Wednesday, July 02, 2008

Robert J. Samuelson's Take on Adam Smith

Robert J. Samuelson writes a Newsweek piece on “
“The Spirit Of Adam Smith: We Could Use It, Because (Contrary To Myth) He Tried To Balance Government And The Market”:

Liberals are so protective of government that they cannot concede the great power of Smith's "invisible hand." Self-interest is not simply greed, selfishness or narcissism. If properly constrained, it is an immense force for social good, and much human progress stems from the independent exertions and creative energies of individuals and enterprises. Liberals recoil at this notion because it deprives them of the power, social status and psychological gratification of seeming to deliver (through government) all the trappings of the good society.”

Nomenclature: ‘Liberals’ in the USA and the UK have different meanings. But the point that Samuelson is a good one: there are enormous rewards – status, pay and jobs for highly regulated societies – for people employed in politics, NGOs, public agencies, lobbyists, think tanks, and consultancies.

“Meanwhile, conservatives are so contemptuous of government that they cannot admit that it is often more than a necessary evil. It creates the legal and political framework without which tolerably free markets could not survive. It also supplies the collective services--from defense to roads--that the private market doesn't and deals with the market's unwanted "excesses.'' Smith realized that government produced these benefits, but many conservatives who cite him seem oblivious to their existence or importance.”

Samuelson’s honest confession in not having read Wealth Of Nations raises questions about his justiifcation of his conviction of "the great power of Smith's "invisible hand." The sole reference to an invisible hand is buried in Book IV and Samuelson probably relies on references to it without realising that it had nothing to do with markets.

I don't claim to have read Smith's "The Wealth of Nations' (1776) from cover to cover. But anyone who doubts the complexity of his thinking ought to plunge into a short but superb intellectual biography by historian Jerry Muller of Catholic University (""Adam Smith in His Time and Ours,'' Princeton University Press). In it, he demolishes the stereotype of Smith as an anti-government zealot. That image founders on one fact: Smith served for years as a bureaucrat, Scotland's Commissioner of Customs. He collected import duties, then the government's largest source of revenue. The job was akin to the head of the IRS today.

Smith's theories explained changes that had already occurred. In 18th-century Britain, feudalism had collapsed. Farm production rose, as did living standards. In England, people felt ashamed to go without shoes; in France, being shoeless was still common. Blankets, linens and ironware became common in England. Smith attributed the new wealth to the triumph of the market: buying and selling. Before, food was mostly consumed by those who produced it or their feudal lords. Manufacturing was also transformed. "Goods once produced laboriously at home--clothes, beer, candles ... furniture--could now be purchased,'' writes Muller.
The market multiplied wealth, Smith reasoned, because it led to economic specialization: the "division of labor" that--through more knowledge, experience and customized machinery--raised production. None of this was planned. It flowed (as if by an invisible hand) from the striving of sellers to maximize their wealth. "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner" Smith wrote memorably, "but from their regard to their own interest.'' ….Government's ability to cripple the market appalled Smith. "The Wealth of Nations" aimed to fortify legislators against "the pressures of economic groups'' for special privileges, Muller says. But Smith's skepticism of government wasn't a revulsion for it. He "enjoyed the work'' as customs commissioner, writes Muller. This was not hypocrisy, because Smith saw three vital roles for government: a) providing defense, b) ensuring justice and protecting property, and c) building roads, canals, harbors--"infrastructure.'' Government had to be properly financed.

Nor did Smith believe that wealth was all that mattered.

True, in the modern sense of ‘wealth’, but not in his original sense, where he defined wealth as the annual output of the ‘necessaries, conveniences, and amusements of life”. He saw the raising of living standards of the majority of the poorer members of society as being accompanied, and caused by, engagement through employment as a means to make society more mannered, more gentle and more educated the civilising virtues, and less brutalised, less ignorant, and less likely to be misled by fanatics.

On the whole this is a fair treatment of Smith's views and of its lack of support by 'Liberals' and 'Greed is Good' Conservatives. I also recommend Jerry Muller's Adam Smith in his time and ours, but I would suggest that reading Wealth Of Nations and Moral Sentiments might be the bets place to start from.


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