Monday, May 02, 2005

Nonsense from Arkansas

Kicking the dog
Arkansas Democrat-Gazette - Little Rock, AR, USA:

... “As first noted by Adam Smith, the great paradox of capitalism is that societal welfare is enhanced by the advancement of private self-interest. ...”

Yet another piece of nonsense about Adam Smith, repeating the mandatory confusion about a single point Smith’s made in “Wealth of Nations” and turning it into a cardinal maxim of his political economy, which it never was.

Smith neither wrote about capitalism nor its paradoxes. He was dead long before ‘capitalism’ became a word (1854) or a phenomenon.

Smith wrote about the significance of commerce in a predominantly agricultural society in mid-18th century Britain. His political economy was integrated into his moral philosophy and both were supported by his views on Justice and the Rule of Law. People who had not read his Works carefully hijacked these views and they ascribed to Smith views, which he never held.

He wrote about the power of markets to raise productivity and create economic growth.
During one such discussion he referred to how in some circumstances, but not all, people could believe they were attending to their private interest (in this specific case they preferred to invest in home production and not in exports, in consequence of which, unintentionally, they boosted home economic growth rather than inhibit it). This was his only reference in “Wealth of Nations” to the ‘invisible hand’ (Book IV.ii.9: page 456). It has been turned into a general ‘law’ of economics in US schools and has become an alibi of those who assert that capitalist corporations must be given total freedom to pursue their private interests because it promotes public interests (and ‘Smith said so’!).

Yet, Smith spent several chapters on ‘Wealth of Nations’ critiquing expressions of the private interests of ‘merchants and manufacturers’, who were the small time ‘corporations of the 18th century, not the major capitalist firms of the 21st. Left alone to do what they will, companies express their private interests by forming monopolies, lobbying for selective tariffs and other restrictive practices, to reduce competition and raise prices through forming monopolies and cartels. The so-called ‘invisible hand’ could promote private interests (and often did) that worsened the public interest, reduced productivity, lowered economic growth and restricted liberty.

As in so many aspects of human society, private interest could work for or against the public interest. It all depends. Smith was no apologist for capitalism or for any expression of private interest.


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