Friday, February 08, 2008

Adam Smith Is Innocent!

Having views about US ‘conservatism’ is one thing, traducing Adam Smith for his alleged inspiration for atavistic modern capitalism is something else. One of many illustrations of this muddle is from a contribution of Peter Michaelson in BuzzFlash Blog (7 Feb) (here): Death to the Hoax of Self-Correcting Free Markets:

The excesses of capitalism have been underwritten by ideology, particularly the idea that the market is inherently wise and reliably self-regulating. This conservative idea is an intellectual hoax. We need to drive a silver stake into its heart to terminate it for good.

The intellectual hoax of marketplace omniscience is exposed in an important and overlooked book by Kenneth Lux, titled, Adam Smith's Mistake: How a Moral Philosopher Invented Economics and Ended Morality (Shambhala, 1990). The title refers to Smith's famous 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations, which to this day remains the bible of capitalist ideology. Capitalists claim that Smith's book identifies self-interest as the foundation of rational economics. Conveniently, that claim bestows upon them an idealized self-image and sanctions their exploitation of the poor.

As Lux notes, the importance given to self-interest overlooks the fact that the self-interested individual would logically feel justified in being dishonest, cheating others, and writing loopholes in the law that the biggest rats can squirm through. Embracing short-term profits by overlooking pollution, resource depletion, and global warming also appeals to a narrow sense of self-interest.

Lux convincingly demonstrates, as well, that Smith forgot to put a vital word in a much-quoted statement from the Wealth of Nations. That favorite statement of capitalists reads: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but to their regard to their own self interest." Lux writes that four sentences in the book immediately preceding that statement make it clear that Smith had in mind to include the word "only," as in "It is not only from the benevolence . . ." This inclusion dramatically changes the meaning of Smith's words, and benevolence now becomes a factor in his idea of sound economics.

A sensible understanding of the word "self-interest" includes the idea of the benefits that accrue to each individual, poor or rich, in a just society. A wealthy or powerful individual benefits in terms of personal happiness and moral maturity when he or she is aligned with the common good. But egotists understand the meaning of self-interest only in their limited dimension, and their interpretation of it become irrational because their desire for self-aggrandizement trumps logic. More than anything, today's capitalism has become the financial support system for those who identify with their ego.

Self-regulation doesn't infringe on freedom at all. It bestows more freedom. It frees us from negative emotions and self-defeating behaviors. Similarly, wise regulation of the economic world frees us from the tyranny of the corrupt. One such regulation would be stiff jail sentences for corrupt politicians and executives.”

Comment
The ‘excesses of capitalism’, a development of the commercial society that Adam Smith wrote about and analysed in Wealth Of Nations was not on his agenda. It properly belongs to the mid-19th century and developed partly from the mercantile political economy which he criticised severely in Book IV – and which was only named in English as capitalism in 1854, 64 years after he died in 1790.

Which provokes the ridiculous notion that Wealth Of Nationsto this day remains the bible of capitalist ideology’, a wholly preposterous assertion. Given that Wealth Of Nations is more quoted than read, no reading of it could possibly call it a ‘bible’ of something he knew nothing about.
Adam Smith did not advance the idea ‘that the market is inherently wise and reliably self-regulating. This conservative idea is an intellectual hoax’. Markets are not a ‘system’ that has an idea about anything; they are composed of human beings engaged in exchange activities, but markets are inanimate, not alive and conscious.

Peter Michaelson writes that ‘Capitalists claim that Smith's book identifies self-interest as the foundation of rational economics. Conveniently, that claim bestows upon them an idealized self-image and sanctions their exploitation of the poor.’ I have no idea what ‘capitalists claim’ – there are millions of them, not all thinking alike – but Adam Smith did not identify Peter Michaelson’s identity of self interest with ‘rational economics’.

Smith observed commercial societies, and those before commerce, and by no means considered them ‘rational’ in the sense sometimes ascribed to them by (mainly) American academics. He made over 50 references in the first two Books of Wealth Of Nations to the negative consequences of self-interest and he never ‘sanctions [the] exploitation of the poor’. Quite the reverse: Adam Smith favoured a high wage economy from which there would be a spread of opulence to the labouring poor. It was, incidentally, mercantile governments that foisted exploitation wages by law upon the poor, and he opposed those laws most strongly in Wealth Of Nations.

I agree that “Embracing short-term profits by overlooking pollution, resource depletion, and global warming also appeals to a narrow sense of self-interest”. I also note that the worst environmental destruction in the 20th century (and continuing in the 21st) featured strongly in the state-controlled economies of the communist countries to a worse degree than experienced in western capitalist countries. Modern communist China is not an exhibit favouring state management.

Peter Michaelson quotes Kenneth Lux, titled, Adam Smith's Mistake: How a Moral Philosopher Invented Economics and Ended Morality (Shambhala, 1990) saying “that Smith forgot to put a vital word in a much-quoted statement from the Wealth of Nations. That favorite statement of capitalists reads: "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but to their regard to their own self interest." Lux writes that four sentences in the book immediately preceding that statement make it clear that Smith had in mind to include the word "only," as in "It is not only from the benevolence . . ."

This is a fabrication of the evidence. He is discussing whether we can rely on benevolence to help us. Lux does not give the full context, so I will:

When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. In civilized society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely*43 independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. (WN I.ii.2:p 26-27)

Obviously there is not enough product for everybody to rely on everybody else to provide the wherewithal for their needs. Some people can receive some of what they need by appealing to their benevolence (I suspect that Peter Michaelson would tire of sharing everything he has with even a few strangers permanently).

Smith discusses the alternative, devised by the discovery of the exchange mechanism we call the commercial market. This was the most significant discovery in human history. It enabled people to exchange their surplus outputs with each other in voluntary exchanges (bargaining). Prior to that there was permanent material poverty (defined as biological subsistence) which were the common lot of mankind to about the middle of the 18th century – and still is the lot of several hundreds of millions today.

Smith’s statement ‘it is in vain for him to expect it from their benevolence only’ is his way of introducing the exchange relationship by discussing the bargaining mechanism: ‘Give me that which I want, and you shall have this which you want’. He then describes the context of the bargaining norms of commercial society: ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.’ Adding ‘only’ into the second quotation is redundant.

Indeed, his very next sentence states vividly: ‘Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens’. Sure, we can rely on benevolence for some of our needs, from family and friends, and sometimes strangers in emergencies (car accidents, fires, ‘good Samaritans’, ‘pro bona publica’ acts and so on). But beggars, we mostly are not, in the overwhelming majority of cases.

And from this Peter Michaelson concludes: ‘benevolence now becomes a factor in his idea of sound economics’. Here Peter Michaelson, the professional should be introduced from his piece in BuzzFlash Blog: ‘Peter Michaelson is author of Democracy's Little Self-Help Book and The Phantom of the Psyche: Freeing Ourselves from Inner Passivity. He is a practicing psychotherapist and offers telephone sessions and specializes in marriage and partnership conflict resolution. PDF files of his books are available at www.QuestForSelf.com’. All titles may be purchased from the web site!

Just to show I am not biased and hyper-critical of Pete Michaelson, I shall identify the real author if the ‘vice is good’ school of economics (which spawned the very antithesis of Adam Smith’s philosophy, as represented by Greco and his ‘greed is good’ school). It was an author called Bernard Mandeville, whose book, Fable of the Bees’ was first published as a poem in 1704, then became a book in 1714 and became famous in the 1724 edition.

All the vileness which Peter Michaelson attributes to Adam Smith is found in its original version written by Mandeville. Adam Smith called Mandevile's ideas ‘licentious’, and wrote against them in first book, The Theory of Moral Sentiments (1759), which should be read with Wealth of Nations. Neither of them were 'intellectual hoax's'!

Which leads me to ask: Has Peter Michaelson actually read either of Adam Smith’s books? I thought not. has he read Bernard Mandeville? But neither has almost all of Adam Smith’s critics.

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