Misunderstanding Adam Smith

He's called "the father of capitalism" and his book "The Wealth Of Nations" is still seen as 'the bible of capitalism' by many. It is often used in defense of rugged individualism, and as an explanation of why it's so important for each individual to act in a self-interested manner.

_{source: Wikimedia Commons}

In the western world there's been an emphasis on individual liberty over almost anything else. From the three core democratic values, liberty, equality and justice, only the first is left over under the new liberalism that has ruled the western nations for decades, since the early 1980s. And it's not the liberty as was envisioned initially, but a purely individualistic approach to it; initially the three went together, one couldn't exist without the other. Liberty could be found in a community of equals only, it was the opposite of the serfdom that comes in a hierarchical society. One way in which Smith's text is misused, is to explain away the blatant greed as if it were "enlightened self-interest" or even "self-actualization."

Although Adam Smith was a strong proponent of individual liberty, he was also a strong believer in the other two democratic values. like in this quote from Volume 2, page 139 of "An Inquiry Into The Nature And Causes Of The Wealth Of Nations" (the full title of the book, link to the full pdf is at the end of this post);

The establishment of perfect justice, of perfect liberty, and of perfect equality, is the very simple secret which most effectually secures the highest degree of prosperity to all the three classes.

But you can also see that he contradicts himself in that one sentence, because "perfect equality" doesn't rhyme with "all the three classes"... But he never ever advocated for the extreme version of individualism and selfish greed our culture is presently embracing; he just opened a very obvious door that leads straight to Gordon Gecko celebrating greed in Oliver Stone's Wall Street.

The division of labor as described by Smith has greatly improved productivity, but it was Smith himself that warned against the dumbing down of the working people that would be the consequence of the monotonous repetition of brainless tasks being performed by employees. He was therefore an advocate for the government's responsibility to provide quality education for the working class. A few more quotes:

Volume 2, page 222 - 223

The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. [...] But in every improved and civilized society this is the state into which the laboring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.

Volume 2, page 224

But though the common people cannot, in any civilized society, be so well instructed [educated] as people of some rank and fortune, the most essential parts of education, however, to read, write, and account, can be acquired at so early a period of life, that the greater part even of those who are to be bred to the lowest occupations, have time to acquire them before they can be employed in those occupations. For a very small expense the public can facilitate, can encourage, and can even impose upon almost the whole body of the people, the necessity of acquiring those most essential parts of education.

Take particular notion of the segment "those who are to be bred to the lowest occupations" to see Smith's boundaries when it comes to "true equality"... If this is not an endorsement of a hereditary hierarchy, I don't know what is. And what does "social mobility" even mean if there's no higher rank, class or stratum to aim for? But he clearly also endorses the idea of a publicly funded educational system over a privately funded one. And he even supported some form of a progressive tax-system: "It is not unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion."

Now, a warning here: that last sentence is taken out of context, and it must be added that Smith was talking about "Taxes upon the Rent of House" only, as he was strongly opposed to taxing labor wages. Earlier he also states that "every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state" indicating that he does want a minimal role for government. In short, Smith himself wasn't ideologically motivated in writing this book, he was a pragmatist and a philosopher, and he can be misquoted or misinterpreted by left and right, and by me especially as I'm no expert whatsoever; just keep that in mind.

Volume 2, page 227

An instructed [educated] and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one. They feel themselves, each individually, more respectable, and more likely to obtain the respect of their lawful superiors, and they are therefore more disposed to respect those superiors.

And he clearly also endorses a lawful hierarchy, in which the superiors are the owners of the means of production. Also, for the much needed balance it must be said that here also Smith sees only a minimal role for the government and limits education to military training and the education of the youth and women, a very basic education aimed at increasing labor competitiveness mainly. The education part can be used by left and right, but Smith is again the neutral pragmatist here.

Ultimately though, Smith's narrative is just that: a narrative, a myth. It is valid to call "The Wealth Of Nations" a modern day Bible, as it is not based on hard data or careful argumentation, but on powerful myths and handy slogans that are used to this day, like the "invisible hand" in the sky. Take the main premise for this myth: the "natural propensity" of humans to barter and trade. Smith makes it out to be that the free and voluntary exchange of goods and services is unique to our species and is a large part of what separates us from all other animals, on the same level as language or writing. To illustrate this he tells a silly story about dogs:

Volume 1, page 6

Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog. Nobody ever saw one animal, by its gestures and natural cries signify to another, this is mine, that yours; I am willing to give this for that.

He makes it part of our genetic make-up and essential for the species to thrive, and goes so far as to claim that we've always been a free trading mammal. To paint this part of the myth he describes early tribal life:

Volume 1, page 7

In a tribe of hunters or shepherds, a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison, with his companions; and he finds at last that he can, in this manner, get more cattle and venison, than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armourer. Another excels in making the frames and covers of their little huts or moveable houses. He is accustomed to be of use in this way to his neighbours, who reward him in the same manner with cattle and with venison, till at last he finds it his interest to dedicate himself entirely to this employment, and to become a sort of house carpenter.

The problem is that this tribe never existed, it's a product of Smith's imagination; all tribal communities are highly egalitarian and they don't trade, but share. Sharing is mankind's "natural propensity," not barter or trade. But these are the silly stories Smith weaves together to form a narrative that's compelling and sounds plausible. This keeps reminding me of the saying "the devils greatest trick was to convince the world that he doesn't exist." Because in the end, The Wealth Of Nations is used as an apology for the new aristocracy, the plutocracy we "enjoy" in our era, the hierarchical organization he was very much in favor of. It is not freedom or equality among the people that was the focus of Smith's work, but the freedom of the market. He also believed however that the lower classes needed to be taken care of. Smith was a moral philosopher after all, and he counted on the rich producer class giving their share to this end. A benevolent aristocracy is what Smith had in mind, and he claimed this hierarchy to be the result of a "human nature" he constructed himself.

It's therefore almost comical to me that Smith is so often quoted in defense of a free and open society of equals. It's tragic that "democracy" and "the free market" are almost automatically and inextricably linked in our minds, even when we can all see with our own eyes how democracy always plays second fiddle to the economy and its victors, such is the strength of this myth. It's sad that libertarians, who hold liberty in high regards, keep Smith's myth alive and use it to call for even more deregulation and less government, a model of "laissez-faire" capitalism that will result in even more power for the new aristocrats over the working class. It's easy to believe that we, humans, are made to be ruled because in all our grand narratives, in all our myths assign the majority is subjugated to a tiny ruling class of "extra worthy" individuals. This belief is not based on science, natural or social, but on the stories we we believe to be true.

Here's the link to the full book: An Inquiry Into The Nature And Causes Of The Wealth Of Nations

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