Monday, November 12, 2007

Was Galbraith a Good Historian?

History News Network here Carol V. Hamilton asks: ‘Is David Brooks a Good Historian?’ (11 November):

In his New York Times columns, David Brooks often makes confident, if glancing, references to American and European history and historical figures. Too often these allusions are problematic, closer to received ideas than informed historical opinions.

On May 8, 2007, for example, Brooks wrote, “Adam Smith put his faith in the collective judgment of the market.” This is a gross simplification of Smith’s work; all the average Republican seems to know about it is the “invisible hand” metaphor. In Liberalism John Gray refers to Smith as “one of the great classical liberals,” calling attention to Smith’s support for “a constitutional order in which civil and political liberties are guaranteed.”

And John Kenneth Galbraith observed:

‘Adam Smith detected a dismaying tendency for sellers to combine in order to raise prices and thus destroy the regulatory power of the market. He was also very suspicious of joint stock companies, now called corporations, which, besides being strongly inclined to monopoly, he also thought not very efficient. He would have allowed them only a limited range of large tasks. Many people who now yearn to resurrect Smith will find him a scathing enemy if they succeed
.’ (John Kenneth Galbraith, Almost Everyone’s Guide to Economics, 14-15.)

She concludes:

“Historical figures like Lincoln, Hamilton, and Adam Smith are not baseball cards to be collected as if they were members of one’s favorite team. They are complicated, even self-contradictory, and their conventional reputations rarely match up with their biographical complexity.”

Comment
Carol Hamilton’s broad point is accepted and applies accurately to Adam Smith (I cannot speak with authority about her examples from Lincoln and Jefferson).

That ‘all the average Republican seems to know about [Adam Smith] is the “invisible hand” metaphor’, sadly, would also broadly apply to most of the media and a fair majority of modern economists, including many on campuses.

The sentence she quotes from John Gabraith: [Adam Smith] ‘was also very suspicious of joint stock companies, now called corporations, which, besides being strongly inclined to monopoly, he also thought not very efficient’ is problematic, given we, and he, could access the Wealth Of Nations and read Book V with relative ease.

Such a short read would show that his ‘suspicions’ were focused on a particular type of joint stock company, the chartered trading companies which were given legal monopolies of trade with distant territories. The particular case in which Adam Smith's ire was inflamed was that of the East India Company, formed in 1600, and in possession of an exclusive monopoly of British trade to and from India.

He found the East India Company riddled with pernicious practices, cruel and oppressive government, military force for conquest and not for the defence of trading posts, corruption on a grand scale, reaching down to lowly clerks trading ‘on their own account’, and the zealous protection of its monopoly against all comers, including foreign traders with India (itself causing frequent acts of war). Other chartered trading companies were ‘useless’, despite their legal monopolies.

The polemic is strong but ought not to obscure the fact that his criticism of the organisational structure of joint-stock trading companies did not extend to all joint stock companies. He recommended them for such activities as banks, citing in particular the Bank of England, the Bank of Scotland and the Royal Bank of Scotland (all still profitably trading today without the whiff of corruption, nor the stench, of corruption and scandal). They were also highly efficient as well as being honest and did not have exclusive monopolies in their fields of business.

He also recommended joint-stock companies for activities like the insurance industry and canals; the need for vast capitals to run these companies successfully made the joint stock arrangements necessary.

Galbraith had claims to being a historical scholar and he should have noted what Adam Smith actually wrote and not, mischievously extended his critique of the chartered joint-stock companies, formed by Royal Warrant or Act of Parliament, and not a little flow of funds between their sponsors, legislators, and the sovereign or those who influenced them, to modern corporations formed from over a century later (which were the real target of Galbraith's writings.

Words sometimes change their meaning over the centuries and ‘corporation’ is one of them. That’s why I refer to the non-recognition by disintuished scholars of these changing meanings as ‘mischievous’. To find it in Galbraith’s writings suggests that Carol Vanderveer Hamilton’s title could be changed from, ‘Is David Brooks a Good Historian?’ to how good an historian was John K. Galbraith?

1 Comments:

Blogger Carol said...

Greetings to Gavin Kennedy from Carol Hamilton

5:15 am  

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