The Kirkcaldy Adam Smith had Nothing in Common with 'Geko'

Towfique Hassan, Secretary General of BTMA, (sorry, no information on what ‘BTMA’ is), writes in The Financial Express, India, 7 December, and article on “Social Responsibility of Business Firms”:

“The villain of the film "Wall Street" started a speech with the word "Greed is good". The most charitable explanation of this statement was that it was a reaffirmation of Adam Smith's economic philosophy. Smith argued that the pursuit of self interest in a competitive market would ensure the common good. However, it is a doubtful case for the villain of "Wall Street", because he ruthlessly sought power and wealth and was prepared to trample on anyone who got in his way.

Should self interest be the sole objective of business or should there be an acceptance of organisation's responsibility to society? Economists like Adam Smith or Milton Friedman reject the notion about a business organisation's responsibility to the community. They argued that all we should expect from them is efficient profitable production, creating jobs and providing goods and services at the price and quality that the customers desire.”

It would be difficult to get into two paragraphs more errors about Adam Smith (why he thinks he is being ‘charitable’ is not stated). Milton Freidman may hold such views – after all, he is a ‘Chicago economist’ loosely connected to an ‘Adam Smith’ created in the image of someone residing in the mind-set that has since spread around almost the entire US academe, but not, definitely not, related to the man from Kirkcaldy, Scotland.

Adam Smith never advocated or excused ‘greed’; he regarded the vice of greed as anathema to good behaviour in “Moral Sentiments” and never accepted greed as appropriate in “Wealth of Nations”. Towfique Hassan confuses self-interest with selfishness; by extension he seamlessly slides into incorporating self-interest in greed. I expected him at this point in his article to link his sorry error into the invisible hand, but he disappointed me.
Greko, the character (Michael Douglas) in “Wall Street” is described as being Smith-like “because he ruthlessly sought power and wealth and was prepared to trample on anyone who got in his way.”

Contrast this assertion with what Smith actually wrote:

“In the race for wealth, and honour, and preferments, he may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competitors. But if he should justle, or throw down any of them, the indulgence of the spectators is entirely at an end” (TMS, II.ii.2.1, page 83).

The assertion from Towfique Hassan lacks credibility. Greko’s ‘trampl[ing] over everybody” would not have been endorsed by Adam Smith (Milton Freidman can speak for himself).

Or, to take a general stance on causing harm to others:

“Society, however, cannot subsist among those who are at all times ready to hurt and injure one another” (TMS II.ii.3.3, page 86).

Causing ‘harm’ is quite a wide remit, and in modern terms would include polluting downstream fisheries, water consumers, and the other victims of the dumping of poisons to cut costs, the arbitrary dismissal of employees without fair treatment, the insistence on unsafe work practices that injure, maim and debilitate employees, the use of ‘company stores’ that cheat employees of their wages and the acceptance of bullying, sexist and racist behaviours that cause stress and offence. No Sir!; the ‘pursuit of self-interest’, without qualification, does not lead automatically to the ‘common good’, and Smith never said or implied that it was.

It is difficult to assert that Adam Smith endorsed such sweeping statements as to counter-poise the questions of whether “self interest [should] be the sole objective of business or should there be an acceptance of organisation's responsibility to society?” His “Wealth of Nations” constantly warns against the self-interest of monopolists that drives them to work against the interests of society with restrictions on supply, the misdirection of capital stock into lower-growth inducing activities, which growth Smith considered an important role for commerce in producing an opulent society. Nor did he think kindly of the Masters whose behaviour drove poor labourers into subsistence and below in their quest for extra self-interested profits, merely because they could do so and had the law and the magistrates on their side covering their nefarious behaviours.

“They argued that all we should expect from them is efficient profitable production, creating jobs and providing goods and services at the price and quality that the customers desire.”

The only economic force that could achieve those results was competition and free trade. And, in Smith’s view, it also necessitated liberty, the rule of law, justice, and social stability. It was not conceived as a carte blanche to do whatever ‘merchants and manufacturers’ were pleased to do, or could get away with.

Given the small size of the non-agricultural productive sector in mid-18th-century Britain and the absolutely small size of profitable activity, it was too early in the evolution of commercial society for the role of profit to be seen as a source of state finance, private capital investment and social capital. The problem of industrial pollution was nowhere near the scale it was to become in the 19th and 20th centuries. It is an open question whether Adam Smith would have regarded, what we can now negative externalities, as an acceptable price for economic growth.

It is therefore wrong of Towfique Hassan to assert that Adam Smith represented a view of society hostile to responsibility beyond that of making a grubby profit at any social cost.