Monday, February 02, 2009

Adam Smith Not an Advocate of Laissez-Faire

Sir Courtney N Blackman’s speech is reported in the Trinidad and Tobago Review , entitled


Neo-Liberalism is the direct descendant of the laissez-faire paradigm inaugurated by Adam Smith’s The Wealth of Nations in 1776 and elaborated by successive Classical economists, culminating with Alfred Marshall’s Principles of Economics in 1920. The Classical paradigm failed to deal effectively with the Great Depression of the 1930s and was superseded by the Keynesian paradigm.”

Laissez-faire did not feature in Adam Smith’s Wealth Of Nations. He did not agree that laissez-faire was an appropriate policy – that came from some of the French Physiocrats – and identified many areas where it should not apply in a commercial society.

I posted the following list last month (from Jacob Viner), but its worth reminding readers of his stance:

"● The Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’; (WN464)
● Sterling marks on plate and stamps upon linen and woollen cloth (WN138-9)
● Enforcement of contracts by a system of justice; (WN720)
● Wages to be paid in money, not goods;
● Regulations of paper money in banking; (WN437)
● Obligations to build party wars to prevent the spread of fire; (WN324)
● Premiums and other encouragements to advance the linen and woollen industries’; (TMS185)
● ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
● ensuring the ‘cheapness or plenty [of provisions]’; (LJ6; 331)
● patrols by town guards, fire fighters and of other hazardous accidents; (LJ331-2)
● Erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours); (WN723)
● Coinage and the Mint; (WN478; 1724)
● Post office; (WN724)
● Regulation of institutions, such as company structures (joint stock companies; co-partneries, regulated companies); (WN731-58)
● Temporary monopolies, including copyright, patents, of fixed duration; (WN754)
● Education of youth (‘village schools’, curriculum design); (WN758-89)
● Education of people of all ages (tythes or land tax) (WN788);
● Encouragement of ‘the frequency and gaiety of publick diversions’; (WN796)
● The prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population; (WN787-88)
● Encouragement of martial exercises; (WN786)
● Registration of mortgages for land, houses, and boats over two tons; (WN861, 863)
● Government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’; (WN356-7)
● Laws against banks issuing low-denomination promissory notes; (WN324)
● Natural liberty may be breached if individuals ‘endanger the security of the whole society’; (WN324)
● Limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’); (WN539)
● Moderate export taxes on wool exports for government revenue; (WN 879)

Jacob Viner concluded, unsurprisingly, that Adam Smith was not a doctrinaire laissez-faire advocate.

[From Viner, J. 1928. ‘Adam Smith and Laissez-faire’, In ‘Adam Smith, 1776-1928: Lectures to Commemorate the Sesquicentennial of the Publication of Wealth Of Nations, p 53, August M. Kelly, Fairfield, NJ; Lost Legacy provided the references to Wealth Of Nations.]

Much of the confusion and misinformation about Adam Smith comes from attributions to him from people who either, or both, have not read Wealth Of Nations fully and rely only on quotations, or do not understand statements by Adam Smith on Natural Law, are from a theory of jurisprudence (following Grotius, Pufendorf, Carmichael, and Hutcheson), and are not just a theory of how to run a commercial system; Natural Law and Liberty applies to all societies.

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