Wednesday, November 23, 2011

A Misreading of Adam Smith

Shelton A. Gunaratne, Professor of mass communications, emeritus, Minnesota State University Moorhead posts in Lankaweb. HERE’s-view—9marxist-notion-of-socialism-unlikely-to-replace-capitalism-culture-determines-‘third-way’/

Capitalism is an economic system wherein the means of production are privately owned, operated for profit (endless capital accumulation) from investment, and in competitive markets (laissez faire) free of state interference. Because perfect competition is a myth hatched in Adam Smith’s imagination, pure capitalism is only a theoretical construct that has never existed or will exist anywhere.”

Adam Smith invented nothing about 'capitalism'. The word was first used in English in Thackeray’s ‘The Newcomes’ in 1854 in reference to manipulating financiers that featured in the second half of the novel, and was picked up by Karl Marx a little later and back-edited into the English editions of Capital. Smith knew nothing of late 19th- century capitalism, nor 20th-21st century modern corporations.

Smith wrote about ‘commerce’ and the Fourth Age of Man.

What Shelton Gunaratne designates in a critical manner, as ‘endless capital accumulation’, was accompanied, necessarily, in the endless ‘great wheel of circulation, also by the ‘endless’ funding of wages for labourers. The alternative was, and remains, endless dire poverty – under $1 a day instead of $3 a day, 12-14 hours a day, versus 8 hours in a five-day week, rising only from ’endless accumulation' to the current $50+ a day in the countries that have benefitted for three centuries from that accumulation continuing. It is politically easier (but not easy) to seek to redistribute the benefits of successful capitalism than it is to merely try to redistribute poverty-level incomes, usually experienced in tyrannical regimes (e.g., Libyan oil wealth, and in war-torn and poor countries, e.g., Somalia).

‘Perfect competition’ was not a product of Smith’s ‘imagination’. Mythical as the invented “theoretical construct” is, but it was developed from a century or more after Adam Smith died (1790), and of which myths he knew nothing. On the contrary, the realities of ‘commerce’, wrapped deep as they were by the policies of mercantile political economy, were criticized sharply by Adam Smith. This was a central feature of his ‘violent attack’ on the commercial system of Great Britain in Wealth Of Nations that had existed and developed since the 16th century economic regime that was constructed by legislation from and since Elizabethan times (Apprentices Act, Settlement Acts, monopolizing powers of the Guilds, wages determined by local Magistrates, Combination Acts, and the Navigation Acts, not to mention his criticism of tariff protection and prohibitions, ‘jealousy of trade’, and regular wars on borrowed money).

Smith never said anything about a ‘perfectly’ balanced perfectly competitive economy in 18th century Britain. Nor did he advocate ‘laissez-faire’. His preference for competition over monopoly and legislated Acts of parliament were not dogmatic; they were specific and coherent.

Shelton Gunaratne’s thesis is based on a poor understanding of Adam Smith Works.


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