Myth of Adam Smith

Among modern conservative apologists, the 18th century economist Adam Smith holds a unique place. He is to them what Galen was to the medieval physician: a final judge holding a mythic semi-divine authority from whom there can be no dissent or appeal. Though, as is often the case with other larger than life figures, the actual opinions of Adam Smith have been sanitized and simplified to suit the needs of a particular ideology.Modern conservatives tend to present Smith as an unqualified supporter of the capitalist system in totu and a proponent of a laissez-faire system of economics that favors unfettered business. As we will show in this article, this Adam Smith, the Smith of modern conservative apologists for big business, is a myth.

 

Smith was certainly no apologist for big business. For one thing, Smith sees the prime beneficiaries of the free market system to be consumers, not businesses. This runs contrary to the modern conservative party line that insists that we ought to prefer a free market because it is most conducive to business growth. Smith’s concern, on the other hand, is for the consumer first and only secondarily for the business. In fact, Smith says that production ought to be subordinated to the ultimate good of the consumer. Smith says:

 

“Consumption is the sole end and purpose of all production; and the interest of the produced ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But…the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce....”[1]

 

The end of all commerce is the good of the consumer, not the enrichment of the producer. Smith would certainly not condone a system in which the flooding of the market with more and more ever cheaper goods for the purpose of the expansion of big business was an end in itself. Production is oriented towards the good of the consumer.

 

Indeed, Smith does not have kind words to say about the businessmen of his day. He notes the principle of “the rich get richer”, not with approval, but with a dry cynicism towards the greed of the large monopolist who pinches pennies when he has to pay wages but reaps enormous profits:

 

“The rise of profit operates like compound interest. Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.[2]

 

Smith speaks of their “rapacity” and “monopolizing spirit”, and in commenting upon the large and influential stock companies of his own day, says, “The government of an exclusive company of merchants is, perhaps, the worst of all governments in any country whatsoever.”[3] Modern capitalist disciples of Smith are quick to point to the free market system as a check upon a meddlesome government; they forget that Smith also envisioned it as a check against the greed of the merchant.

Adam Smith also had grave concerns about what over-specialization and the spread of capitalism would do to the virtue of the people. The danger as Smith saw it was that specialization, division of labor and economic sophistication could lead to a society where the interests of its members are as narrow as the focus of the man putting the heads on the pins in Smith’s famous pin-shop. Specialization could cause man to lose sight of any picture larger than his own situation and to begin to way all of life in terms of profit and loss. In a capitalist society, specialization means there is no longer any real possibility for the emergence of “Renaissance men” who have a broad knowledge of many fields; over-specialization has made this impossible:

 

“Another bad effect of commerce is that it sinks the courage of mankind, and tends to extinguish martial spirit. In all commercial countries the division of labour is infinite, and every ones thoughts are employed about one particular thing. In great trading towns, for example, the linen merchants are of several kinds, for the dealing in Hamburgh and Irish linens are quite distinct professions. Some of the lawyers attend at King’s Bench, some at the Court of Common Pleas, and others at the Chauncery. Each of them is in a great measure unacquainted with the business of his neighbour. [4]

 

More alarming to Smith was this notion of specialization as applied to the armed forces. Smith believed a people would be most secure in their freedom when a hearty martial spirit was distributed broadly throughout the entire population (he cites as an example of this the war-like Highland Scots’ actions in 1745 uprising, noting that “four or five thousand naked unarmed Highlanders took possession of the improved parts of this country without any opposition from the unwarlike inhabitants”).[5] If he upholds the idea of a broad, martial population, he equally decries the concentration of military power in the hands of a specialized elite who conduct war as a business and leave the rest of the population to grow “effeminate an dastardly” through the luxury capitalism affords:

 

“In the same manner war comes to be a trade also. A man has then time to study only one branch of business, and it would be a great disadvantage to oblige everyone to learn the military art and keep himself in the practice of it. The defense of the country is therefore committed to a certain set of men who have nothing else ado; and among the bulk of the people military courage diminishes. By having their minds constantly employed on the arts of luxury, they grow effeminate and dastardly.” [6]

 

In another place, Smith notes the superiority of the citizen-army over the specialized:

 

“The ancient institutions of Greece and Rome seem to have been much more effectual for maintaining the martial spirit of the great body of the people than the establishment of what are called the militias of modern times. They were much more simple. When they were once established they executed themselves, and it required little or no attention from government to maintain them in the most perfect vigour. Whereas to maintain, even in tolerable execution, the complex regulations of any modern militia, requires the continual and painful attention of government, without which they are constantly falling into total neglect and disuse. The influence, besides, of the ancient institutions was much more universal. By means of them the whole body of the people was completely instructed in the use of arms.”[7]

 

The capitalist system also had the potential for dreadful effects on education. It works this way: capitalism tends to push down wages, which creates a lower class. In order to survive, the children of lower class families are forced to work harder at the expense of their education. The lack of a solid education (and Smith here specifically notes training in religion) means that a child never really learns how to think – he lacks “subjects for thought and speculation.[8]” As a result, he knows not how to employ his leisure time in good pursuits. Smith says:

 

“Another inconvenience attending commerce is that education is greatly neglected…When [a boy] is grown up he has no ideas with which he can amuse himself. When he is away from his work he must therefore betake himself to drunkeness and riot. Accordingly we find that in the commercial parts of England, the tradesmen are for the most part in this despicable condition: their work thro’ half the week is sufficient to maintain them, and thro’ want of education they have no amusement for the other but riot and debauchery. So it may very justly be said that the people who clothe the whole world are in rags themselves.”[9]

 

Far from his modern conservative admirers, Smith insists that the government should take a very active role in education in order to prevent what Smith calls the “mental mutilation” and “deformity of mind” that can arise due to the specialization of interests attendant upon a capitalist society.[10] He certainly did not believe that government had no place in education. On the contrary, education deserved “the most serious attention of government, in the same manner as it would deserve its most serious attention to prevent a leprosy or any other loathsome and offensive disease.”[11]

 

Adam Smith is not the glowing apologist for big business and laissez-faire capitalism that conservatives would have him to be. Did he believe that a capitalist system was preferable to the mercantilist system of his time? Absolutely. Did he laud capitalism as a perfect system where everybody universally benefited while the profits of the successful trickled down to the rest? Absolutely not. What Smith did was noted the shifting trends in economics in his own day, applauding what he perceived to be real improvements but also warning us about potential downfalls. Remember, Smith was a philosopher in addition to an economist, and the very real dangers inherent in capitalism were not lost on him. He warns of its detrimental effects on education and martial spirit. He mistrusted the influence of the business class and believed that growth of business was only good insofar as it served the common good of consumers. The much lauded Invisible Hand works against the intrusion of government, but it ought also to be free to protect consumers from the rapacity of business.

 
In conclusion, it must be recalled that Adam Smith’s ideal of “pure competition” does not and never can exist in reality. Smith’s principle of an Invisible Hand composed of the free choices of all consumers in the market holds up if and only if the market is fair and all competitors are more or less equal. Such conditions never exist in reality; we can only come close to them by approximations. It would be abhorrent to Smith to promote an economy where big business is given ever advantage over small business - being supported in government by lobbyists who ensure its rights are enshrined in law and granted massive tax abatements closed to the family owned shop – while at the same time talking about the work of the Invisible Hand, as if the competition between Wal-Mart and the family owned general store were more or less equal. The triumph of big business in America is not due to the Invisible Hand, but to the binding of the Invisible Hand.  

 

In capitalism we gain in some ways, but we also lose. Smith is one of the first prophets to warn about the capitalism’s cultural costs. He does not present a glowing apology for a perfect system, but notes the pros and the cons and presents us with a choice. How then, shall we choose?

 



[1] Adam Smith, The Wealth of Nations, Book IV, Chapter 8, sect. 49

[2] Ibid. Book I, Chapter 9, sect. 24

[3] Ibid. Book IV, Chapter 7

[4] Adam Smith, Lectures on Jurisprudence, “On Police”, Chap. 67

[5] Ibid.

[6] Ibid.

[7] Smith, Wealth of Nations, Book V, Chapter 1, sect. 3, art. 2

[8] “On Police”, 67

[9] Ibid., 66-67

[10] Smith, Wealth of Nations, Book V, Chapter 1, sect. 3, art. 2

[11] Ibid.