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The Real Adam Smith

144 points by nz 9y ago

vardump 9y ago
Expected this to be about Chydenius in part, but no: https://en.wikipedia.org/wiki/Anders_Chydenius#Free_trade https://en.wikipedia.org/wiki/Anders_Chydenius#Free_trade "In 1765 Chydenius published a pamphlet called The National Gain (Den nationnale winsten), in which he proposes ideas of free trade and industry, explores the relationship between economy and society, and lays out the principles for liberalism, capitalism, and modern democracy.[5] In the book Chydenius published theories closely corresponding to Adam Smith's invisible hand, eleven years before Smith published his book, The Wealth of Nations."
- hyperpallium 9y ago
  fun fact: The expression "invisible hand" does not appear in The Wealth of Nations, but in Smith's previous work the Theory of Moral Sentiments.
  - elcapitan 9y ago
    That is not correct - it appears once in both. Part IV, Chapter 2 in "The Wealth of Nations" ("and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention").
foamflower 9y ago
This article is mostly accurate about Smith (although the man himself was much more favorable to entrepreneurs and innovators than is presented), but fairly inaccurate that “Right-wing” politics is some perversion of Smith. At the end, we get a taste of what he means in that Thatcher privatized various state industries during her run as Prime Minister in the '80s. Otherwise, an entire sub-field of economics (it would be a sub-field of "political economy" if that term were widespread today) is Public Choice, which demonstrates rather well that often state intervention is at the behest of the "merchant interests." Public Choice is a direct descendent of Adam Smith’s thinking. Indeed, the very term "state capture" that the author invokes frequently probably derived from "regulatory capture," a term Public Choice helped propagate. There is also a misunderstanding that Smith’s "invisible hand" concept implies some sort of Utopian paradise, when in fact, Smith meant more that aspiring monopolists who are nonetheless in competition with each other (and often in cooperation with others) lead to an increase in social gains, which on its own seems paradoxical and is highly counterintuitive. Modern economics seems founded on maximizing or minimizing every possible variable of interest, so I suppose some people may actually argue that the invisible hand is a statement about maximization, which it definitely isn’t. In practice, the only people I see invoke the "Invisible Hand" in this manner are harsh critics of any sort of free enterprise regardless of the context, and always advocates of state intervention and thus regulatory capture ("[people] of the system", indeed). I am most surprised that Smith's sympathies for labor do not appear in this essay, as they seem to be quite strong. Smith discusses the effects of specialization that happens during industrialization, and goes so far as to say it makes workers with repetitive tasks "stupid." In context, his sympathies are clearly with the worker. I guess as someone with relatively Smithian-Hayekian views, I am missing the overall point of this article, other than to hand-wring that so-called Neoliberalism (I have never met a Neoliberal) is actually unrelated to Smith’s ideas and are a perversion. He is entirely unconvincing, even if one accepts for the sake of argument that "neoliberalism" exists as a coherent philosophy or even ideology (it doesn't).
- thanatropism 9y ago
  > never met a neoliberal "Neoliberal" is typically a term of abuse, but I've seen a movement (from econ professors to /r/neoliberal) to appropriate as a term for centrist radical pragmatism. These self-proclaimed neoliberals are very progressive socially and (claim to, at least) support any policies that have actual firm evidence for it. Of course, this makes them pro-trade and pro-"globalism".
  - sprafa 9y ago
    there's plenty of evidence that globalism has not worked out for substantial parts of the population in most developed countries.
    - briandear 9y ago
      There is also substantial evidence that it has. The poor in America are richer and have higher living standards than the poor of less-globalized places. Absolute poverty in developed countries is far lower than at any possible by in history. In fact the same could be said for absolute poverty globally. And that, is a direct result of globalization.
      - mistermann 9y ago
        Was it globalism that made them richer? They weren't already richer pre-globalism (say, 15 to 20 years ago)?
      - YPCrumble 9y ago
        > The poor in America are richer and have higher living standards than the poor of less-globalized places. This is complete nonsense and makes you sound like someone who should take some time volunteering with America's poor. Clearly you have no idea what poverty is like and should earn some perspective. Are you trying to say that hunger in America is any different from hunger in a "less globalized place"? How so? How about homelessness? Is that different in America vs. other places? How about dying of disease because you don't have health care? Is that different in America somehow?
metakermit 9y ago
Nice article – gives a bit more background on Smith's ideas and why it's wrong to flag him as an absolute free market advocate. TL;DR – The invisible hand doesn't symbolise the problem of state intervention, but of state capture (i.e. merchant elites lobbying governments to protect their monopolies). On the other hand, merchant elites are a "necessary evil" and the art of good governance is balancing over- and under-regulating them.
- foamflower 9y ago
  > The invisible hand doesn't symbolise the problem of state intervention, but of state capture (i.e. merchant elites lobbying governments to protect their monopolies). On the other hand, merchant elites are a "necessary evil" and the art of good governance is balancing over- and under-regulating them. The second sentence is 100% true and completely in line with Adam Smith's thinking and the overall Scottish Enlightenment. The first sentence is an accurate summary of the article, but the article is slightly but profoundly wrong. Smith and his ilk probably would think that the (modern) idea of "state intervention" vs "state non-intervention" to be silly. By the time of Ricardo, JS Mill and Marx, "moral philosophers" like Smith were referred to as "political economists" because they understood that the state was the base layer on which the rest of society was built. After all, even if someone is a complete "market fundamentalist" today, he or she still depends on the state enforcing property rights, enforcing general criminal laws against theft, murder, rape, etc., and enforcing private causes of action like torts against neighbors who cause a nuisance, pollute, etc. Were Adam Smith alive today, he would be in favor of all of those "state interventions" in the market, as he seems to have been in his own time. (As a parallel, the concept of "civil society" has followed a similar arc: Originally, Aristotle meant a community bound under a common set of norms and the rule of law. Over time, the concept came to mean groups that exist "outside" or exclusive of the state.) At the same time, he would have likely been against some of the more heavy-handed regulatory approaches that modern states use from agricultural planning to zoning rules, and he would be against them for the same reason that he disliked the Mercantile System in the 18th century: they give huge advantages to incumbents, they often fail to solve the problems they are organized to solve, and they depend on effectively arbitrary rule by the state. In my opinion, modern thinking has overzealously accepted black-and-white dichotomies like "for or against state intervention" or defining huge enumerations of incontrovertible "rights." In reality, the intelligent question would be (and the one Smith, Hume, et al. seemed interested in), as your second sentence suggests, "How much should the state intervene so that outcomes are better than the alternative?" From the man himself: > All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.
yedava 9y ago
I like to view this another way - too much concentration of power is a bad thing and we should strive for decentralizing it. So if merchants, in collusion with the state hold too much power, then the state needs to be cut down. Conversely if private players accumulate too much power, that too needs to be cut down, increasing the role of state if necessary. There is no universal approach that will always be true. Depending on the circumstances, either a hands off approach to markets or more intervention from the state is required.
- RobertoG 9y ago
  All that is very nice in theory, but who is doing the "cut down"? By definition it has to be some entity more powerful that the entity that is cut down. And who should control that entity but the majority of the society? So, we finish with the (very imperfect) solution of a democratic government. We should recognize that it's going to be a lot of interest trying to corrupt it and we (the people) have to keep watching and steering.
  - yedava 9y ago
    I agree it has to be a democracy. The right points to harms of government overreach to argue for less government. The left points to exploding inequality and argues for more government in order to tackle it. A good faith assumption could be that both are trying to decentralize power and maybe putting it that way will make it easier to reach across the ideological divide.
    - randcraw 9y ago
      I think there's an increasingly compelling argument to be made at this moment in history, with the rise of powerful increasingly intelligent software that can 1) rigorously shape policy to ensure that ends are met and that 2) the means to those ends employ minimal bias, and 3) do so adaptively, shifting policy dynamically as circumstances evolve. I believe it's time to start planning for the day when we shutter the voting booths and find a better way to govern using networked sensors and dispassionate computers. Democracy is dying. Long live automatic government for the people. Is this really necessary? IMHO, yes. It's become clear that the easy manipulation of a gullible, clueless, and intellectually lazy electorate has broken all three branches of US government: 1) we have an imbecile President and a cabinet of grotesques who border on insanity 2) we have a congress that for over 30 years has done almost nothing constructive, that campaigns on one set of principles then serves others, the primary two being: the financial interests of Those With Money, and paying lip service to the fantasy-laden desiderata of Those Without. 3) a legal system that imprisons over 90% of those charged without a trial. What brought America to such a dysfunctional State? The democratic popular vote, of course. Nothing else could. Thus I believe it's time there was a serious discussion (outside of Washington, of course) about alternative ways to shrink and de-bias all three branches of government, at all levels. I'm convinced that software soon will be powerful enough to fairly, effectively, and adaptively guide the players (both citizens and businesses) in questions of policy to reliably and precisely achieve desired ends, rather than relying on the venerably bent tools of power -- a gigantic incoherent mass of self-serving, ends-oblivious, and inconsistent principles chisled into marble long ago by power brokers to preserve eon-old biases that reliably serves only vested interests. If we want AI to reach its true potential, I propose better government be its ultimate objective. Start from the bottom up -- local government -- and introduce ends-driven smart services to serve civic and main street business needs at that level -- where feedback is clearest, most immediate, and most accountable. This way we might just put government right, from the bottom up, cutting away Caesar as we go.
upofadown 9y ago
It is really hard for even professional historians to gain a good understanding of old technical works. There is just too much unavailable context. In the end, you get to ascribe whatever motivations you want by picking and choosing your quotes. So if Neoliberals want to use The Wealth of Nations as some sort of theological text, then more power to them. They just can't use it as some sort of appeal to authority as that particular world no longer exists. That applies to this article as well.
- namarie 9y ago
  Why do you think historians don't study the context of a particular topic? They certainly don't pick and choose quotes.
paulus_magnus2 9y ago
Relevant excellent TV series [1]. After Raegan/Thatcher privatization there was a 2nd wave Clinton/Blaire of liberalisation. The idea was to dismantle "old hierarchy" / Big Government and replace it with market formed by everyone maximizing their individual self-interest. [1] https://en.wikipedia.org/wiki/The_Trap_(TV_series) https://en.wikipedia.org/wiki/The_Trap_(TV_series)
taw55 9y ago
When one wants a “real” person or theory, one strays as far as possible from the unreality-generator that is “academic” economics. If one would mount an axle on Smith’s grave, we could live off free energy for millenia.
spoovy 9y ago
What's that Skip? Another lefty academic trying to discredit people he doesn't like by ascribing views to them that they don't actually hold? Snore.
pravinva 9y ago
The writer tries to pretend that there is something drastically opposite from knowing that the state captured by business is different from the danger of mere statism. Well, the answer that preserves liberty is to reduce the chances of the state being captured. This begins by having a limited govt. If the madam of the bordello is out of business, there is no need for customers to line up
- croon 9y ago
  If no one governs your rights/freedoms, you don't have any. There is no difference between an unchecked corporation and a corrupt state. The answer doesn't lie at either end, but in a balance.
  - golergka 9y ago
    There is a difference between a state and a corporation: one of those is a monopoly by definition.
    - croon 9y ago
      > There is a difference between a state and a corporation: one of those is a monopoly by definition. There is another difference: one of those grants voting (and other) rights to all its members.
      - AnimalMuppet 9y ago
        One of those may grant voting and/or other rights to some or all of its members.
        croon 9y ago
        > One of those may grant voting and/or other rights to some or all of its members. That's an implementation issue. In its purest form a government is set up by the people, to serve the people. In its purest form, a corporation is set up by one or some people, to make money, usually paying people to be a part of it, and there ends the loyalty. A government needs to be perverted to stop serving (all) its people. A corporation needs to be perverted to start serving its members, as the goal is simply profits and survival until further profits. This isn't a moral distinction, it's the function of those concepts. Without any restraints, one beast will always end up the strongest, and rule all other beasts. The only other possibility is for smaller creatures to cooperate to overcome it/keep it in check. This is what a society is.
nickik 9y ago
Ah, we have the Adam Smith article again. As somebody interested in these for many years, there is a periodic rewriting of this article. The beats are always the same, Smith not actually like evil neoliberals (whoever that is) think. He also wrote 'The Theory of Moral Sentiments' and so on. Admittedly this is by far the best one I have seen in many years. Nothing in the article is really wrong, and it is completely correct the same analysis Smith used can often be used against people on both sides of politics. I would tell people not only to focus on Smith but rather see him in a broader context with Hume, Ferguson and there English predecessors. Overall we need to value individual freedom of choice both socially and economically, we need to strongly protect human rights, the political power must be limited and so on. Free people working for themselves, their family or friend, their community can achieve things that are beneficial for all if these interactions take place in such a framework. > Thatcher’s restructuring of the economy was as much a product of the ‘spirit of system’ as any Soviet strategy While this critic is certainty true we must also realize that if you accept Smith and the Scottish ideas, we need to find some way back to the ideas of individual liberty and limited power of government, specially government and business working together. So there is still a very, vary large difference between going towards such a system or to go towards the Soviet union. Here is a good podcast about Adam Smith: > http://www.econtalk.org/archives/2011/06/otteson_on_adam.html http://www.econtalk.org/archives/2011/06/otteson_on_adam.htm...
- phaemon 9y ago
  From Paul Sagar's bio (the author of this article): "i am lecturer in political theory in the department of political economy, king’s college london i completed my doctorate at the university of cambridge (2014), after receiving an ma in intellectual history and the history of political thought from the university of london (2010), and a ba in politics, philosophy, and economics from the university of oxford (2008). from 2014-17 i was junior research fellow at king’s college, cambridge. my doctoral thesis centred upon the political thought of david hume in the context of british debates over the nature of human sociability and moral psychology. i extended this research in my recently completed book, the opinion of mankind: sociability and the state from hobbes to smith, published with princeton university press. alongside my work in the history of political thought i also research contemporary political theory. i am in the early stages of researching a second monograph, which will explore adam smith’s political thought as grounded in his views of history and commercial society." (the original is in all caps, hence the lack of capitalisation) From you: "Nothing in the article is really wrong" Well, thanks for that. I'm going to take a wild guess that the author knows a hell of a lot more about Adam Smith than you do, even if you have been "interested in these for many years". And I think that applies doubly to the other critics above.
nwah1 9y ago
I'm surprised it didn't mention an obvious difference from modern conceptions of the free market: he thought landownership was a monopoly privilege that could be taxed without harm, so long as you are taxing only the land rent itself, not the improvements. "Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground." - Wealth of Nations, Book V, Chapter II
- primroot 9y ago
  Smith does not seem to be a private-propery-idealist as almost anyone in the mainstream today. Take this passage for example, also from book V. "Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful arm of the civil magistrate continually held up to chastise it. The acquisition of valuable and*23 extensive property, therefore, necessarily requires the establishment of civil government. Where there is no property, or at least none that exceeds the value of two or three days labour, civil government is not so necessary. Civil government supposes a certain subordination. But as the necessity of civil government gradually grows up with the acquisition of valuable property, so the principal causes which naturally introduce subordination gradually grow up with the growth of that valuable property. " http://www.econlib.org/library/Smith/smWN20.html http://www.econlib.org/library/Smith/smWN20.html
  - CryptoPunk 9y ago
    Also note this passage, as a counter-point: >>[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.
adynatos 9y ago
this describes the current "capitalist" system we have today, where powerful individuals can lobby the state to create laws favouring them directly. the problem is, of course, the existence of the state.
- RobertoG 9y ago
  Of course. Maybe you can point us to some examples, current or historical, where human societies thrived without the existence of the state.
  - adynatos 9y ago
    sure: http://www.ozarkia.net/bill/anarchism/faq.html#part17 http://www.ozarkia.net/bill/anarchism/faq.html#part17 should i tell you who will build the roads next?
    - aidenn0 9y ago
      The bigger issue is that societies organized around a state tend to conquer societies not so organized, because states are much better at forming armies
      - adynatos 9y ago
        so you agree that the state is almost always the initiator of aggression? if so, it's simply immoral to allow it to exist, just as you wouldn't allow organized crime to exist. my opinion about the state stems fully from morality, as presented in the non-aggression principle.
        aidenn0 9y ago
        If you believe in any form of consequentialism, unilaterally disarming is rarely the moral choice.
        9y ago
kolbe 9y ago
I've never been clear on why people who know nothing about Smith other than a few quotes appeal to his expertise. This article does a little to help, but really everyone should read Theory of Moral Sentiments and Wealth of Nations instead of some blog post if they want to be informed on the topic.
CryptoPunk 9y ago
This is disingenuous in a number of places. For example, it quotes the passage in the Wealth of Nations warning of collusion between merchants: >>As he put it in The Wealth of Nations: ‘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.’ It uses this as a data point to support the contention that: >>It is an irony of history that Smith’s most famous idea is now usually invoked as a defence of unregulated markets in the face of state interference, so as to protect the interests of private capitalists. For this is roughly the opposite of Smith’s original intention, which was to advocate for restrictions on what groups of merchants could do. Which is absolute nonsense. Sangar omits the context in which the collusion passage appears. Immediately following that paragraph, we find this: >>It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. 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 to render them necessary. 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. . . . 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. An incorporation not only renders them necessary, but makes the act of the majority binding upon the whole. So Smith very much endorses "unregulated markets in the face of state interference", which Sagar claims "is roughly the opposite of Smith’s original intention".
- yesenadam 9y ago
  How on earth do you read that as endorsing unregulated markets in the face of state interference?
  - CryptoPunk 9y ago
    I can't imagine how you don't see it. All of his warnings are against regulations that make collusion more likely, and he explicitly says that it would be impossible for any regulation that would prohibit people from the same trade from meeting to "be executed" or "be consistent with liberty and justice". Every single admonishment was against regulations, whether on grounds of contributing to collusion, or being unenforceable and inconsistent with "liberty and justice".
jeffdavis 9y ago
"The invisible hand was invoked not to draw attention to the problem of state intervention, but of state capture" It's not so easy to separate the two. Intervention tends to have winners and losers, which make the decision makers a big target for all kinds of influence. Especially in a large country like the US, where a single representative (on average) controls maybe $5B in yearly spending, plus all of the indirect ways they can pick winners and losers. That doesn't mean it's impossible to have intervention without capture, but it's something to be wary of. Aside: I don't like the word "capture" as though the poor politicians are somehow kidnapped by evil corporations. I suspect the idea of corruption usually starts with a politician looking for opportunities to exercise their power. Then, it quickly becomes a symbiotic relationship.
RMGgondella 9y ago
This is certainly a nuanced look at a figure who is generally cited in stark black and white. The notion of the "merchant elite" setting the tone of politics within the state -- and with neighbors and other competitors -- is a bit of a wake-up call. After all, for better or for worse, what finally dragged the US out of the Great Depression was World War II, and the sudden bulge of manufacturing it brought. The question is, are we, today, seeing self-interested corporations stimulating or antagonizing hard feelings between countries, states, tribes, or families as a way to push up profits? And a larger question remains: Is that inherently bad? I suppose that there are many who would think that it is not, by its nature, bad -- not if your nation, or ethnicity, or religion is not harmed. I think that this is the central question the article poses. Given that, what is the value of a single human life? Or, more broadly, what is the value of any living thing, or living system? Is it okay kill a man through black lung, in order to maximize profit from a coal mine? Is it okay to bulldoze and pave a vast swath of land, to harvest wood, replacing the forest with a monoculture that will not support diversity? Where does that end? Is a culture safe? A nation? There are, of course, a great number of people who think that one life lost is one too many, that an ecosystem is a living thing, that a culture is sacred. Smith seems to hew towards regulation of business and industry -- that the watershed must be considered in mountaintop removal mining, that heroin sales on the street are not in the best interest of society. (Even though illicit drug sales are probably the very best example of a truly open and free market.) I would lean with Smith on this account. Government has NO business in business. But truly free people must be free to regulate business in their own interest.
- marnett 9y ago
  Your second paragraph is answered by post-9/11 American foreign policy in Iraq (to say the least). But just to echo that answer, yes - Halliburton (and plenty of other private military, security, cyber security service companies) did and continues to thrive off war profiteering. War is an economy. That's why the military-industrial complex is discussed so frequently. Not many other nations subsidize an entire market segment to the tune of hundreds of billions of dollars a year. One that, again, generates profit off of the selling of weapons and arms to be used against other human beings.

144 points by nz 9y ago

Expected this to be about Chydenius in part, but no: https://en.wikipedia.org/wiki/Anders_Chydenius#Free_trade https://en.wikipedia.org/wiki/Anders_Chydenius#Free_trade "In 1765 Chydenius published a pamphlet called The National Gain (Den nationnale winsten), in which he proposes ideas of free trade and industry, explores the relationship between economy and society, and lays out the principles for liberalism, capitalism, and modern democracy.[5] In the book Chydenius published theories closely corresponding to Adam Smith's invisible hand, eleven years before Smith published his book, The Wealth of Nations."

hyperpallium 9y ago
fun fact: The expression "invisible hand" does not appear in The Wealth of Nations, but in Smith's previous work the Theory of Moral Sentiments.
- elcapitan 9y ago
  That is not correct - it appears once in both. Part IV, Chapter 2 in "The Wealth of Nations" ("and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention").

foamflower 9y ago

This article is mostly accurate about Smith (although the man himself was much more favorable to entrepreneurs and innovators than is presented), but fairly inaccurate that “Right-wing” politics is some perversion of Smith. At the end, we get a taste of what he means in that Thatcher privatized various state industries during her run as Prime Minister in the '80s. Otherwise, an entire sub-field of economics (it would be a sub-field of "political economy" if that term were widespread today) is Public Choice, which demonstrates rather well that often state intervention is at the behest of the "merchant interests." Public Choice is a direct descendent of Adam Smith’s thinking. Indeed, the very term "state capture" that the author invokes frequently probably derived from "regulatory capture," a term Public Choice helped propagate. There is also a misunderstanding that Smith’s "invisible hand" concept implies some sort of Utopian paradise, when in fact, Smith meant more that aspiring monopolists who are nonetheless in competition with each other (and often in cooperation with others) lead to an increase in social gains, which on its own seems paradoxical and is highly counterintuitive. Modern economics seems founded on maximizing or minimizing every possible variable of interest, so I suppose some people may actually argue that the invisible hand is a statement about maximization, which it definitely isn’t. In practice, the only people I see invoke the "Invisible Hand" in this manner are harsh critics of any sort of free enterprise regardless of the context, and always advocates of state intervention and thus regulatory capture ("[people] of the system", indeed). I am most surprised that Smith's sympathies for labor do not appear in this essay, as they seem to be quite strong. Smith discusses the effects of specialization that happens during industrialization, and goes so far as to say it makes workers with repetitive tasks "stupid." In context, his sympathies are clearly with the worker. I guess as someone with relatively Smithian-Hayekian views, I am missing the overall point of this article, other than to hand-wring that so-called Neoliberalism (I have never met a Neoliberal) is actually unrelated to Smith’s ideas and are a perversion. He is entirely unconvincing, even if one accepts for the sake of argument that "neoliberalism" exists as a coherent philosophy or even ideology (it doesn't).

thanatropism 9y ago
> never met a neoliberal "Neoliberal" is typically a term of abuse, but I've seen a movement (from econ professors to /r/neoliberal) to appropriate as a term for centrist radical pragmatism. These self-proclaimed neoliberals are very progressive socially and (claim to, at least) support any policies that have actual firm evidence for it. Of course, this makes them pro-trade and pro-"globalism".
- sprafa 9y ago
  there's plenty of evidence that globalism has not worked out for substantial parts of the population in most developed countries.
  - briandear 9y ago
    There is also substantial evidence that it has. The poor in America are richer and have higher living standards than the poor of less-globalized places. Absolute poverty in developed countries is far lower than at any possible by in history. In fact the same could be said for absolute poverty globally. And that, is a direct result of globalization.
    - mistermann 9y ago
      Was it globalism that made them richer? They weren't already richer pre-globalism (say, 15 to 20 years ago)?
    - YPCrumble 9y ago
      > The poor in America are richer and have higher living standards than the poor of less-globalized places. This is complete nonsense and makes you sound like someone who should take some time volunteering with America's poor. Clearly you have no idea what poverty is like and should earn some perspective. Are you trying to say that hunger in America is any different from hunger in a "less globalized place"? How so? How about homelessness? Is that different in America vs. other places? How about dying of disease because you don't have health care? Is that different in America somehow?

metakermit 9y ago

Nice article – gives a bit more background on Smith's ideas and why it's wrong to flag him as an absolute free market advocate. TL;DR – The invisible hand doesn't symbolise the problem of state intervention, but of state capture (i.e. merchant elites lobbying governments to protect their monopolies). On the other hand, merchant elites are a "necessary evil" and the art of good governance is balancing over- and under-regulating them.

foamflower 9y ago
> The invisible hand doesn't symbolise the problem of state intervention, but of state capture (i.e. merchant elites lobbying governments to protect their monopolies). On the other hand, merchant elites are a "necessary evil" and the art of good governance is balancing over- and under-regulating them. The second sentence is 100% true and completely in line with Adam Smith's thinking and the overall Scottish Enlightenment. The first sentence is an accurate summary of the article, but the article is slightly but profoundly wrong. Smith and his ilk probably would think that the (modern) idea of "state intervention" vs "state non-intervention" to be silly. By the time of Ricardo, JS Mill and Marx, "moral philosophers" like Smith were referred to as "political economists" because they understood that the state was the base layer on which the rest of society was built. After all, even if someone is a complete "market fundamentalist" today, he or she still depends on the state enforcing property rights, enforcing general criminal laws against theft, murder, rape, etc., and enforcing private causes of action like torts against neighbors who cause a nuisance, pollute, etc. Were Adam Smith alive today, he would be in favor of all of those "state interventions" in the market, as he seems to have been in his own time. (As a parallel, the concept of "civil society" has followed a similar arc: Originally, Aristotle meant a community bound under a common set of norms and the rule of law. Over time, the concept came to mean groups that exist "outside" or exclusive of the state.) At the same time, he would have likely been against some of the more heavy-handed regulatory approaches that modern states use from agricultural planning to zoning rules, and he would be against them for the same reason that he disliked the Mercantile System in the 18th century: they give huge advantages to incumbents, they often fail to solve the problems they are organized to solve, and they depend on effectively arbitrary rule by the state. In my opinion, modern thinking has overzealously accepted black-and-white dichotomies like "for or against state intervention" or defining huge enumerations of incontrovertible "rights." In reality, the intelligent question would be (and the one Smith, Hume, et al. seemed interested in), as your second sentence suggests, "How much should the state intervene so that outcomes are better than the alternative?" From the man himself: > All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.

yedava 9y ago

I like to view this another way - too much concentration of power is a bad thing and we should strive for decentralizing it. So if merchants, in collusion with the state hold too much power, then the state needs to be cut down. Conversely if private players accumulate too much power, that too needs to be cut down, increasing the role of state if necessary. There is no universal approach that will always be true. Depending on the circumstances, either a hands off approach to markets or more intervention from the state is required.

RobertoG 9y ago
All that is very nice in theory, but who is doing the "cut down"? By definition it has to be some entity more powerful that the entity that is cut down. And who should control that entity but the majority of the society? So, we finish with the (very imperfect) solution of a democratic government. We should recognize that it's going to be a lot of interest trying to corrupt it and we (the people) have to keep watching and steering.
- yedava 9y ago
  I agree it has to be a democracy. The right points to harms of government overreach to argue for less government. The left points to exploding inequality and argues for more government in order to tackle it. A good faith assumption could be that both are trying to decentralize power and maybe putting it that way will make it easier to reach across the ideological divide.
  - randcraw 9y ago
    I think there's an increasingly compelling argument to be made at this moment in history, with the rise of powerful increasingly intelligent software that can 1) rigorously shape policy to ensure that ends are met and that 2) the means to those ends employ minimal bias, and 3) do so adaptively, shifting policy dynamically as circumstances evolve. I believe it's time to start planning for the day when we shutter the voting booths and find a better way to govern using networked sensors and dispassionate computers. Democracy is dying. Long live automatic government for the people. Is this really necessary? IMHO, yes. It's become clear that the easy manipulation of a gullible, clueless, and intellectually lazy electorate has broken all three branches of US government: 1) we have an imbecile President and a cabinet of grotesques who border on insanity 2) we have a congress that for over 30 years has done almost nothing constructive, that campaigns on one set of principles then serves others, the primary two being: the financial interests of Those With Money, and paying lip service to the fantasy-laden desiderata of Those Without. 3) a legal system that imprisons over 90% of those charged without a trial. What brought America to such a dysfunctional State? The democratic popular vote, of course. Nothing else could. Thus I believe it's time there was a serious discussion (outside of Washington, of course) about alternative ways to shrink and de-bias all three branches of government, at all levels. I'm convinced that software soon will be powerful enough to fairly, effectively, and adaptively guide the players (both citizens and businesses) in questions of policy to reliably and precisely achieve desired ends, rather than relying on the venerably bent tools of power -- a gigantic incoherent mass of self-serving, ends-oblivious, and inconsistent principles chisled into marble long ago by power brokers to preserve eon-old biases that reliably serves only vested interests. If we want AI to reach its true potential, I propose better government be its ultimate objective. Start from the bottom up -- local government -- and introduce ends-driven smart services to serve civic and main street business needs at that level -- where feedback is clearest, most immediate, and most accountable. This way we might just put government right, from the bottom up, cutting away Caesar as we go.

upofadown 9y ago

It is really hard for even professional historians to gain a good understanding of old technical works. There is just too much unavailable context. In the end, you get to ascribe whatever motivations you want by picking and choosing your quotes. So if Neoliberals want to use The Wealth of Nations as some sort of theological text, then more power to them. They just can't use it as some sort of appeal to authority as that particular world no longer exists. That applies to this article as well.

namarie 9y ago
Why do you think historians don't study the context of a particular topic? They certainly don't pick and choose quotes.

paulus_magnus2 9y ago

Relevant excellent TV series [1]. After Raegan/Thatcher privatization there was a 2nd wave Clinton/Blaire of liberalisation. The idea was to dismantle "old hierarchy" / Big Government and replace it with market formed by everyone maximizing their individual self-interest. [1] https://en.wikipedia.org/wiki/The_Trap_(TV_series) https://en.wikipedia.org/wiki/The_Trap_(TV_series)

taw55 9y ago

When one wants a “real” person or theory, one strays as far as possible from the unreality-generator that is “academic” economics. If one would mount an axle on Smith’s grave, we could live off free energy for millenia.

spoovy 9y ago

What's that Skip? Another lefty academic trying to discredit people he doesn't like by ascribing views to them that they don't actually hold? Snore.

pravinva 9y ago

The writer tries to pretend that there is something drastically opposite from knowing that the state captured by business is different from the danger of mere statism. Well, the answer that preserves liberty is to reduce the chances of the state being captured. This begins by having a limited govt. If the madam of the bordello is out of business, there is no need for customers to line up

croon 9y ago
If no one governs your rights/freedoms, you don't have any. There is no difference between an unchecked corporation and a corrupt state. The answer doesn't lie at either end, but in a balance.
- golergka 9y ago
  There is a difference between a state and a corporation: one of those is a monopoly by definition.
  - croon 9y ago
    > There is a difference between a state and a corporation: one of those is a monopoly by definition. There is another difference: one of those grants voting (and other) rights to all its members.
    - AnimalMuppet 9y ago
      One of those may grant voting and/or other rights to some or all of its members.
      - croon 9y ago
        > One of those may grant voting and/or other rights to some or all of its members. That's an implementation issue. In its purest form a government is set up by the people, to serve the people. In its purest form, a corporation is set up by one or some people, to make money, usually paying people to be a part of it, and there ends the loyalty. A government needs to be perverted to stop serving (all) its people. A corporation needs to be perverted to start serving its members, as the goal is simply profits and survival until further profits. This isn't a moral distinction, it's the function of those concepts. Without any restraints, one beast will always end up the strongest, and rule all other beasts. The only other possibility is for smaller creatures to cooperate to overcome it/keep it in check. This is what a society is.

nickik 9y ago

Ah, we have the Adam Smith article again. As somebody interested in these for many years, there is a periodic rewriting of this article. The beats are always the same, Smith not actually like evil neoliberals (whoever that is) think. He also wrote 'The Theory of Moral Sentiments' and so on. Admittedly this is by far the best one I have seen in many years. Nothing in the article is really wrong, and it is completely correct the same analysis Smith used can often be used against people on both sides of politics. I would tell people not only to focus on Smith but rather see him in a broader context with Hume, Ferguson and there English predecessors. Overall we need to value individual freedom of choice both socially and economically, we need to strongly protect human rights, the political power must be limited and so on. Free people working for themselves, their family or friend, their community can achieve things that are beneficial for all if these interactions take place in such a framework. > Thatcher’s restructuring of the economy was as much a product of the ‘spirit of system’ as any Soviet strategy While this critic is certainty true we must also realize that if you accept Smith and the Scottish ideas, we need to find some way back to the ideas of individual liberty and limited power of government, specially government and business working together. So there is still a very, vary large difference between going towards such a system or to go towards the Soviet union. Here is a good podcast about Adam Smith: > http://www.econtalk.org/archives/2011/06/otteson_on_adam.html http://www.econtalk.org/archives/2011/06/otteson_on_adam.htm...

phaemon 9y ago
From Paul Sagar's bio (the author of this article): "i am lecturer in political theory in the department of political economy, king’s college london i completed my doctorate at the university of cambridge (2014), after receiving an ma in intellectual history and the history of political thought from the university of london (2010), and a ba in politics, philosophy, and economics from the university of oxford (2008). from 2014-17 i was junior research fellow at king’s college, cambridge. my doctoral thesis centred upon the political thought of david hume in the context of british debates over the nature of human sociability and moral psychology. i extended this research in my recently completed book, the opinion of mankind: sociability and the state from hobbes to smith, published with princeton university press. alongside my work in the history of political thought i also research contemporary political theory. i am in the early stages of researching a second monograph, which will explore adam smith’s political thought as grounded in his views of history and commercial society." (the original is in all caps, hence the lack of capitalisation) From you: "Nothing in the article is really wrong" Well, thanks for that. I'm going to take a wild guess that the author knows a hell of a lot more about Adam Smith than you do, even if you have been "interested in these for many years". And I think that applies doubly to the other critics above.

nwah1 9y ago

I'm surprised it didn't mention an obvious difference from modern conceptions of the free market: he thought landownership was a monopoly privilege that could be taxed without harm, so long as you are taxing only the land rent itself, not the improvements. "Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground." - Wealth of Nations, Book V, Chapter II

primroot 9y ago
Smith does not seem to be a private-propery-idealist as almost anyone in the mainstream today. Take this passage for example, also from book V. "Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful arm of the civil magistrate continually held up to chastise it. The acquisition of valuable and*23 extensive property, therefore, necessarily requires the establishment of civil government. Where there is no property, or at least none that exceeds the value of two or three days labour, civil government is not so necessary. Civil government supposes a certain subordination. But as the necessity of civil government gradually grows up with the acquisition of valuable property, so the principal causes which naturally introduce subordination gradually grow up with the growth of that valuable property. " http://www.econlib.org/library/Smith/smWN20.html http://www.econlib.org/library/Smith/smWN20.html
- CryptoPunk 9y ago
  Also note this passage, as a counter-point: >>[The rich] consume little more than the poor, and in spite of their natural selfishness and rapacity…they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species.

adynatos 9y ago

this describes the current "capitalist" system we have today, where powerful individuals can lobby the state to create laws favouring them directly. the problem is, of course, the existence of the state.

RobertoG 9y ago
Of course. Maybe you can point us to some examples, current or historical, where human societies thrived without the existence of the state.
- adynatos 9y ago
  sure: http://www.ozarkia.net/bill/anarchism/faq.html#part17 http://www.ozarkia.net/bill/anarchism/faq.html#part17 should i tell you who will build the roads next?
  - aidenn0 9y ago
    The bigger issue is that societies organized around a state tend to conquer societies not so organized, because states are much better at forming armies
    - adynatos 9y ago
      so you agree that the state is almost always the initiator of aggression? if so, it's simply immoral to allow it to exist, just as you wouldn't allow organized crime to exist. my opinion about the state stems fully from morality, as presented in the non-aggression principle.
      - aidenn0 9y ago
        If you believe in any form of consequentialism, unilaterally disarming is rarely the moral choice.
        9y ago

kolbe 9y ago

I've never been clear on why people who know nothing about Smith other than a few quotes appeal to his expertise. This article does a little to help, but really everyone should read Theory of Moral Sentiments and Wealth of Nations instead of some blog post if they want to be informed on the topic.

CryptoPunk 9y ago

This is disingenuous in a number of places. For example, it quotes the passage in the Wealth of Nations warning of collusion between merchants: >>As he put it in The Wealth of Nations: ‘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.’ It uses this as a data point to support the contention that: >>It is an irony of history that Smith’s most famous idea is now usually invoked as a defence of unregulated markets in the face of state interference, so as to protect the interests of private capitalists. For this is roughly the opposite of Smith’s original intention, which was to advocate for restrictions on what groups of merchants could do. Which is absolute nonsense. Sangar omits the context in which the collusion passage appears. Immediately following that paragraph, we find this: >>It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. 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 to render them necessary. 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. . . . 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. An incorporation not only renders them necessary, but makes the act of the majority binding upon the whole. So Smith very much endorses "unregulated markets in the face of state interference", which Sagar claims "is roughly the opposite of Smith’s original intention".

yesenadam 9y ago
How on earth do you read that as endorsing unregulated markets in the face of state interference?
- CryptoPunk 9y ago
  I can't imagine how you don't see it. All of his warnings are against regulations that make collusion more likely, and he explicitly says that it would be impossible for any regulation that would prohibit people from the same trade from meeting to "be executed" or "be consistent with liberty and justice". Every single admonishment was against regulations, whether on grounds of contributing to collusion, or being unenforceable and inconsistent with "liberty and justice".

jeffdavis 9y ago

"The invisible hand was invoked not to draw attention to the problem of state intervention, but of state capture" It's not so easy to separate the two. Intervention tends to have winners and losers, which make the decision makers a big target for all kinds of influence. Especially in a large country like the US, where a single representative (on average) controls maybe $5B in yearly spending, plus all of the indirect ways they can pick winners and losers. That doesn't mean it's impossible to have intervention without capture, but it's something to be wary of. Aside: I don't like the word "capture" as though the poor politicians are somehow kidnapped by evil corporations. I suspect the idea of corruption usually starts with a politician looking for opportunities to exercise their power. Then, it quickly becomes a symbiotic relationship.

RMGgondella 9y ago

This is certainly a nuanced look at a figure who is generally cited in stark black and white. The notion of the "merchant elite" setting the tone of politics within the state -- and with neighbors and other competitors -- is a bit of a wake-up call. After all, for better or for worse, what finally dragged the US out of the Great Depression was World War II, and the sudden bulge of manufacturing it brought. The question is, are we, today, seeing self-interested corporations stimulating or antagonizing hard feelings between countries, states, tribes, or families as a way to push up profits? And a larger question remains: Is that inherently bad? I suppose that there are many who would think that it is not, by its nature, bad -- not if your nation, or ethnicity, or religion is not harmed. I think that this is the central question the article poses. Given that, what is the value of a single human life? Or, more broadly, what is the value of any living thing, or living system? Is it okay kill a man through black lung, in order to maximize profit from a coal mine? Is it okay to bulldoze and pave a vast swath of land, to harvest wood, replacing the forest with a monoculture that will not support diversity? Where does that end? Is a culture safe? A nation? There are, of course, a great number of people who think that one life lost is one too many, that an ecosystem is a living thing, that a culture is sacred. Smith seems to hew towards regulation of business and industry -- that the watershed must be considered in mountaintop removal mining, that heroin sales on the street are not in the best interest of society. (Even though illicit drug sales are probably the very best example of a truly open and free market.) I would lean with Smith on this account. Government has NO business in business. But truly free people must be free to regulate business in their own interest.

marnett 9y ago
Your second paragraph is answered by post-9/11 American foreign policy in Iraq (to say the least). But just to echo that answer, yes - Halliburton (and plenty of other private military, security, cyber security service companies) did and continues to thrive off war profiteering. War is an economy. That's why the military-industrial complex is discussed so frequently. Not many other nations subsidize an entire market segment to the tune of hundreds of billions of dollars a year. One that, again, generates profit off of the selling of weapons and arms to be used against other human beings.