Wednesday, November 26, 2008

Neither Laugh Nor Weep, But Understand

Stephen Zill writes on “Economics for Everyone: Whither Capitalism? U.S. system waning?” in La Voz Weekly (the voice of Anza College) HERE:

But first, let's get a few things straight: for one, pure free-market capitalism (henceforth simply "capitalism") has never existed; not here in the U.S. or anywhere else. A pure capitalist economy would have little role for government beyond much like that of a referee - to enforce the established "rules of the economic game."

Perhaps the closest example of pure capitalism we have ever seen was Industrial Revolution Era England. And it may come to a surprise to many of you that the U.S. is not the freest economy on the planet ¬- and by freest, I mean the least government intervention in the economy (according to the Heritage Foundation, Hong Kong currently holds that distinction as it has for the last 14 years).

Among its other features, the capitalist system is characterized by "markets" (do we really need to define those again?). In a pure capitalist economy, the questions pertaining to how and what goods and services get produced and who receives those goods and services is answered - or any problems that may arise are solved - in the market place, and with no government involvement.

… the conservative magazine National Review featured a drawing of a weeping Adam Smith (the "father" of free-market capitalism) and the words, "Adam Smith's Lament."

Stephen Zill writes a readable piece for a college magazine and it would be somewhat churlish to go through it line by line as if he had written for an academic journal. But to the extent that he reflects fairly common views about economics and the current crisis, I would like to pick up on an idea he has expressed, if only to correct aspects of this common view.

I start with the last quoted line about Adam Smith ‘weeping’ in a supposed ‘lament’ for ‘free market capitalism’. Allowing for rhetorical licence, Stephen misunderstands what Adam Smith’s approach to his work as a philosopher was about. He was not a proselytizer, visionary, a ‘man of system’, a man with a mission, not was he emotionally involved with his subject. He was a moral philosopher whose self-stated role was to ‘do nothing, but observe everything’.

The accolade, it is such, of being ‘the "father" of free-market capitalism’ was awarded two hundred years after his death in 1790 by modern economists with their proselytizing axes to grind, who share the unenviable status of neither thoroughly reading Adam Smith’s works nor understanding him. Quotations from them do not count; imputing their modern concepts to Adam Smith do not count (and is dangerous), and associating him with modern capitalism, a word and a phenomenon not invented until 1854, is quite absurd, and doesn’t count.

Why should Adam Smith ‘weep’ over a monetary ‘crisis’ in today’s economies?

He didn’t ‘weep’ over the direction taken by successive governments in respect of their commercial economies from the 15th century onwards. He analysed them as a philosopher and identified the source of their ‘mercantile’ errors – hoarding of gold and silver, instead of growing their real economies; their ‘jealousies of trade’; their political and sometimes – too often – their military contests; the monopolistic spirits of sovereign legislatures and the men who influenced them; the in-depth idiocies of their laws of primogeniture and entails; the Acts of Settlement; the monopolies of the Guilds; the Apprenticeship Acts; Chartered Trade Companies; wars for trivial ends; and the encouragement of chartered colonies that cost too much to defend and distorted the domestic economy.

All of these would have been a greater cause of distress to Adam Smith if he had been so inclined. But he wasn’t.

He observed and wrote about how they affected the wealth of nations; how the country could be so much more conducive to growth and the consequent opulence that would follow, particularly in the spread of opulence to working men and their families that constituted the greater part of the population.

Whether Stephen Zill’s assessment of ‘pure market capitalism’ applies today, or has ever applied, is not relevant to Adam Smith’s political economy, which never included advocacy of laissez-faire, or complete non-intervention by government.

Wealth Of Nations covers a formidable agenda for government intervention (he felt Britain’s wars cost far too much, given the ‘mediocrity of its circumstances’ which could be better spent on infra-structure development to facilitate commerce, defence of the island against barbarian invasions, the maintenance and application of the instruments of justice, based on liberty, and the education of people of all ages.

The fact that US commentators have never understood what Adam Smith was about is the main cause that fuels the media’s treatment of the current crisis in the way that they do.

It has nothing to do with how modern capitalism in its varied forms has developed historically to where it is today. It is that subject that Adam Smith would be interested in and not how it relates to some pure notion of how it ‘ought’ to be.

He would neither weep nor laugh about things as they are – he would try to understand them from his historical perspective, and pass them on to all those who were interested.


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