Professor Boettke on "Laissez-Faire" and Adam Smith

Peter Boettke posts on “Coordination Problem” Blog a thoughtful piece on “The Great Disruption in Economic Thought” HERE  I read Peter’s Blog pieces most days and think highly of his textbook, Living Economics.  He writes in the link above:

“Roughly speaking classical political economy, or economic orthodoxy, taught the following: private property, freedom of contract and trade, sound money, and fiscal responsibility.  For our purposes we refer to this set of policies as the laissez-faire principle. …

Orthodoxy from Adam Smith onward was suspicious of the claims of those who argued that deviations from the laissez-faire principle were required, and especially so if the claim was made that they should have the power to act in violation of that principle.  Think of the laissez-faire claim as basically saying: individuals should be free to choose within the bounds of a system of property, contract and consent, and that within that rule regime markets are self-regulating to such an extent that errors are detected and corrected, and inefficiencies will be weeded out, and the gains from trade and the gains from innovation will constantly guide the processes of exchange and production toward the efficient solution.  Economic forces are forever working in the selective process of the market economy to improve the material wellbeing of the consumer as they judge that for themselves.

Of course throughout the history of economic ideas there were always subtle differences of opinion within orthodoxy, and fine points of disagreement in method and methodology.  But these paled in comparison with the broad consensus on matters concerning the nature and significance of economics and political economy.  Yes, John Stuart Mill had exceptions to the laissez-faire principle that one could drive an intellectual truck through, but re-read how he sends up that discussion and the importance he places on the laissez-faire presumption. …

I am [writes] Peter Boettke] a classical political economist in my balance of optimism about the market, and pessimism about politics.  If someone was to label me a classical political economist, then I could hardly complain though of course this would be inaccurate on subtle points of doctrine.  It would not be an insult to me, but in some broad-brush sense painting me accurately.  So I don't consider it a cheap shot or insulting when I label folks "Keynesians".  If the shoe fits, then wear it.  If you believe that markets are prone to macroeconomic instability that will not be self-corrected, and you believe that positive actions by the government can in fact fix the situation, then broadly speaking you are adopting the Keynesian stance. …

[Near the end Peter Boettke quotes from F. A. Hayek]: "[T]he main point about which there can be little doubt is that Smith's chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst.  It would scarcely be too much to claim that the main merit of the individualism which he and his contemporaries advocated is that it is a system under which bad men can do least harm.  It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they are now, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid.  Their aim was a system under which it should be possible to grant freedom to all, instead of restricting it, as their French contemporaries wished, to 'the good and the wise'."  F. A. Hayek, Individualism and Economic Order, 1948, pp. 11-12.

Comment

I recommend to readers that they follow the link and read the whole of Peter Boettke’s post.   Meanwhile I shall make some comments of where I think Peter may be overstating Adam Smith’s stances as a laissez-faire exponent on some of the issues he raises.

It was commonplace for classical political economists and political agitators after Smith to associate him with “laissez-faire”.  I think this should be qualified and his actual stances clarified, especially as neoclassical economists picked up and press this association too.

“Laissez-Faire” was a quip made by a “plain spoken”, French merchant trader, to M. Colbert, the French minister of finance in response to his question, “Que faut-il faire pour vous aider?” (What do you want from me to assist you?”), “Laissez nous faire”, (“Leave us alone”), said M. le Gendre.

It caught on among the French Physiocrats, not from anything Adam Smith said, because he never mentioned Laissez –faire once in all he wrote, but from others, including George Whately, a contemporary and friend of Benjammin Franklin. Whately used the phrase in a book he wrote in English. But note well what Le Gendre wanted: he wanted freedom from French regulations for markets conducting their business, complete with bossy inspectors, typical, even today, of the French state administration of markets.  Nothing in the laissez-faire notion mentions freedom for customers of regulated merchants from their habits of conspiring to combine and monopolise their markets to narrow the competition and raise prices, something that Smith was specifically keen to remind his readers in Wealth Of Nations, more than once.

Subsequently, this disregard of the interests of consumers in preference to the interests of producers was commonplace in the history of “laissez-faire” after Smith. 

Consider the political agitation against the Corn Laws by those representing the industrial manufacturers in the early 19^th century.  Their repeal reduced the cost of living of labour but also the wages of industrial employees. Similarly with the demand for “laissez-faire” in the conduct of employers in their agitation against the (very mild) Factory Acts that targeted their appalling record on safety, especially among child labour, and on the excessive hours of work per day.

The cry for “laissez-faire” was taken by the founder of The Economist magazine, and permeated into the discourse of classical economists, and modern classical economists, albeit of a “Austrian” persuasion like Peter Boettke, who describes the laissez-faire principle, as if it is self-evidently detached from the one-sided behaviour of modern companies, where experience suggests it is not.

Peter Boettke writes: “Orthodoxy from Adam Smith onward was suspicious of the claims of those who argued that deviations from the laissez-faire principle were required, and especially so if the claim was made that they should have the power to act in violation of that principle.”  Adam Smith in fact identified 27 examples in Wealth Of Nations where he quite clearly endorsed breaches in the “laissez-faire” principle, as Jacob Viner, [1928]. 1966, suggested in his essay, “Adam Smith and Laissez-faire”, Adam Smith 1776-1928, “Essays to Commemorate the Sesquicentennial of the publication of the Wealth of Nations”, Augustus M. Kelly, Fairfield, New Jersey (also listed in Kennedy, G. 2008, “Adam Smith: a moral philosopher and his political economy”, pp. 182-83, Palgrave-Macmillan, and at various time here on Lost Legacy). 

If anything, Adam Smith was “suspicious” of those taking an absolutist position on “laissez-faire”, such as the French Physiocrats who took too extreme a stance on “natural liberty”. Smith was, rightly, suspicious of politicians, calling them “crafty’ and susceptible to flattery and moral bribery.

I certainly concur with Hayek in the quotation that “it should be possible to grant freedom to all”, not just to laissez-faire capitalists, who can be the biggest enemies of freedom, without laws against their monopolies, oligopolies, secret commercial collusion, bribing of public officials, and regulatory measures to curb dangerous, destructive, and unsafe production and products, under the legal rule of justice.

These stances of classical economics, to which Adam Smith stood firm, I believe are his true legacy and broadly why I am a "soft", not a “Hard” Libertarian.

Don’t agree?  Then post a comment on your case, or, for a longer article to explain your opinions, send me an email attachment and I shall consider it for publication on Lost Legacy, provided it meets minimum standards of scholarly debate.