Adam Smith

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Undoubtedly the most famous, and poorly understood, philosopher of all time. If Smith himself is to blame, it is scarcely possible to imagine how he might have avoided such a fate. Smith is alleged to have supported the entire corpus of capitalism that he attacked in Wealth of Nations; his witty assaults on the proto-corporations of the day, by which English liberty was being eroded, seem to have passed over the heads of non-readers or desultory ones.


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Misunderstandings of Smith

Rand has played this role of greed-enabler for countless disciples. According to the New York Times, Atlas Shrugged - Rand's novel that ends with the hero tracing a dollar sign in the air like a benediction - stands as "one of the most influential business books ever written". Since Rand is simply pulped-up Adam Smith, her influence on men such as Greenspan suggests an interesting possibility...
[Naomi Klein, "Thanks a million, Ayn Rand," Guardian (29 Sep 2007)]
Naomi Klein is usually on the side of the angels, but her essay on Alan Greenspan's 2007 book, The Age of Turbulence is totally wrong about Adam Smith. To begin with, Smith's Wealth of Nations is not a polemic against social welfare programs, although it does include an early criticism of (certain aspects of) mercantilism.[1] Most of Smith's actual remonstrations are directed at greed, which he was likely to call "avarice." In particular, he objects (more in sorrow than in anger) to the avarice of princes that leads to the degeneration of money; but if he believed cupidity were the bulk of virtu, he would not be at liberty to make an exception for princes. (Smith uses the word "greed" to refer to brutish hunger; "avarice and injustice" are the conjoined twins he uses for greed.) Elsewhere he speaks of the problems of capital accumulation:
Men may live together in society with some tolerable degree of security, though there is no civil magistrate to protect them from the injustice of those passions. But avarice and ambition in the rich, in the poor the hatred of labour and the love of present ease and enjoyment, are the passions which prompt to invade property... Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property
[Wealth of Nations., V.1.45]
This was actually conventional wisdom across the political spectrum, and it remains so today.


Nor may it be supposed that Smith was indifferent to the plight of the poor. An early adopter and defender of the labor theory of value against the physiocrats, he pointed out the tragic irony of the customary impoverishment of workers:
The workmen in the commercial parts of England are consequently in a 'despicable condition; their work through half the week is sufficient to maintain them, and through want of education they have no amusement for the other but riot and debauchery. So it may very justly be said that the people who clothe the whole world are in rags themselves.'
[Lectures on Justice, Police, Revenue and Arms, p.256ff]
Schumpeter went so far as to accuse Smith of being a proto-Marxist.[2]


Lest Ms. Klein think I am protesting too much (all right, I probably am!), we can point to still more evidence of Smith's dissonance from Rand. Smith was, of course, not an economist, but a critic of existing schemata of political economy. But what of his normative philosophy? He was, after all, a lecturer on precisely that subject as well as a personal friend of David Hume. Earlier, Smith wrote the brilliant and immanently readable work, A Theory of Moral Sentiments (link below). Now, it's asking a bit much of Smith, who died in 1790, to clear his name of this infamy by denouncing Ayn Rand (1905-1982) from beyond the grave. But Smith actually has done that, with his supernatural prescience. Rather than criticize Rand (which would have been impossible), he attacks her 18th century surrogate, Bernard de Mandeville (who had also espoused the "virtue of selfishness."
There is, however, another system which seems to take away altogether the distinction between vice and virtue, and of which the tendency is, upon that account, wholly pernicious: I mean the system of Dr. Mandeville. Though the notions of this author are in almost every respect erroneous, there are, however, some appearances in human nature, which, when viewed in a certain manner, seem at first sight to favour them. These, described and exaggerated by the lively and humorous, though coarse and rustic eloquence of Dr. Mandeville, have thrown upon his doctrines an air of truth and probability which is very apt to impose upon the unskilful. Dr. Mandeville considers whatever is done from a sense of propriety, from a regard to what is commendable and praise-worthy, as being done from a love of praise and commendation, or as he calls it from vanity. Man, he observes, is naturally much more interested in his own happiness than in that of others, and it is impossible that in his heart he can ever really prefer their prosperity to his own. Whenever he appears to do so, we may be assured that he imposes upon us, and that he is then acting from the same selfish motives as at all other times. Among his other selfish passions, vanity is one of the strongest, and he is always easily flattered and greatly delighted with the applauses of those about him. When he appears to sacrifice his own interest to that of his companions, he knows that his conduct will be highly agreeable to their self-love, and that they will not fail to express their satisfaction by bestowing upon him the most extravagant praises. The pleasure which he expects from this, over-balances, in his opinion, the interest which he abandons in order to procure it. His conduct, therefore, upon this occasion, is in reality just as selfish, and arises from just as mean a motive, as upon any other. He is flattered, however, and he flatters himself, with the belief that it is entirely disinterested; since, unless this was supposed, it would not seem to merit any commendation either in his own eyes or in those of others. All public spirit, therefore, all preference of public to private interest, is, according to him, a mere cheat and imposition upon mankind; and that human virtue which is so much boasted of, and which is the occasion of so much emulation among men, is the mere offspring of flattery begot upon pride.
[Theory of Moral Sentiments, "VII: Of Systems of Moral Philosophy "]

Readers are gently nudged to remind them of the character of Ellsworth Monkton Toohey in The Fountainhead.

Whether the most generous and public-spirited actions may not, in some sense, be regarded as proceeding from self-love, I shall not at present examine. The decision of this question is not, I apprehend, of any importance towards establishing the reality of virtue, since self-love may frequently be a virtuous motive of action. I shall only endeavour to show that the desire of doing what is honourable and noble, of rendering ourselves the proper objects of esteem and approbation, cannot with any propriety be called vanity.
Ironically, Klein's hero (and mine), John M. Keynes, praised Mandeville, because the latter pointed out the dangers of underconsumption (and not because he claimed some virtue for selfishness.
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Smith and Imperialism

From the nature of their situation, too, the servants must be more disposed to support with rigorous severity their own interest against that of the country which they govern than their masters can be to support theirs. The country belongs to their masters, who cannot avoid having some regard for the interest of what belongs to them. But it does not belong to the servants. The real interest of their masters, if they were capable of understanding it, is the same with that of the country,[3].... But the real interest of the servants is by no means the same with that of the country, and the most perfect information would not necessarily put an end to their oppressions... More intelligence and perhaps less good-meaning has sometimes appeared in those established by the servants in India. It is a very singular government in which every member of the administration wishes to get out of the country, and consequently to have done with the government as soon as he can, and to whose interest, the day after he has left it and carried his whole fortune with him, it is perfectly indifferent though the whole country was swallowed up by an earthquake.
[Wealth of Nations, IV.7.192: "Of Colonies"]


In the time of Adam Smith, the term "empire" and "imperialism" were used to primarily to refer to entities such as the Holy Roman Empire and its not-so-holy antecedent, the Roman Empire. To quote John A. Hobson
The root idea of empire in the ancient and mediæval world was that of a federation of States, under a hegemony, covering in general terms the entire known or recognised world, such as was held by Rome under the so-called pax Romana. When Roman citizens, with full civic rights, were found all over the explored world, in Africa and Asia, as well as in Gaul and Britain, Imperialism contained a genuine element of internationalism. With the fall of Rome this conception of a single empire wielding political authority over the civilised world did not disappear.
[From Imperialism: "Nationalism & Imperialism"; see map]
During the 17th and 18th centuries, however, there emerged the concept of competing empires, which oftne took the form of joint stock companies, as, for example, the East India Company. Joint stock companies require a state charter in order to raise capital, and this typically took the form of a royal patent, or proclamation of monopoly. The joint stock companies were thus a somewhat more sophisticated scheme of the monarchy to squeeze revenues from the nation by interfering in the natural and wholesome commerce that prevailed. But the colonial endeavors in the East Indies and the Americas were, to Smith's mind, a still more odious scheme, for they relied on the cruel extermination (Smith's words) of the natives, and on the shedding of the subjects' blood for an unscrupulous few.


Adam Smith says of this matter as much as we need say here, viz.,
The Portuguese monopolized the East India trade to themselves for about a century, and it was only indirectly and through them that the other nations of Europe could either send out or receive any goods from that country. When the Dutch, in the beginning of the last century, began to encroach upon them, they vested their whole East India commerce in an exclusive company. The English, French, Swedes, and Danes have all followed their example, so that no great nation in Europe has ever yet had the benefit of a free commerce to the East Indies. No other reason need be assigned why it has never been so advantageous as the trade to America, which, between almost every nation of Europe and its own colonies, is free to all its subjects. The exclusive privileges of those East India companies, their great riches, the great favour and protection which these have procured them from their respective governments, have excited much envy against them. This envy has frequently represented their trade as altogether pernicious, on account of the great quantities of silver which it every year exports from the countries from which it is carried on.
[Wealth of Nations, IV.1.33]
But Smith does not praise the concept behind such empires:
To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers. Such statesmen, and such statesmen only, are capable of fancying that they will find some advantage in employing the blood and treasure of their fellow-citizens to found and maintain such an empire.
[Ibid, IV.7.149]
That was in regards to the obviously inadequate returns from the colonization of North America; but Smith also explodes the legend of state benefits:
The policy of Europe, therefore, has very little to boast of, either in the original establishment or, so far as concerns their internal government, in the subsequent prosperity of the colonies of America.

Folly and injustice seem to have been the principles which presided over and directed the first project of establishing those colonies; the folly of hunting after gold and silver mines, and the injustice of coveting the possession of a country whose harmless natives, far from having ever injured the people of Europe, had received the first adventurers with every mark of kindness and hospitality.

The adventurers, indeed, who formed some of the later establishments, joined to the chimerical project of finding gold and silver mines other motives more reasonable and more laudable; but even these motives do very little honour to the policy of Europe.
[Ibid.]
The conquest of gold and silver dominates Smith's discussion of the Latin American colonies, and this interests us because the colonization of North America was highly exceptional: there, the object of the invaders was mainly to live off agriculture in various ways. The Latin American, African, and East Indian projects were, in Smith's time, heavily oriented towards the accumulation of precious metals:
In consequence of these popular notions, all the different nations of Europe have studied, though to little purpose, every possible means of accumulating gold and silver in their respective countries. Spain and Portugal, the proprietors of the principal mines which supply Europe with those metals, have either prohibited their exportation under the severest penalties, or subjected it to a considerable duty. The like prohibition seems anciently to have made a part of the policy of most other European nations. It is even to be found, where we should least of all expect to find it, in some old Scotch acts of Parliament, which forbid under heavy penalties the carrying gold or silver forth of the kingdom. The like policy anciently took place both in France and England.


All the sanguinary laws of Spain and Portugal are not able to keep their gold and silver at home. The continual importations from Peru and Brazil exceed the effectual demand of those countries, and sink the price of those metals there below that in the neighbouring countries
[Ibid., IV.1.5]

The increase of the quantity of gold and silver in Europe, and the increase of its manufactures and agriculture, are two events which, though they have happened nearly about the same time, yet have arisen from very different causes, and have scarce any natural connection with one another. The one has arisen from a mere accident, in which neither prudence nor policy either had or could have any share: The other from the fall of the feudal system, and from 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... Spain and Portugal, the countries which possess the mines... are ...poorer than the greater part of Europe. Though the feudal system has been abolished in Spain and Portugal, it has not been succeeded by a much better.
[Ibid., IV.1.5]
Smith's highest praise is for countries that mostly evaded the mania for colonies, and focused on internal commerce.
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Notes

Note #3 below is Smith's, not mine; as is so often the case in economics, the best part is in the footnotes--JRM

  1. ↑ England's social welfare system c.1776 was the Elizabethan poor law. See Marjie Bloy, "The 1601 Elizabethan Poor Law," Victorian Web.
  2. ↑ Schumpeter, History of Economic Analysis, p.557-558. Schumpeter absolutely positively does not understand Smith, or was blinded by his own reactionary hostility to the labor theory of value. But his characterization of Smith as a sort of 18th century Trotsky is quite amusing. No wonder Ann Coulter plagiarized Schumpeter.
  3. ↑ Adam Smith: This would be exactly true if those masters never had any other interest but that which belongs to them as Proprietors of India stock. But they frequently have another of much greater importance. Frequently a man of great, sometimes even a man of moderate fortune, is willing to give thirteen or fourteen hundred pounds (the present price of a thousand pounds share in India stock) merely for the influence which he expects to acquire by a vote in the Court of Proprietors. It gives him a share, though not in the plunder, yet in the appointment of the plunderers of India; the Directors, though they make those appointments, being necessarily more or less under the influence of the Court of Proprietors, which not only elects them, but sometimes over-rules their appointments. A man of great or even a man of moderate fortune, provided he can enjoy this influence for a few years, and thereby get a certain number of his friends appointed to employments in India, frequently cares little about the dividend which he can expect from so small a capital, or even about the improvement or loss of the capital itself upon which his vote is founded. About the prosperity or ruin of the great empire, in the government of which that vote gives him a share, he seldom cares at all. No other sovereigns ever were, or from the nature of things ever could be, so perfectly indifferent about the happiness or misery of their subjects, the improvement or waste of their dominions, the glory or disgrace of their administration, as, from irresistible moral causes, the greater part of the Proprietors of such a mercantile Company are; and necessarily must be.
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External Links


James R MacLean (22:20, 5 November 2007 (PST))

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