Saturday, March 01, 2008

Where P. J. O'Rourke is Misleading

A review of P. J. O’Rourke’s book on Adam Smith in Sunday Herald (Glasgow) provides readers with an unusually not quite accurate account of Adam Smith's ideas, much of the interpretation of which I cannot agree, though it is partly correct! Read it here.

‘Adam Smith: the father of capitalism … and one of its fiercest critics’

American satirist PJ O’Rourke is in Edinburgh this week to address a pensions conference. In this extract from his acclaimed new book on Adam Smith, the “awed admirer” of the Scottish Enlightenment reveals the truth about Kirkcaldy’s greatest son.

ADAM SMITH cannot be said to have constructed the capitalist system. What he did was provide the logic of a level ground of economic rights upon which free enterprise could be built more easily. And he suggested to the builders that they use the wheelbarrow of free trade, the plumb bob of self-interest, and all the specialised tools of specialisation.

However, when Smith undertook to consider how free enterprise allocates what it produces - "the order according to which its produce is naturally distributed" - he hit capitalism hard enough to make its boiled shirtfront roll up like a window shade.
Some acolytes of Smith might be surprised if they ever read him. He wrote that "the oppression of the poor must establish the monopoly of the rich", and that profit is "always highest in the countries which are going fastest to ruin"…

Adam Smith’s assertion is from a discussion in which a commercial system is dominated by mercantile monopolies and protection which keeps profits high and restricts price-reducing competition. Out of context, it is not against high profits; Smith argued that a competitive market economy would produce high output and lower prices, with lower profits.

Adam Smith was tough on the landed gentry: "As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed." He would have been amused to see the dukes and duchesses of England reduced to keeping circus animals and other attractions on their great estates and letting fat daytrippers waddle through their stately homes, camcording the noble ancestors on the walls.

"Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price of their goods both at home and abroad. They say nothing concerning the bad effects of high profits. They are silent and regard to the pernicious effects of their own gains. They complain only of those of other people

Another statement from Wealth Of Nations (Book IV) on the domination of the UK economy by the colonial trade with North America, which drew scarce UK capital at cost to Britain’s domestic economy.

By ensuring a monopoly of Atlantic trade (the Navigation Acts) those merchants who traded with the British colonies, sold British exports dear to the colonists and bought American exports cheap, plus they restricted the amount that cold be sold in Britain, which they sold dear to British consumers (tripling profits on capital way above domestic returns). That was the source of high profits from the colonial trade, which some of their spokesmen in the House of Commons blamed upon the high wages of American labourers, caused mainly by the shortage of labour, not their excessive wage demands.

Free migrants into America soon learned that if they saved some capital from their high wages they could buy cheap land and make a good living working for themselves. Those too poor, or indolent, many of whom were indentured debtors, earned higher wages from the shortages of labour than they could expect in Europe. Of course, the black slaves earned their subsistence only.

O’Rourke’s selective quotations can give a wrong idea of what Adam Smith was arguing about against mercantile political economy, especially when turned into generalizations about economics out of the context with which he was concerned.

"The interest of the dealers in any particular branch and trade or manufactures, is always in some respects different from and even opposite to, that of the public."

And Smith was no enthusiast for the privatisation of government functions. Concerning the East India Company and its rule of Bengal, Smith wrote: "The government of an exclusive company of merchants is, perhaps, the worst of all governments for any country whatever."

An almost misleading use of ‘privatisation’ (which is the selling off of existing government owned and managed activities, whereas the East India Company was already a private company which was awarded a monopoly Royal Charter over trade where hardly any serious trade was undertaken by the British government. It was the awful consequences of creating a legal monopoly that was the problem that assumed the powers of an absent government that Smith criticised, often violently, and had nothing to do with what we know as ‘privatisation’ today.

That is about all I can comment upon with respect to the copyright laws and without provoking the good people of the Sunday Herald into a sharp riposte from their lawyers. I suggest you follow the link and read the rest for yourself. Just be careful what you take from the many quotes in what is a well written article in the O'Rourke style. They are only a small part of the Adam Smith's legacy.


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