Adam Smith on Natural Liberty

Gary North writes (Jun 26^th) in Whiskey and Gunpowder Blog HERE 

“The Statist Propositions of Protectionism”

“Adam Smith is regarded as the most successful defender in history of the idea of free trade. This is one of the reasons why, in the view of those who believe in free trade, that Adam Smith’s acceptance of the job as the senior collector of customs (tariffs) for the British government is one of those classic ironies in history. Adam Smith sold out his economic principles for the sake of a high income.

Murray Rothbard has exposed what we can legitimately call the myth of Adam Smith. Smith was not the greatest defender of free markets, nor was he anywhere near the greatest defender of economic theory. But he was unquestionably the most famous and most influential early defender of free trade and free markets. As a publicist, he was the master. Why this should be true, I do not understand. His book, The Wealth of Nations (1776) is a bloated book, and rare is the person who sustains the exercise of beginning on page 1 and finishing it.

Smith did make one claim that, in his day, was the most important claim that he made. It laid the foundation of modern economic theory. He claimed that the free market system is autonomous. It would exist apart from legislation by the state. He called this “the system of natural liberty.” He described how the free market would work if the state did not intervene to pass special-interest legislation that benefited one group or another. What Rousseau claimed for the General Will, Smith claimed for the free market. But Rousseau’s General Will needed a representative institution to express itself. Smith’s theory of the free market was its own interpreter.

The system of natural liberty would maximize the wealth of nations, he said, but far more important, it would maximize the wealth of individuals. The central idea of Adam Smith’s book is this argument: the pursuit of individual self-interest, when pursued by all the residents of the nation, will result in an increase of the wealth of the nation. His link between the pursuit of individual self-interest and the maximization of the wealth of their nation is the essence of Smith’s logic, and it is also the essence of the argument of most free enterprisers.

This is surely the single most important idea that socialists always reject. The essence of the socialist outlook is this: individual self-interest cannot be trusted, because it leads to exploitation of the weak. In order to defend the weak, the socialist claims that the civil government must interfere with private property rights, and plan society from the point of view of the nation as a whole, or the people as a whole, or the vanguard of the proletariat, or whatever group is identified as representing the best interests of the nation.

The socialist wants to capitalize the word “nation.” The Nation is his starting point, and it is also his ethical end. He equates the state with the nation, and he insists that the proper way to look at the economy is to see it as an extension of the state, which somehow incorporates the nation.”

Comment

Gary North starts with a speculation about an alleged “classic irony” in Adam Smith “accepting” the post of Scottish Commissioner of Customs and the Salt Duty in 1778, because “he is regarded as the most successful defender in history of the idea of free trade”.   Those who seize on false versions of Adam Smith’s Legacy for their own political, twentyfirst century purposes are often loose with the facts.  Gary creates a “classic irony” out of very little evidence.

Smith saw an important and necessary role for some tariffs on imports in the circumstances where domestic taxation alone was insufficient to pay for certain necessary functions of government, including defence in an independent country (there was no modern income tax in his day).  This led to the little noticed statement in Wealth of Nations that “the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or utopia should ever be established in it” (WN IV.ii.43: 471).

Moreover, the actual circumstances that led to Smith’s appointment and his willing acceptance of it reveal a side of him that escapes all but serious biographers and students of his Works and Life. 

First, no less than two aspirants to the vacant post, who asked Smith to exercise his ‘interest’ in their favour as candidates, brought to his attention the vacancy among the Scottish Commissioners. He obliged them, but they were unsuccessful (Smith, Correspondence, p 227; Sir Grey Cooper, Secretary to the Treasury, 7 November, 1777). 

This prompted Smith to lobby, if circumspectly, for his own candidacy through influential allies in and close to Government, among them his friend the Duke of Buccleugh; therefore, it did not come as a surprise when the Minister wrote to Smith hinting that he was to be offered the Post.

By then the war of independence had broken out and its republican principles were bound to embarrass Adam Smith, who was supposed to be completing a treatise on the Theory of Jurisprudence, as advertised as underway in 1759 and for thirty years afterwards, which necessarily would have to include an assessment of the merits of Britain's constitutional monarchy, whatever its outcome.

The 4-days a week Custom’s vacancy was therefore fortuitous as a credible circumstantial excuse preventing him from meeting the published ‘advertisement’ of his promised Jurisprudence in the first edition (1759) and the sixth edition (1789) of Moral Sentiments. It also prevented him from the risks of being seen as siding with rebels against the Crown, albeit only on philosophical grounds.

Gary North may not appreciate that to be authoritative on serious history it is necessary to rise above witticisms like “rare is the person who sustains the exercise of beginning on page 1 and finishing” Wealth Of Nations.  There is also much more to finish in Smith’s works to be taken seriously.

For example: Gary writes: “He claimed that the free market system is autonomous. It would exist apart from legislation by the state. Smith called this “the system of natural liberty”.   Gary uses this statement to contrast it with “socialists”, of whom I have long-standing differences, but I observe that Gary smuggles in here ideological interpretations of Smith’s stance on “perfect liberty”. I shall say nothing about the deficiencies of socialist theory and practice, which are many and profound, and most importantly because socialism failes on empirical grounds in its manifest failures when was tried in a variety of counties and economic circumstances.

Perfect liberty was a philosophical concept taught in Scottish Universities from textbooks published by Grotius and Pufendorf on the continent in the seventeenth century. Hutcheson and Smith taught Natural Liberty at Glasgow.  Now Natural Liberty was not separate from markets, but manifestly it did not operate in any serious degree in commercial markets anywhere at any time in the eighteenth century, nor in the millennia before then, and, I would argue, it has not operated anywhere since. 

The theoretical principles of natural liberty were the basis of the theory of perfect justice (as taught in Smith’s Lectures on Jurisprudence [1763] 1978).  They were a theoretical standard, not a description of any existing or likely system of justice.  Indeed, Smith criticized Dr Quesnai, the leader of the French Physiocrats, who preached the “exact regimen of perfect liberty and perfect justice” as a “principle of preservation capable of preventing and correcting, in may respects, the bad effects of a political economy, in some degree, both partial and oppressive. Such a political economy though it no doubt retards more or less, is not always capable of stopping altogether the natural progress of a nation towards wealth and prosperity, and still less of making it go backwards.  If a nation could not prosper without the enjoyment of perfect liberty and perfect justices, there is not in the world a nation which could ever have prospered” (Wealth Of Nations, IV.ix.28: 674).  Gary North may have got past page 1 of Wealth Of Nations, but did he get as far as page 674?

States pass legislation on many subjects, many of them “violating” natural justice, in Smith’s words, but he also recognized there were occasions where such “violations” were necessary and he recommended them to be violated in specific cases, including in markets.  Only myopic ideologues extrapolate from a partial understanding of Smith’s philosophy to conclude that blanket applications of Natural Law concepts in relation to markets are somehow Smithian.  They are not.  He was not an ideologue.  He was pragmatic, not dogmatic.

Gary North makes a commonly asserted statement:

“The central idea of Adam Smith’s book is this argument: the pursuit of individual self-interest, when pursued by all the residents of the nation, will result in an increase of the wealth of the nation. His link between the pursuit of individual self-interest and the maximization of the wealth of their nation is the essence of Smith’s logic, and it is also the essence of the argument of most free enterprisers.”

Yet, Smith’s “central idea” presumes a State managed system of justice to ensure the safer existence of property, without which we do not expect “the maximization of wealth” – what we get from the absence of enforceable justice by the State is a present-day Somalia writ large. 

“Natural justice” is an abstraction, not a reality, operating without its instrument of enforcement, be they the will of tribal elders and the obedience of those they claim to protect, or the trappings of a codified justice system in modern societies (blemishes and all), paid for by taxation. 

States in flourishing market-capitalism are a minimal necessity for the pursuit of individual self-interest, but only when mediated by the self-interests of all other self-interested individuals. Smith observes over 70 examples in Wealth Of Nations where self-interested behaviours by individuals act against the self-interests of other groups or individuals, both rulers and ruled. Note Smith’s multiple references to the perfidious behaviours of some “merchants and manufacturers’, and those equally perfidious legislators under their influence.  Note also, Smith never advocated "laissez-faire", though nineteenth-century speakers for the interests of mill and mine owners proclaimed that Smith advocated laissez-faire, which he did not. They initiated the myth that he did.  They used this false claim to bolster support for the rights of employers to employ for long hours child and female labour for pittance wages in their highly dangerous enterprises against even the then timid Factory Acts.

The “free-enterprise” system is not as “autonomous” as Gary claims it should be. To place Smith in the anarcho-capitalism camp is a profound error.  And that error has nothing to do with the arguments of some socialists for state socialism (Marxist or Social-Democratic), or even its anarcho-socialist (Occupiers) variant.

Smith did not challenge the existence of States (Book V, Wealth Of Nations); he challenged the role of States in dictating through legislation those policies that were best left to individual entrepreneurs within a system of enforceable justice that would act against polluters, destroyers of habitat, promoters of unsafe processes, corruption, and crimes against the public interest.  The rights of self-interest were not immune to their negative externalities on the self-interests ofothers.      

Neither government ministers, nor absolutely “autonomous” entrepreneurs, could safely be left to “direct” an economy, the former from their political vulnerability to special interest groups and the latter from their vulnerability to the pursuit of their private self-interests at the expense of their rivals and their customers.