Ivan's Place
In honor of the greatest moralist who never lived
Copyright © 2004 by Bill Becker

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The Real Adam Smith
Copyright © 2006 by Bill Becker

Note: This essay is a modified version of a two-part series on the Progressive Writers Bloc website. Click here for that portion of Adam Smith's own words from which this essay derives.

In 1776, a kindly professor of moral philosophy, Adam Smith, published a most delightful and hugely informative book, An Inquiry Into the Nature and Causes of the Wealth of Nations. Today it is usually reprinted simply as The Wealth of Nations. Wealth of Nations earned Smith the impressive title "the father of capitalism."

Sadly, the modern American business community has so distorted Smith's masterwork as to make him into something of a monster. Were this gentle Scotsman to appear on the scene today, he would be horrified at the suggestion that he is the "godfather" of modern capitalist practice. Indeed, his likely response is well imagined by Jonathan B. Wight in Saving Adam Smith (Prentice Hall, 2002). There, a humble mechanic channels Smith, who tries to set the record straight as to the real meaning of his text.

As it happens, America's captains of industry and finance make only limited use of Smith's work, and there they get it wrong. I refer to Smith's famous "invisible hand," the mechanism by which, so they assert, an unfettered market will bring prosperity to all — someday.

In fact, Smith mentions the invisible hand only once in Wealth of Nations, and in a limited economic context. Noting that "the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry," Smith reckons that every owner of capital "therefore endeavours as much as he can both to employ his capital in the support of domestic industry, and ... to render the annual revenue of the society as great as he can."

Smith notes, however, that our capitalist is in no way acting from altruistic motives, or even loyalty the homeland: "By preferring the support of domestic to that of foreign industry, he intends only his own security, and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."

Contrary to the use made of the "invisible hand" by corporate America, Smith's message is clear: the owner of capital will naturally use his capital to bolster domestic industry and the domestic economy, rather than shipping it off to foreign countries. This is in stark contrast to the modern capitalist, who does not hesitate to purchase a productive, profitable company that provides its workers a decent wage and benefits, fire the workers (usually abrogating the retirement plan as well), dismantle it, sell off its parts, and then ship what's left of the plant to a Third-World country to produce goods at slave wages.

Elsewhere in Wealth of Nations Smith also contradicts corporate America's suggestion that the invisible hand assists everyone equally. In his day, the capitalists exercised considerably greater economic power than the other sectors of the economy: labor, and the owners of land. Add the ability of the modern financial sector to instantaneously transfer huge amounts of capital and currency across national borders , and the imbalance is far greater today than it was then.

Smith concludes with scant approval for the workings of the invisible hand: "Nor is it always the worse for the society that it was no part of it. By pursuing his down interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

This passage can imply only that the purely self-interested behavior of the "merchants" of Smith's day was at least sometimes "the worse for the society." If their economic decisions "frequently" benefit society, it can only be concluded that they sometimes — perhaps even frequently, often, or usually — do not.

Corporate America would have us believe that if he were with us today, Smith would share its loathing of orgnized labor as an unnatural, even immoral, interference with the sacrosanct free market; that he would enthusiastically applaud the subjugation of that impulse which, increasingly rarely, animates workers to believe that they are worth more than their employers pay them; that he would comfort our captains of industry and finance as a loving parent comforts a child unfairly treated by a bully. In fact, Smith was quite sensitive to the needs of labor, and quite aware of its lack of power vis-a-vis those who control capital.

The masters of Smith's day were "always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate," and "sometimes enter into particular combinations to sink the wages of labour even below this rate."

When Smith wrote, there were "no acts of parliament against combining to lower the price of work; but many against [workers] combining to raise it." If the workers, in their desperation, actively resist the sinking of wages, "the interposition of the civil magistrate, ... the superior steadiness of the masters, ... the necessity which the greater part of the workmen are under of submitting for the sake of present subsistence, generally end in nothing, but the punishment or ruin of the ringleaders."

Would Smith have stood with America's captains of industry in opposition to the National Labor Relations Act of 1935, which workers the right to form unions, engage in collective bargaining, and to strike? Not likely:

"Servants, labourers, and workmen of different kinds make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged."

Improvement of "the circumstances of the greater part can never be an inconvenience to the whole," says Smith, but it is clearly an inconvenience to "those who live by profit," namely the "merchants and master-manufacturers." Does Smith sympathize with them? On the contrary. Their interest, he writes,

"is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. 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, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."

If you can say "Enron", go to the head of the class.

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