Thursday, September 15, 2011

Adam Smith and 18th-century North America

Thurman “an American living in the Cape Fear River watershed of eastern North Carolina … a round peg in a nation of very square holes … an agnostic pantheist with Taoist/Buddhist tendencies, a democratic socialist, and an unexpected entrepreneur” writes (14 September), Thurman’s Notebook, (HERE):

Corporate America: Pillaging the Wealth of Nations”

Adam Smith, author of that classic 1776 economic treatise The Wealth of Nations, is considered by many to be the father of modern capitalism, despite the fact that the term wasn’t coined until many decades after his death. Mr. Smith favored free markets – between competing individuals providing similar products or services within local communities – arguing that in such situations it is within the rational self-interest of all to produce one’s very best work at the lowest possible price and behave in a fair and decent manner

Excellent start on the modern myth that Adam Smith wrote about (and was an ‘apostle’ of) capitalism, a word unknown in English until 1854 when Thackeray used it in his novel, The Newcomes. So well done.

However, Thurman perhaps then spoils his winning streak by creating (or confirming) another only partly true idea that Smith ‘localised’ commercial society ‘between competing individuals providing similar products or services within local communities’. When speaking of what we call the ‘micro’ level we should not forget the very widespread source of market provisions in 18th-century central Scotland and the parts of England he knew well (such as from his six years in Oxford) and of both urban and rural France in he three years tour there. It also may downplay his firm support for free trade with foreign countries world-wide, and its importance, within the constraints of the need for tax revenue (there was no income tax when he lived) making some residual tariffs still necessary (that is why he thought absolute free trade was ‘utopian’; see Wealth Of Nations, Book IV, chapter 2, para 43, p 471). Even removing expenditure on unnecessary wars, this left the need (‘defence is more important than opulence’) for maintaining defence expenditure on necessary wars against threats of ‘barbarian’ invasions and also the need for an expanded national agenda of spending on education (‘little schools in every parish’, all 60,000 of them) and health (‘loathsome deceases’), which he also advocated in Wealth Of Nations (Book V).

Thurman: “Smith was correct, but he never intended that his ideas be applied on the grand scale many today would assert. He knew that when any business concern grows beyond serving a local or regional market, the profit motive can easily metamorphose into a much more dangerous lust for unhealthy levels of power and prestige.”

Yes, but a local markets were also dominated by formal local monopolies – the ancient Guilds, legal since Elizabethan times, could and did ‘organise’ little butcher shops, small tradesmen, mechanics, carpenters, mercers, tailors, printers, etc., into strict monopolies, including strict laws about apprentices, and the street markets of many towns too were regulated. These people often ruled the towns and restricted competition. Merchants as an ‘order’, exerted influence over the legislature, detailed in Wealth Of Nations. However, they were never similar to “corporate conglomerates”.

Thurman: “At the time Smith wrote Wealth of Nations, the American colonies were entering an armed conflict to throw off the oppressive yolk of what we today might call fascism (an overly cozy relationship between business interests and government). It strikes me as odd that so few now recognize that the Revolutionary War was a fight against abuse of government power by wealthy business interests of the day. That’s what the original Boston Tea Party was all about folks! The one today? Not so much.”

Surely you are a trifle hyperbolic? 18th–century British colonies as ‘fascism’? Nobody would describe living in the British colonies was an ‘oppressive yoke’, except the African slaves in servitude to the colonists. For ‘oppressive yokes’ try living in the Spanish colonies with their vast feudal estates, and primogeniture, with entails, which several legislatures in the British colonies abolished, making land cheap and wages expensive, and over the decades, compared to stagnant South America, made the North American colonial economy grow and become prosperous. As for ‘fascism’, it is surely a gross exaggeration and a gross distortion to compare the relative freedom of the colonial states with mass movements of ideological, sometimes, racist, fanatics and street rabble-rousers, of modern fascism? This denudes fascism of its uniquely modern awfulness. Washington, and company, were key members of the colonial elite, and were not excluded from its rewards from their local power before the revolution.

Abuse of ‘government’ power? It was ‘government power’ all right, but those powers were what all pre-democratic governments exercised, with 18th-century Britain probably more relaxed and restrained than those absolutist governments on the continent, which were ‘tyrannical’ in the extreme (imprisonment without trial, non-judicial capital punishment, etc.). Britain had the restraints of a ‘partially elected’ legislature, centuries the rule of law and a modicum of liberty from Magna Carta, habeas corpus, trial by jury, a judiciary, and a constitutional monarchy (two Kings were removed, Charles II by Cromwell in parliament the 1640 and King James, again by votes in a properly constituted parliament in 1688). Such constitutional monarchy was not found in the rest of Europe, nor anywhere else in the world. The US Constitution and its laws drew upon on British precedent and ancient laws.

Thurman: “The British colonies, which grew out of corporate sponsored plantations in the New World, had reached a stage of economic development where they no longer really needed protection and resources from the Crown to survive.”


Correct. Adam Smith recognized that fact, and he argued that if the British colonies were unwilling to pay for their defence by British taxpayers (as they showed they were not), then Britain should withdraw, sign a commercial treaty with the colonies (free trade), and restrict Britain’s expenditures commensurate with ‘the real mediocrity of her circumstances’ (see the very last line in Wealth Of Nations). Smith regretted the King’s choice of a contest of arms, in which the King refusal the compromise on anything, meant he lost everything.

“In fact many colonial businessmen struggled under an oppressive array of taxes, tariffs, and regulations designed to funnel greater profits to a few well favored corporations and their shareholders back in England. These legal obstacles were enacted at the behest and to the advantage of powerful business interests close to and within the British government, but had the effect of stifling the honest efforts of many less well connected colonial businesses. Sound familiar?”

A fair summary. Minor point: ‘Britain’ was (and is) not synominous with ‘England”. The British colonial tobacco trade was largely run through Glasgow, in Scotland, whose merchants ran large plantations in Virginia, etc.,. Also using ‘corporations’ loosely in this context is anachronistic.

However, Smith did expose the inequities of the trade balance between Britain and its colonies. By establishing a general monopoly on trade between Europe and the British colonies (allowed to develop with far greater freedoms that their south and central American counterparts under the Spanish and the Portuguese absolute monarchies) the traders in the British colonies, and, therefore, the consumers, were disadvantaged twice over. They paid high import prices on British goods and received low export prices for colonial exports, because all goods inwards and outwards had to be delivered in British- owned ships with British crews, under the Navigation Acts from Cromwell’s times. The Navigation Acts were originally aimed at ensuring a large British navy primarily to defend the islands and, secondarily, its colonies from foreign navies. That role was compromised by extending it to enforce a monopoly of the colonial trade, which monopoly was policed by the Royal Navy and British custom officials and local courts in the colonies. Not surprisingly, Britain was the colonies largest supplier and largest customer. European-sourced imports and exports were carried in British ships, thus eliminating foreign price competition.

Thurman’s main problem is trying to link too closely the problems that led to the rebellion to modern problems. Follow the link and continue reading ‘Thurman’s piece. At least Thurman appears to have read Wealth Of Nations, which is a good sign.



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