Friday, December 23, 2011

Why Adam Smith Was No Ideologue

Catherine Baab-Muguira writes in The Motley Fool Blog (“To Educate, Amuse, and Enrich”) HERE

“Did Our Founding Fathers Believe in Free Markets?”

Putting it matter-of-factly, Alan Pell Crawford, author of Twilight at Monticello: The Final Days of Thomas Jefferson says, "Rightwing politicians and their publicists, like their liberal counterparts, are interested in the past only as repository of pseudo-facts. They plunder the past to make debating points, most of which are unsupportable."

Crawford cites the Founders' views on government regulation as an example. "The evidence seems to suggest that Jefferson and Washington and the men of their time and place had no problem with government regulation of markets," he says.
"County courts in Virginia exercised what conservatives today would consider outrageous power over economic relationships and transactions. They could set the prices innkeepers could charge their customers -- that sort of thing. We might now recognize such powers as unwise or misguided, but Jefferson and Washington seem to have taken it for granted," he adds.

… The market as innocent until proven guilty

Dr. Hugh Rockoff, a professor of economics at Rutgers University and co-author of History of the American Economy, offers a complementary view: "Madison and Hamilton envisioned a society in which the bulk of economic activity would be carried out in private markets by private individuals trying to get the best returns they could on their labor and capital."
"I think the founders saw this sort of economy both as efficient -- as the best way of generating a large flow of goods and services -- and as a way of protecting other personal liberties from despots," says Rockoff.

While the Founders' ideas largely came from Scottish Enlightenment-era economic thinker Adam Smith, as Rockoff explains, Smith is himself often misunderstood. "Nowadays we tend to think of Smith as a rigid free-market ideologue," he says. "But as anyone who has actually read Smith from cover to cover can tell you, Smith was anything but."

As Rockoff puts it, "Smith believed that the presumption should be that we leave people free to go about their private business as they see fit until experience has shown us that their liberties have to be constrained for the common good. It's a court of law: the market is innocent until proven guilty."

An enlightened, experience-based approach

No matter the ongoing political debate, the Founders' approach to the economy sets a good example for present-day Americans, argues Rockoff.

"We need to think through our policy toward each sector of the economy in the light of experience," he says. "We can't know what the founders would say about current problems, but we can adopt their 'enlightened,' experienced-based approach to trying to solve them."

What is called for, it seems, is less arguing and further study.”

I am not sure what the Motley Fool Blog is about but I have to admit heartily agreeing with the above sentiments, both from what I know of Adam Smith’s lifetime writings and from my memories of reading the Federalist Papers in full out of interest (I have a copy in my library In France from my student days from an undergraduate course on Colonial History).

I like the notion that “The market as innocent until proven guilty”. It certainly sums up Adam Smith’s approach. So does the idea of “An enlightened, experience-based approach”, which the Scottish-based David Hume Institute (of which I was a Trustee for five years until December this year) celebrated as its explicit public role in current Scottish affairs.

Ideologues are less interested in evidence as they are in their fixed ideas about the world and how it operates. Adam Smith was predominantly interested in how his world in 18th-century Britain operated and, above all, how it arrived that way from its history, based on the evidence available to him.

Wealth Of Nations is crammed with what some modern scholars, in too-much-a-hurry, call ‘distractions’, such as the whereabouts of a former King’s wedding bed, or interests rate in Biblical times, and wheat prices per quarter and average for the years from 1202 to 1764, even prices at Eton College, and many, many more. Readers of his Lectures On Jurisprudence can become fatigued over his minute dissection of the evolution of Roman laws, as can readers of his Lectures On Rhetoric and Belles Lettres (which is why so many do not recognize the English language role of metaphors).

I wish there were more people like Catherine Baab-Muguira writing on Adam Smith today. It would certainly help restore his legacy towards its proper place in the minds of those who are served instead a cold dish of balderdash by too many modern scholars (who should know better).



Blogger airth10 said...

It is interesting about the 'invisible hand' in Adam Smith's day producing more than was needed, usually giving the surplus away.

In today's scenario one of capitalism's problems is that it has produced too much. There is over capacity, especially in America, too many shopping malls, houses and workers. What to do? Should the invisible hand give it away, destroy it or wait until the surplus has evaporated? There is also too much debt all around.

I think that today's invisible hand will wait until the surplus has evaporated, keeping a full recovery at bay for a while.

Perhaps today's invisible hand is also a robber, robbing jobs through technological advances.

5:14 pm  

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