Sunday, May 18, 2014

ADAM SMITH'S UNDERSTANDING MORE USEFUL THAN KARL MARX'S CAPITAL

Deborah Boucoyannis (22 April) in the Washington Post proclaims that “Adam Smith is not the antidote to Thomas Piketty” in her review/article on Thomas Piketty’s, “Capital in the 21st Century (Harvard University Press).  I have refrained from commenting on Piketty’s large volume because my copy was delayed (at Amazon) until a few day ago, and I have not begun reading it until to several other tasks were completed.  When I read it I shall compose my thoughts as appropriate.
In the meantime, I have been thinking about inequality in the rich countries and what it means.  I have been struck for many years by the phenomenon of inequality and why we appear to be concerned about it, particularly as some of the reasonably well-off middle-classes in the richest economies are expressing strong views about it.
I observe merely that for all the disparities in income between the majority of the populations in Europe, North America, Australia, New Zealand and other places, now fashionably summarised as the “99 to 1 percent”, there is a steady and continuing stream of seriously poor people from the poorest countries and continents, often at great risks to their life-expectancy, using desperate means of travel at prices charged by human traffickers, to the rich countries inevitably to join the poorest of the 99%.
In short, inequalities of ’99-1%’ do not deter them from these risks. Why then do the poorest in the rich countries (or the middle-income people who claim to speak for them) who are incomparably richer than the poor in the poor countries, complain about their relative poverty in the rich countries while poorer people risk their lives to join them?
Now be clear, I ask these questions  not in order the make a case that we should be unconcerned about the poorest in the poor countries, nor unconcerned about the poorest in the rich countries - far from it!  I have chastised some well-off activists, writing from the relative splendours of their middle-class lives in, say California, who find that their lives in the USA disgusts them on moral grounds. They have the means available to them to pay for their air-travel to any of the poorest countries to satisfy their dreams of moral simplicity and escape from their moral dilemmas and angry disgust. (I should note here that I have corresponded with some of the very few who swapped their ‘empty’ lives in the richest country in the world for what they perceive as their now simpler moral lives in the poorest countries. I respect them for that).
We are assured that the ’99-1’ of current inequality is a recent development and it is getting worse.  What was tolerable in the recent past is no longer the case. The fault-line is caused by looking ‘upwards’ to the life-styles of the super rich in the rich countries and not downwards to the relatively poor in the same rich countries. As for the desperate poor in the poor countries, no remedies are sought, other than the magificent charitable actions of those moved by their desperate plight, which does not alter the fundamentals of why much of the world remain desperately poor despite increasing numbers of very poor people joining their relatively richer brethren.
For these reasons, I feel that Deborah Boucoyannis in her headline: ”Adam Smith is not the antidote to Thomas Piketty” is historically and empirically wrong (note I am saying that Deborah is wrong, nor that Thomas is wrong - I have yet to read his analysis to make a comment on his work).  I shall elaborate in a defence of Adam Smith.
Adam Smith’s analysis of the political economy of the evolution from warlord, feudal, agricultural societies that had evolved and endured for millennia through to commercial societies that re-emerged after the fall of Rome, nearly a milennia earlier, contained a great deal of explanatory power. It was not perfect by any means and by the time he did his intellectual work of explanation, the elements of the ‘commercial’ system were in place, but not irreversible.  
Smith did not invent, nor design, nor boost the development of the new imperfect commercial economy at all.  Economies are not something that is designable, so to speak.  Smith in short, did not “invent capitalism”, as many epigones claim (he died long before the word was invented). He also had many criticisms of prevailing practices that had also emerged quite early, such as ‘mercantile political economy’, ‘State created’ monopolies’, violent displacement of indigenous societies by European colonies, and wars between nation-states scrambling for colonies, and absolute monarchial powers that restricted personal liberties by government and or religious fiat.
Commercial activities changed the world, not intentionally, but despite the settled inhibitions of the past many millennia, perhaps best demonstrated by the historically unique rise in per capita incomes from the $1 a day norms of the recent past towards, eventually, the $120+ a day norms of the richest countries of today.  For now billions who enjoy these norms of $60-120+ a day, the gap between them and the remaining billions stuck with around $1-10 a day is glaring, and rightly of moral concern. But what can be done about it quickly is not answerable with any political manifesto, street demonstration, revolutionary action or world summit conference of hand-wringing noisy delegations. 
Adam Smith’s contribution in Moral Sentiments and Wealth Of Nations, and his other surviving Works was to lay the basis for explanations of what happens, and what happened, in that long evolution, in a few fortunate countries at first, later in many more, but with many countries yet to join productive wealth creation (defined by Smith as the production of “necessaries”, later “conveniences”, and lastly, “amusements”).  None of this wealth can be created without the productive co-operation of billions of individuals and market activities in stable states, under the rule of law and justice.  Of that Smith was clear.
Smith made no predictions (except in a hundred years from 1776, the new American state would be wealthier than Britain - how accurate he was on that!) and no human can, or ever will, predict the future of the world’s human societies.  Smith used philosophy to attempt to understand the world’s socio-economies; he did not, unlike Karl Marx in his 19th-century ‘Capital’ and other writings, see his role as changing the world, a fatal weakness exemplified by how Marxist misunderstandings led to tyranny and to appalling costs in human misery, and noticeable inequalities at low levels of per capita GNP.

I have  yet to read Thomas Piketty - it is by my desk. I shall approach it without pre-formed prejudices - its a longtime since I read Marx’s Capital in my late teens and I shall in due course comment upon what I learn from Piketty in my middle-70s.

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