Wednesday, January 09, 2008

Government is the Problem Not the Solution

A strange case today of someone quoting Adam Smith to support regulation of incomes policies in modern capitalist economies that relies of the authority of Adam Smith, who wrote about the problem of governments regulating small business whose ‘mean rapacity’ was the notorious target of his critique of 18th-century mercantile political economy.

Frances Russell, writes ‘Public growing weary of inequality, corporate power’ (here)

“Last fall, Ipsos Global Public Affairs surveyed 22,000 people in 22 countries classified as leading or emerging economies. Three quarters (74 per cent) believe large companies have too much influence on government. Almost as many (72 per cent) believe governments should aggressively regulate the activities of national and multinational corporations. More than two thirds (69 per cent) believe large companies are more powerful than governments. A majority (52 per cent) believe there is too little government regulation to protect workers.”

Comment
Whatever the problem on inequality it is worrying that the government is seen by so many as the solution. Government is associated with so many failures that it is a triumph of hope over experience that it should be a popular choice when there is a problem.

This afternoon, when driving to the photo-shop for some renewal of passport photo’s, BBC Radio 5 (‘live’) discussed the monumental issue (I am being sarcastic) of the casting on non-English female actors in the leading spots for ‘Bond’ girls for that most English of stories'. Apparently, no English (or even Scottish) female actor has been chosen for this role since 1983!

To add to this awful situation, the latest casting for the new Bond film has focused on a girl from the Ukraine. I tried to contain my monumental concern for the national ‘disgrace’ this occasioned. It made my passport photo look villainous; such was my barely repressed anger when I got to the shop.

However, my temper was not cooled by the studio host inviting an English editor of a up market “Gent’s” magazine to comment, which he did by suggesting, seriously, that the Government should regulate that ‘crisis’ by insisting that the producers must (by law?) select an English actor to be the ‘attractive, tall, sultry, seductress, with an air of mystery’, in the next production for the Bond movie!

Is there no end of the preference for regulation by government that seems to afflict normally sensible people?

The above piece by Frances Russell was posted today in the Winnipeg Free Press (9 January) here. It continued:

If the conversation is to begin, there's no better place to start than with the father of modern capitalism, Adam Smith. It's been said of Smith that he loved capitalism but hated capitalists.

It might come as a surprise to many that the 18th Century British economist believed that monopolies, private interests and mercantile elites are as big a threat to the personal liberty-assuring "invisible hand" of the free market as any government.

Indeed, Smith implored government to view their demands with "great precaution... because it comes from an order of men... who have generally an interest to deceive and even oppress the public
."

Continued Smith, in his seminal work, An Inquiry into the Nature and Causes of the Wealth of Nations: "Perfect liberty cannot happen if government heeds or is entrusted to the mean rapacity, the monopolizing spirit, of merchants and manufacturers who neither are nor ought to be the rulers of mankind...

"Wherever there is great property, there is great inequality... But what improves the circumstances of the greater part can never be an inconvenience to the whole. No society can ever be flourishing and happy of which the far greater part of the numbers are poor and miserable."

Comment
Adam Smith was not the ‘father of modern capitalism’ and neither did he love ‘capitalism but hated capitalists’.

The words were never uttered by Adam Smith. ‘Capitalist’ was used in English for the first time in 1793 (Smith died in 1790) and ‘capitalism’ was first used in English in 1854. This is a post-projection onto Adam Smith.

Economics systems are not invented (or ‘fathered’) by philosophers. They emerge over long periods without the conscious inventive genius of humans. Libertarians sometimes say that they emerge ‘spontaneously’; I prefer to say they ‘emerge’ after much trial and error, and unconscious experimentation.

Long before Adam Smith was born, trade was practiced way back into prehistory; in Western Europe in its form of international commerce, it was badly affected by the fall of the Roman Empire in the fifth century, and gradually revived roughly around the 15th century. Meanwhile, it continued primitively in Asia and south Asia, and much of the Islamic world (the Arab black-slave trade was a major source of profitable trade for Islam for a thousand years, reaching well into China).

Adam Smith wrote about the revival of commerce (not capitalism!) in Wealth Of Nations and how it was heavily distorted by mercantile political economy, which circumstance received the full blast of his ‘violent attack’ for its management and direction by ubiquitous government regulations.

The nonsense about a ‘big a threat to the personal liberty-assuring "invisible hand" of the free market as any government’ should be passed over in discreet silence for advertising the false image of Adam Smith (an American invention). For the record the ‘invisible hand’ had nothing to do with markets; it was about ‘risk aversion’ in the single mention of it in Wealth Of Nations (WN IV.ii.9: 456).

‘Merchants and manufacturers’ in Smith’s world were small-scale traders, shopkeepers, makers of hand tools and simple cloths, which were a long way from the owners (including shareholders and pension funds) of modern capitalist businesses.

Then follows two paragraphs that are strange in that they are actually selected sentences taken from different parts of Wealth Of Nations and then run together to hide, for some reason the fact that they are separated in Wealth Of Nations. This is strange behaviour for a journalist, and no less strange if the author was an academic, and it is misleading for readers of the Winnipeg Free Press too.

"Perfect liberty cannot happen if government heeds or is entrusted to the mean rapacity”, [from elsewhere in Wealth Of Nations] “the monopolizing spirit, of merchants and manufacturers who neither are nor ought to be the rulers of mankind...[WN IV.iii.c.9: 493]

"Wherever there is great property, there is great inequality... [from WN V.i.b.2: 709-10 (discussing the foundation of civil government in the ages of the shepherds/farmers, not commerce, and long before capitalism)]… “But what improves the circumstances of the greater part can never be an inconvenience to the whole. No society can ever be flourishing and happy of which the far greater part of the numbers are poor and miserable." [WN I.viii.36: 96]

I suspect quotation selecting from other sources and not from reading Wealth Of Nations.

But what was Smith actually getting at? Why, the very regulation by government of small traders to protect their monopolies, and market manipulations, which appears to be exactly the remedy that Frances Russell concludes should be imposed on modern capitalists, as if this would be remedy for their ‘mean rapacity’!

My suggestion is that Frances Russell should have written the piece and left out references to Adam Smith and misleading quotation selections fro Wealth Of Nations.

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