The Mendacious Mr. Smith
Adam Smith is generally credited as the greatest of the founding economists. His classic book, An Inquiry into the Nature and Causes of the Wealth of Nations, has rightfully been acknowledged as the most fundamental of the intellectual building blocks that undergird the capitalist system. The most famous quotation from that book has become to the capitalist what the first commandment of the Decalogue was to the Jewish people. In a single sentence, Smith defined the guiding principle that has ever since guided capitalist theory.
"By preferring the support of domestic to that of foreign industry, he [the industrialist] 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." [Book IV, chapter 2]
Because the manufacturer cannot succeed unless he produces something valued by society, the sum of all such values, when actually produced, must necessarily result in a broad social good that could never have been produced by actual design. Clearly, no industrialist could hope, by his singular devices, to produce the proper level of goods and services that would optimally satisfy all the needs and wants of his countrymen. But by fulfilling their own selfish goals -- profitably to produce products of value to society -- the collection of all individually selfish manufacturers do in fact, Smith says, create the greatest possible good for the greatest number of people. This goal is achieved even though none of the producers sought anything other than their own selfish ends.
Smith goes on to say, in the same section of his book, that "...no statesman or lawgiver" could possibly determine what will sell better than the man actually engaged in producing marketable goods. Moreover, the power to attempt such prescience "would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it." Thus was born the first law of capitalism: No state shall interfere with the actions of the free market.
Organizations representing the working classes, or failed and failing businessmen, continually argue against Smith's logical conclusions, but to no avail. To the extent they are successful -- say, by establishng minimum wages -- the cost of the goods necessary for survival at the minimum wage increase so that the higher wage is shortly of little or no real value. The forces of the free market determine the price of all goods, including labor, and any attempt by "statesmen and lawgivers" to set the prices of goods is bound to produce inefficiencies that would otherwise not have occurred.
From a political point of view, the best attack against Smith's logic consists, not in opposing it on logical grounds, but in accepting it as the truth and tracing it to its eventual consequences. The secret to that attack lies in plain view, right in the title of Smith's masterpiece. He wrote of the wealth of nations, as if the wealth of nations were somehow coincident with the wealth of corporations. But as we know -- or at least, as we may be able to demonstrate -- the conglomerate of modern multi-national corporations produces wealth, not in nations, but in the world as a more or less single entity. The invisible hand, working as it assuredly does, produces the greatest good for the greatest number of people in the world as a whole, and not necessarily for the nation that spawned the corporations that give the hand its life's blood.
Thus, if the American people truly subscribe to the first law of capitalism, if they truly endorse the notion that no system other than free market capitalism can produce great wealth, then they must be prepared for the leveling of American working class wages that will certainly be brought about by the actions of the invisible hand as it works to increase the wealth of the world.
This is not to say that the American people would be doing the "right thing" in opposing free market capitalism, but that they should be made aware of the reasons why their wages are falling while corporate wealth is increasing. It is entirely possible that, when the American people finally see the lowering of their actual standard of living as an economic consequence of free market capitalism, they may more easily adjust to their hardships. Feeding the poor of the world is certainly compatible with the tacit -- if not always exercised -- moral principles of the Judeo/Christian ethic, and no better way exists than free market capitalism to put that ethic into practice.
But as I say, making clear the ultimate effects of capitalist policies constitutes a politically effective way to attack Smithian capitalism. Whether it should be attacked is a different matter entirely. Poverty is probably one of the great causes of international conflict. If free market capitalism can actually reduce world poverty, by expanding capitalist economics to greater and greater portions of the world, we might experience less frequent adventures of the militaristic sort. We will, in any case. have done more than any philanthropy ever could to feed, clothe, and shelter the poor of the world.
More tomorrow.
"By preferring the support of domestic to that of foreign industry, he [the industrialist] 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." [Book IV, chapter 2]
Because the manufacturer cannot succeed unless he produces something valued by society, the sum of all such values, when actually produced, must necessarily result in a broad social good that could never have been produced by actual design. Clearly, no industrialist could hope, by his singular devices, to produce the proper level of goods and services that would optimally satisfy all the needs and wants of his countrymen. But by fulfilling their own selfish goals -- profitably to produce products of value to society -- the collection of all individually selfish manufacturers do in fact, Smith says, create the greatest possible good for the greatest number of people. This goal is achieved even though none of the producers sought anything other than their own selfish ends.
Smith goes on to say, in the same section of his book, that "...no statesman or lawgiver" could possibly determine what will sell better than the man actually engaged in producing marketable goods. Moreover, the power to attempt such prescience "would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it." Thus was born the first law of capitalism: No state shall interfere with the actions of the free market.
Organizations representing the working classes, or failed and failing businessmen, continually argue against Smith's logical conclusions, but to no avail. To the extent they are successful -- say, by establishng minimum wages -- the cost of the goods necessary for survival at the minimum wage increase so that the higher wage is shortly of little or no real value. The forces of the free market determine the price of all goods, including labor, and any attempt by "statesmen and lawgivers" to set the prices of goods is bound to produce inefficiencies that would otherwise not have occurred.
From a political point of view, the best attack against Smith's logic consists, not in opposing it on logical grounds, but in accepting it as the truth and tracing it to its eventual consequences. The secret to that attack lies in plain view, right in the title of Smith's masterpiece. He wrote of the wealth of nations, as if the wealth of nations were somehow coincident with the wealth of corporations. But as we know -- or at least, as we may be able to demonstrate -- the conglomerate of modern multi-national corporations produces wealth, not in nations, but in the world as a more or less single entity. The invisible hand, working as it assuredly does, produces the greatest good for the greatest number of people in the world as a whole, and not necessarily for the nation that spawned the corporations that give the hand its life's blood.
Thus, if the American people truly subscribe to the first law of capitalism, if they truly endorse the notion that no system other than free market capitalism can produce great wealth, then they must be prepared for the leveling of American working class wages that will certainly be brought about by the actions of the invisible hand as it works to increase the wealth of the world.
This is not to say that the American people would be doing the "right thing" in opposing free market capitalism, but that they should be made aware of the reasons why their wages are falling while corporate wealth is increasing. It is entirely possible that, when the American people finally see the lowering of their actual standard of living as an economic consequence of free market capitalism, they may more easily adjust to their hardships. Feeding the poor of the world is certainly compatible with the tacit -- if not always exercised -- moral principles of the Judeo/Christian ethic, and no better way exists than free market capitalism to put that ethic into practice.
But as I say, making clear the ultimate effects of capitalist policies constitutes a politically effective way to attack Smithian capitalism. Whether it should be attacked is a different matter entirely. Poverty is probably one of the great causes of international conflict. If free market capitalism can actually reduce world poverty, by expanding capitalist economics to greater and greater portions of the world, we might experience less frequent adventures of the militaristic sort. We will, in any case. have done more than any philanthropy ever could to feed, clothe, and shelter the poor of the world.
More tomorrow.
posted by Benedict S. at 10:00 AM
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