THE POLITICS OF POVERTY AND INEQUALITY
Harold Sare in Stillwater News Press posts (26 April) HERE
“Inequality: The politics of economics”
Economic inequality, or better stated as economic income disparity, is a very complicated set of issues and has a long history over the past centuries. Early history reflects various societies’ acceptance of it, which gave it legitimacy. In today’s world of constitutional democracies, politics has kept it alive and well, but really does not give it complete legitimacy.
Adam Smith wrote about the “invisible hand” governing the private enterprise system, but those who quote Smith do not take into account that he also said, “People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” (The Wealth of Nations, Collier, 1902, p. 207) This of course runs counter to the idea of the “invisible hand.”
Harold Sare has got hold of a half-understood idea and runs with it to critique aspects of contemporary society. He presents a contempary notion of what Smith meant in reference to an ‘invisible hand’ “governing the private enterprise system”. Smith referred to the ‘invisible-hand’ three times only and on two of those three occasions it had nothing to do with “governing the private enterprise system”.
His first passing reference was to ancient Rome in his “History of Astronomy”, written by him between 1744-58, and referred to the “invisible-hand” of the Roman God, Jupiter. This was a long time before “the private enterprise system, apart from refererring to pagan religious beliefs, and certainly not about the “private enterprise system”.
The second time was in reference to a “proud and unfeeling landlord” in agricultural societies “since providence divided the land” (i.e. a very long time before the “private enterprise system”) (see Smith ”The Theory of Moral Sentiments”, 1759).
The third - and last time - in Wealth Of Nations, 1776, referred to a risk averse merchant manufacturer avoiding send his capital abroad and investing it domestically instead, to avoid his perceived risks of letting it out of his sight. Again this was not about the “private enterpruse system” as a whole. Many other merchants and manufacturers invested both domestically and abroad and made profits from doing so. Moreover the foreign-trade averse manufacturers added their capital to “domestic revenue and employment”, which Smith regarded as a “public benefit”. Again, the “invisible-hand” that led the risk averse merchant to act in this manner was a specific and not a general case “governing the private enterprise system”. This latter was a myth largely spread by Chicago scholars and such as Paul Samuelson from 1948.
With these facts it is an error to attribute to Smith ideas he never articulated.
I agree with Harold Sare that “those who quote Smith do not take into account” what Smith actually said. Nor do they know what he he meant when referring to “an invisible hand”.
Both the extreme free-markets advocates and the statist advocates of extensive regulation by political disctats falsely quote Adam Smith in pursuit of their utopias.
Adam Smith broadly favoured markets where possible, the state where necessary, to which I would add on pragmatic grounds that poverty is a more serious (even more pressing) problem than inequality. Abolishing Poverty is a more fixable problem and within our reach, rather than the far longer-term problems of abolishing inequality and coping with its unintentional consequences.