Friday, March 30, 2007

Reclaiming Adam Smith – Part Two from Fletch

Here are some extracts from Part Two of Fletch's posts on Adam Smith. They are particularly interesting because their command of what Smith wrote and meant is rare in Blog land (and rarer still in academe where it is influenced by Chicago's version of Adam Smith and not by the man from Kirkcaldy).

"Unlike in the case of child labor, Adam Smith spoke extensively about the issue of governmental involvement in the economy. It was, in fact, his primary concern. Modern liberals, however, have attempted to distort what he actually had to say about the issue in order to claim that he would share their advocacy of worker protection laws, anti-trust laws, interference with the free trade of free individuals in the international marketplace, etc., as if Adam Smith were a kindred spirit. Again, nothing could be farther from the truth. The passage from The Wealth of Nations most frequently cited as endorsement of the modern liberal position is this one:

“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.” [WN I.x.c.27: p 145]

It seems a simple enough declarative statement condemning the actions of businessmen who will typically conspire against workers and the general public unless something is done to prevent it, right? Wrong.

Smith was describing the behavior of tradesmen under the guild system that existed in late eighteenth century England and Scotland - a system he vehemently opposed. It was a state-enforced, self-perpetuating trade oligopoly that fostered such behavior. And while the system had characteristics that were in some ways similar to both modern corporate structures and organized labor, it was materially different from either. It was specifically this state-facilitated collusion that Smith was attacking, not the actions of free individuals in an open marketplace.

One need look no further than the remainder of the same paragraph in which those fateful words can be found in order to understand the context in which they were actually written and to see the gross distortion that is necessary in order to co-opt Smith’s message. If the man from Kirkcaldy were advocating a governmental solution, rather than the removal of governmental involvement, then would he follow with, “It is impossible indeed to prevent such meetings[,] by any law which either could be executed, or would be consistent with liberty and justice (emphasis added)”? [Punctuation corrected from WN] Obviously, not. It would be completely inconsistent with his entire body of work in defense of individual liberty to suddenly advocate state intervention to prevent free individuals from coming together.

It is in the next sentence that Smith identifies the real culprit in this scenario, as embodied by the guild system: “But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies[;] much less render them necessary (emphasis added).” [Punctuation corrected from WN]

The guild system as it existed in Smith’s time involved the incorporation of business interests (Note: the terms “incorporation” and “corporations” as described in The Wealth of Nations refer not to corporations in the modern sense, to which, as alluded to previously, they bear little resemblance, but, rather, to the guild system as legitimized by state sanction.) into protected trade organizations that could stifle competition, control wages and prices and act as an oligopoly. This, the ham-handed intervention by the state that undermines the free market process, was the target of the moral philosopher’s ire.

Smith even goes on to say: “A regulation which obliges all those of the same trade in a particular town to enter their names and places of abode in a public register, facilitates such assemblies…. [WN I.x.c.28: p 145] A regulation which enables those of the same trade to tax themselves in order to provide for their poor, their sick, their widows and orphans, by giving them a common interest to manage, renders such assemblies necessary…. [WN I.x.c.29: p 149] An incorporation [see the caveat mentioned above] not only renders them necessary, but makes the act of the majority binding upon the whole. In a free trade an effectual combination cannot be established but by the unanimous consent of every single trader, and it cannot last longer than every single trader continues of the same mind. The majority of a [guild] can enact a bye-law with proper penalties, which will limit the competition more effectually and more durably than any voluntary combination whatever (emphasis added).” [WN I.x.c.30: p 145]

“The pretence that corporations are necessary for the better government of the trade, is without any foundation. The real and effectual discipline which is exercised over a workman, is not that of his corporation, but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence.” [WN I.x.c.31: p 146]

Smith explicitly argues that the absence of government involvement – as exhibited by, in this case, the creation of the guild - is sufficient protection for the workman and the public. This, alas, is not the only passage from Smith’s magnum opus that is grossly distorted to make it appear that he favored protections for workers against the depredations of unscrupulous businessmen. There is, of course, this passage:

“It is not, however, difficult to foresee which of the two parties [masters or laborers] must . . . have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, while it prohibits those of the workmen.” [WN I.viii.12: pp 83-84]

And this one:

“The masters upon these occasions are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen (emphasis added).” [WN I.viii.13: p 85]

In each case, the thrust of Smith’s argument is not that workers require protection from “masters”, but rather that the involvement of the state (“those laws”) is the problem to be addressed, in the absence of which workers would not need further protection.”

I have corrected punctuation in square brackets [ ] and presented references, though the emphases are due to Fletch. This is a rare occasion when somebody has not only read Wealth Of Nations but also he has interpreted the text quoted accurately, aligning is interpretation to be consistent with Adam Smith’s theme of Perfect Liberty (even rarer).

Contrary views and themes from the Left (or at least New Labour) can be read in Ian McLean’sAdam Smith, Radical and Egalitarian: an interpretation for the 21st century', 2006, Edinburgh University Press, foreword by Gordon Brown (UK Chancellor of the Exchequer). It doesn’t deal (from memory) with either of the issues raised by Fletch, which is a pity because partial interpretations do not do Adam Smith justice, and may compromise claims to accuracy of implications that Smith was a kindred spirit of New Labour (or of conservatives in the US).

This does not meant Smith was absolutely right about the balance of power, but I think it is incumbent of scholars to present the whole Adam Smith, warts and all, and not just selected pieces with which they agree with in 21st century Britain and the US. On these issues raised by Fletch he is closer to Adam Smith from Chicago.

[I commend you to read Fletch’s Blog at:]


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