Saturday, February 28, 2009

Correct Summary of Adam Smith's Ideas

‘pilgrim’ in Red State Blog (HERE): writes “Fisking Marx” (that’s Reinhard Marx, archbishop of Munich and Freising, formerly, bishop of Trier, the birthplace in 1818 of Karl Marx, who has views on the end of capitalism, to which ‘pilgrim’ objects, during which post he made these statements:

Never did John Locke, David Hume, Adam Smith, John Stuart Mill, Ayn Rand, F.A. Hayek, or Milton Friedman advocate unbridled capitalism or freedom. It seems that socialists have badly sullied the reputation of liberty. The socialists have repeatedly alleged that capitalism caters to so-called capitalists and gives them unbridled powers to exploit the weak. But that is totally false. Philosophers of liberty have always insisted that freedom comes with responsibility and justice. Adam Smith opposed mercantilism and monopolistic industrial interests. David Ricardo wanted more competition and free trade. Adam Smith and John Stuart Mill advocated labor unions to face the economic power of the owners of industry.

Unlike Karl Marx, who was a revolutionary, Adam Smith was a reformer. Where Karl Marx saw class struggle, Adam Smith saw special interests that were often at odds with the public interest. If Adam Smith were alive today, it is unlikely that he would join the chorus of triumphant anticommunists. Instead, he would warn that capitalism is prone to excess. He would observe that vigilance is required to ensure that the political system is not manipulated for the economic benefit of a few to the detriment of the entire society. He would be advocating political reforms to make sure that the system is not corrupted by special interests.

Adam Smith described free markets as an obvious and simple system of natural liberty. He did not favor the landowner, the factory owner, or the worker, but rather all of society. He saw, however, self-defeating forces at work, preventing the full operation of the free market and undermining the wealth of all nations.”

I think we can rest assured that ‘pilgrim’ understands what Adam Smith was about.

Perhaps ‘pilgrim’ is stretching a bit when saying Adam Smith favoured labour unions – he certainly objected to collusion among employers to restrain labourers who sought either pay rises, or resisted pay cuts, and he considered the Combination Acts against labour taking collective action in defence of their interests, while employers’ combinations, especially their ‘secret’ meetings, were not disallowed under current laws.

I suspect that Adam Smith wanted restrictive laws against combinations repealed, but favoured open competition in wages matters, applied to both labourers and employers. He certainly favoured higher wages for labourers because these were conducive to higher productivity and diligence and opposed reactionary policies that held wages down, ostensibly in the belief that such measures ‘encouraged’ labour to work harder.

Apart from this criticism of ‘pilgrims’ post, I would suggest readers follow the link because overall ‘pilgrim’ is spot on.



Blogger Valerie Keefe said...

Pretty sure Smith considered a 'free market' for labour to be impossible:

What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour.

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.

In this context, unions provide an important counter to the market power of firms. To wit: The optimal ratio of buyers of labour to sellers of labour is 1. This is also why the Minimum Wage, within a certain wage range, is output-and-employment-increasing.

2:01 p.m.  

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