Adam Smith is widely regarded as the patron saint of capitalism. His 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations is still widely and justly celebrated.This wasn't his only accomplishment. He was part of a larger intellectual movement known as the Scottish Enlightenment, along with such thinkers as David Hume and Frances Hutcheson. They were fascinated with questions that would later be taken up by the social sciences. Smith also wrote on the subject of jurisprudence and moral philosophy, or what we might call political science and psychology today.
His views on sympathy as the basis for morality, as developed in his "Theory of Moral Sentiments," actually hold up pretty well in the light of recent research in biology, psychology and brain research.
Smith's enemy in Wealth of Nations was mercantilist economic theory, which held that the health of a national economy depended on the accumulation of precious metals and a favorable balance of trade. Mercantilism was often supported by powerful economic interests allied with the state and enjoying monopolies and special privileges. In opposition to this policy, Smith favored a system of free trade and open, competitive markets.
The system he describes and advocates in his most famous work is one of small proprietors, artisans and traders, each of whom, in pursuit of self-interest, promotes the public good.
"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest," he wrote. "We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." In doing so under conditions of true competition, the public good is often promoted as if by "an invisible hand."
Smith died in 1790, before the industrial revolution, mechanization, and the rise of large-scale businesses, let alone the government-sanctioned corporations, trusts, and giant global industrial or financial organizations that were light years from his world of small-scale competition. These often distort outcomes and result in what economists call market failures, such as monopolies, oligopolies and externalities that can cause a lot of damage to individuals and the public but don't show up on a corporation's bottom line.
One problem with becoming an icon is that people often honor and remember the symbol rather than the real person. Such was the case with Adam Smith, who said some things that might surprise people.
First, while he celebrated truly competitive capitalism, he didn't trust capitalists very much. Consider these quotes:
· "All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind."
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· "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."
Second, he believed that workers deserve a living wage:
· "It is but equity ... that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerable well fed, clothed and lodged."
Third - and here's a real shocker - he believed that the wealthy should pay more in taxes:
"The subjects of every state ought to contribute toward the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state."
Fourth, he believed in the necessity of public investments in infrastructure and public goods. He spoke of the duty of government to support "public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain."
If he were alive today, he would probably consider education and health care as examples of this kind of public goods.
Smith and his Scottish Enlightenment allies were not ideologues and were better psychologists than those today who view humans as organic calculating machines. They were pretty, well, enlightened. They recognized that a good society and a healthy capitalist economy depended on a shared prosperity.
As his dear friend the philosopher David Hume put it in 1752, "Every person, if possible, ought to enjoy the fruits of his labour, in a full possession of all the necessaries, and many of the conveniences of life. No one can doubt, but such an equality is most suitable to human nature, and diminishes much less from the happiness of the rich than it adds to that of the poor."
I suggest we unleash some of that.
Wilson is director of the American Friends Service Committee's WV Economic Justice Project and publishes The Goat Rope, a daily public affairs blog: www.goatrope.blogspot.com.
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