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 Smiths 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.
See Also: Was Adam Smith a liberal?, Justin Fox’s new book: ‘Myth of the Rational Market’, “The Hottest Places in Hell are Reserved for Those Who, in Times of Moral Crisis, Maintain a Neutrality”, How the financial crisis has killed the governance reform agenda, A Fleecing Of The Sheeple, Another Comment on Bonuses and Benchmarks, Taking Stock: Economy and Government, and Now Lemme Tell You A Story, The Devil He Has a Plan.
Technorati Tags: adam smith, the wealth of nations, free markets, economics, capitalism, taxation, government regulation, evaluating smith’s legacy, what adam smith really believed, political economy, corporate influence, government
Let’s not forget the pesky little thing known as social contract theory, which was Adam Smith’s justification for a progressive tax system. Smith clearly did not believe that the rich have earned their wealth through their own hard work. Today’s idealogues would call Smith a Communist had he been alive today.
[...] On the Mythology of Adam Smith’s Political Economy: prosebeforehos [...]
“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.”
Indeed…
The conspiracy quote is actually in the game Civilization IV as an illustration of guilds, lol.
[...] And ProseBeforeHos offers this: [...]
[...] Also: The Myth Versus the Reality of Adam Smith’s Political Economy, The Immorality of High Taxes, and Dead Ideas [...]
Did you read it? Do you understand the free market? Smith makes a lot of sense and he is completely for a free market. A free market doesn’t mean no government regulation. It means the government and the corporations are separate. It means the government doesn’t distort the market through things like subsidies. It also means that the government very strongly intervenes in protecting the rights of the individuals. The type of regulation is key here. Nice try, but this article is just silly.
It appears the author of this article has not spent much time with “Wealth of Nations.” Smith’s argument was the exact opposite of “heavy-handed government regulation;” he believed that only through a divestment of government and the market could a market serve the needs of the people.
Smith recognized that when government is in a position to regulate an economy it is in a position to dispense economic favors. The very passage that the author quotes is a discussion on how government should neither hinder nor facilitate when it comes to the market. This is why people point to Smith as a champion of free-market economics.
Missing word: The Wealth of Nations serves as an of his time reaction
Smith also believed that either globalization or free markets had a limited life span of around 200 years before the market went to hell. There are some essays on this online but I’m too rushed to go look for them.
So Smith was against the government giving special favors to corporations. That makes him a “free market ideologue” by most definitions.
Hello? Where have the comments all gone?
The comments are right here?
but what happened?
The quote chosen is one of the better points made in the book, but it is taken completely out of context. Smith was discussing guilds, which were similar to the labor unions we have now. A blacksmith’s guild would ensure that new blacksmiths had apprenticed under a master blacksmith (guild member) before going to work. They would also petition the government to obtain monopolies in certain geographic areas. If anything, in the above quote, Smith was arguing AGAINST government-created monopolies on certain professions, not in favor of government regulation.
[...] The Myth Versus the Reality … [...]