Wednesday, April 09, 2008

Adam Smith Did Not 'Invent' Capitalism

Snippet from an online journal, ‘Wenatchee World’ that promotes Adam Smith, a moral philosopher who, among other things wrote Wealth Of Nations, didn’t have a vote under the then franchise in Scotland, didn’t have much capital except his annual salary, much of which he gave away to indigent relatives, lived with his mother and cousin frugally on the rest, ensuring that his regular Sunday dinners with family, friends and his ‘open house’ to guests, were likely as not to be far from Michelin-star standards, featuring beer, claret, and tea, though the conversation was no doubt ‘enlightening’, and who rented his house and disposed of his father’s modest properties, and, while visiting the businesses and farms owned by others, he was, as he explained in his earliest surviving essay (‘On Astronomy’), a philosopher ‘who did nothing, but observed everything’.

To what does Tracy Warner (editorial page director) promote Adam Smith here?:

Economists like to say that incentives matter. People are far more likely to do something if they realize a personal benefit, and less likely to act if they see nothing in it for them. It might seem selfish and self-centered, but that shouldn't be a surprise when dealing with human beings. This self-interest isn't a bad thing. Great good can come from it. The expectation of personal benefit is the basis of nearly every transaction, from trading stocks to buying a cup of coffee. It is fundamental to our economic well-being. "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," said the founder of capitalism, Adam Smith’.

Yes, ‘the founder of capitalism’! Wow, that’s some accolade, but it is nowhere near the truth. It is rather silly in fact.

‘Capitalism’ as we know it was a phenomenon he knew nothing about. The word itself was not invented in English until 1854 by William Makepeace Thackeray in his novel, The Newcomes, and then popularised by Karl Marx.

Adam Smith described his fourth age of man as ‘commerce’, which he didn’t ‘invent’. It operated thousands of years before the fall of Rome in the 5th century, and Adam Smith noted how commerce revived in Western Europe from the 15th century onwards from observing its effects in gradually widening social choice and promoting technological change.

Smith saw the revival of commerce as contributing to the spread of opulence in Britain which would have a dramatic effect on the living standards, health and education of the labouring poor. By 1800 (Smith died in 1790) the uninterrupted experience of humans in society (except for a small ruling elite), for the first time ever, were to live in conditions that were better than minimal subsistence of the grandparents.

Instead of subsistence, and all that went with it, decade upon decade, living standards measured by the annual production of the ‘the annual production of the necessaries, convenience, and amusements of life’ were to slowly and gradually grow and significantly reduce absolute poverty in those countries that passed from purely agricultural and shepherding economies into mainly commercial economies, and later, much later, into capitalist economies. The rest took longer - and still lag behind - and remain poor, blighted by non-market economies, some by decades of communist experimentation and others by their politics.

But be clear, nobody ‘invented’ any of the ages of the four subsistence, least of all an observer like Adam Smith, talented as he was.

They emerged, slowly and gradually, from the inter-actions of unknown individuals learning how to ‘better themselves’ (as Smith put it) through experimentation, the application of retained and new knowledge about the physical world, the creation of appropriate institutions and social norms, regimes of law and justice, and, additionally, by the invention of new technologies, and the emergence of markets.


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