MARKING ADAM SMITH

Having recently read the Wealth of Nations by Adam Smith, upon which a whole new ideological financial system, called Free Market Capitalism, has  currently been tried out, with pretty disasterous results, I thought a review of his thoughts and opinions could be measured against the contemporary prevailing conditions in the financial world, and the following is the result;-

WHERE ADAM SMITH COULD BE RIGHT

1) He writes that any Government Policy to benefit Merchants to increase their profits in the belief that this would act for the public good by increasing the size of the ‘favourable’ balance of trade is wrong because commerce among nations as among individuals should be a bond of union and friendship and so Government intervention would make such trade a source of discord and animosity. Obs. He therefore saw Government intervention only as a way to help the Merchants exploit the Common Good and not as a way to protect the Public Good for the desire of the Merchants to prosper at the cost of the Common Good.

2) Capitalists always seek to widen the Market they operate in and narrow the competition.

3)  The rate of profit is always highest in those countries going fastest to ruin.

4) Capitalists’ interests are never exactly the same as that of the Public as they generally have an interest to deceive and even oppress the Public and have on many occasions both deceived and oppressed it.

5) What is annually saved is, as regularly, consumed, and nearly at the same time; but it is consumed by a different set of people…….a rich man spends, in most cases, what is consumed by idle guests and menial servants who leave nothing behind them in return for their consumption. The portion he annually saves…….is immediately is employed as a capital and consumed in the same manner and nearly at the same time by a different set of people such as labourers, manufacturers, articifers who re-produce with a profit the value of their annual consumption.

WHERE ADAM SMITH COULD BE WRONG

1) Importing goods for idle people such as wines, silks etc. cannot grow because it is non-productive. Imports should be for the employment of Industry not for the maintenence of idleness.

2) A dwelling house, as such, contributes nothing to the revenue of its inhabitants………..even when renting a house the revenue derived must always be drawn from some other source of revenue.

3) Great Nations are never impoverished by Private though they sometimes are by Public prodigality and misconduct.

4) The exorbitant rewards of players, opera singers, dancers etc. are founded on two principles. The rarity and beauty of the talents and the discredit of employing them in this manner. It seems absurd that we should despise their persons and reward their talents with the most profuse liberality. While we do the one, however, we must, of necessity, do the other. Should the public opinion and prejudice ever alter in regard to such occupations their pecuniary recompense would quickly diminish. More people would apply for them and the competition would quickly reduce the price of their labours.

5) The more Capital a Society has the lower will be the natural rate of profit as they tend to bid down the normal price of use.

6) Regulation of the Banking Trade is a violation of natural Liberty, as is restricting private people from receiving or issuing promissory noted between themselves or bankers for any sum whether large or small when they are willing to do so.

WHERE ADAM SMITH COULD BE BOTH RIGHT AND WRONG.

1) The Capitalist will tend to invest Capital where it will do the most good for workers and for everyone else in the Nation. He intends only his own gain but is led by an ‘invisible hand’ to promote an end which was no part of his intension. Similarly, just prices are made in this way i.e. self-interest in profit-making but the ‘invisible hand’ promotes a benevolent outcome in just prices.

2) Writes that the market operates by competition. Obs. But who is to say when it is or is not operating by competition? See ADAM SMITH COULD BE RIGHT no. 4. And large parts of the Market has no competition, such as railways, water supply etc. while other parts operate as cartels in which case how is it possible, when some sectors of the Market operate to contaminate it, for the rest to operate as a genuine competitive market? For if the ‘natural price’ he posits does not operate in the non-competitive areas how can they operate in the competitive areas?

3) The more capital a society has the lower will be the natural rate of profit as they tend to bid down the normal price of use. Obs. The more Capital a society has, the more it can buy out, invest in or take over other sources of Capital and profit to the point of controlling markets to enhance profits with monopolies or cartels.

4) The price of a product is determined by wages, profits (on Capital) and rent. Obs. Whereas he says elsewhere that rent is determined by price; which is a circular argument

CONCLUSION

A great work for the time as one could say for many other great thinkers and writers; but such achievements should be used and changed as we learn more from later sources, and developments of our knowledge bring increasing need for society to keep up with such changing conditions. Sociology shows us that Economics is a study emerging from Society and has no purpose outside that Society. Therefore Economics is part Science and part a branch of Social Science and, as such, needs to be used in a way that can benefit society and not as an ideology to maintain the ruling and wealthy segments of society in power. As if?

Adam Smith’s book, ‘The Wealth of Nations,’ could be summarised  as, ‘Commerce, bad,’ Government, worse.’ and the advice that if obliged to choose between them, choose the lesser of two evils. That advice could have been valid when despotic and arbitrary Monarchs ruled, but this is no longer so and, in many societies where forms of democracy exist, Free Market Capitalism has usurped the functions of the State as in countries such as Great Britain and the USA. Under these circumstances Adam Smith’s reasoning could be reversed. But the idea of trying to establish a greater equilibrium between the power of the State and that of Commerce  would only result in worsening the existing condition  as the two sources of power  now work  in lock-step in Britain and a whole new philosophy for the distribution of powers will have to be devised and implemented. The two sources of power that today are struggling to emerge are Socialism and Environmentalism. Were it possible to create a trichtotomy of power bases – Capitalism, Socialism and Environmentalism – would the Nation State, as it exists, be able to hold the ring as an arbiter, balancer? If not, who would be the trusted regulator?

N.B. I read on 12th June 2017 that the Historian Donald Winch had written an essay in 1978 on ‘Adam Smith’s Politics’ to show that Adam Smith, in no way, espoused Laissez Faire Free Market Economics.

SEPTEMBER 2014