade shopkeepers and artisans, who owned their own little businesses and who exercised a monopoly of their trades in an “incorporated town”, who tended to exact monopoly prices for their merchandise or artisan services, and who swore to only buy from other incorporated tradesmen for any other items that they required, even where unincorporated tradesmen could supply at lower, more competitive prices. In short, the Incorporated trades were a cabal of petty monopolists.
These incorporated trades and the tradesmen running them had nothing to do with Chomsky’s version of the East India Company, a massive international monopoly company operating East of the Cape of Good Hope to India and beyond, and behaving appallingly. The local tradesmen who met for “for merriment and diversion” were small fry compared to the East India Company. Chomsky, apparently, conflates the two monopoly cases together.
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