As I have written in several recent diaries, I have spent the last few months reading through my economist grandfathers papers. Not having been particularly interested in economics as a youngster I never read Adam Smith's Wealth of Nations. In an effort to get a better grasp of some of what my grandfather was talking about I am making up for that oversight in my reading now.
As so many like to reference Mr Smith as the master of their vision of free market capitalism I think it worth while to see what he really had to say. In Book I he talks a great deal about the division of labor, the nature of prices, the wages of labor, the profits of stock and the rent of land. As his Magnum Opus is quite long I'll focus for the moment on his conclusion to Book I.
Smith wrote in the early 1770's and published in 1776. Despite the great changes since he wrote in industrialization and therefore our economy his words still fit quite well today.
From the conclusion (italics and bolding are mine)...
... The whole annual produce of the land and labour of every country, or what comes to the same thing, the whole price of that annual produce, naturally divides itself, it has already been observed, into three parts; the rent of land, the wages of labour, and the profits of stock; and constitutes a revenue to three different orders of people; to those who live by rent, to those who live by wages, and to those who live by profit. These are the three great, original and constituent orders of every civilized society, from whose revenue that of every other order is ultimately derived.He has spent Book I describing at great length the nature of the incomes of these three great orders. The thing here that has changed between then and now is the nature of land based aristocracy and wealth which was great in his time and place and is not in modern America though the general nature of rent and ownership remain the same.
The interest of the first of those three great orders, it appears from what has been just now said, is strictly and inseparably connected with the general interest of the society. Whatever either promotes or obstructs the one, necessarily promotes or obstructs the other. When the public deliberates concerning any regulation of commerce or police, the proprietors of land never can mislead it, with a view to promote the interest of their own particular order; at least, if they have any tolerable knowledge of that interest.Note the similarity with the thought of Thomas Jefferson of the value of "landed men" for the proper guidance of society. Today I think this has translated to our concepts of home ownership and tax paying citizens by which often appears to be meant property tax paying citizens.
They are, indeed, too often defective in this tolerable knowledge. They are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any public regulation.And that I think might apply to the country gentleman of which Smith speaks but doesn't really translate as well to property ownership in general in our society. But he goes on...
The interest of the second order, that of those who live by wages, is as strictly connected with the interest of the society as that of the first. The wages of the labourer, it has already been shewn, are never so high as when the demand for labour is continually rising, or when the quantity employed is every year increasing considerably. When this real wealth of the society becomes stationary, his wages are soon reduced to what is barely enough to enable him to bring up a family, or to continue the race of labourers.Smith has noted that the interest of property owners and now of wage laborers is "strictly connected" with that of society as a whole. He also describes here that the "real wealth of society" is the quantity of labor. When the demand for that labor rises so do wages. When it is stationary the laborers wages are reduced to bare subsistence. But he goes on...
When the society declines, they fall even below this. The order of proprietors may, perhaps, gain more by the prosperity of the society, than that of labourers: but there is no order that suffers so cruelly from its decline.Not much to add to that. It's truth is obvious.
But though the interest of the labourer is strictly connected with that of the society, he is incapable either of comprehending that interest, or of understanding its connection with his own. His condition leaves him no time to receive the necessary information, and his education and habits are commonly such as to render him unfit to judge even though he was fully informed.Today's working class in America is vastly better educated then in England of Smith's day but it is hard to argue that his general conclusion is not still generally true in our vastly more complex society. How often do we wonder how so many people can vote against their own interests?
In the public deliberations, therefore, his voice is little heard and less regarded, except upon some particular occasions, when his clamour is animated, set on, and supported by his employers, not for his, but their own particular purposes.There is small comfort in knowing that the manipulation we see occurring today by the moneyed class through their propagandists occurred even back in the pre-communications age in which Smith lived. How very true it is that we see so many riled up and angry in the tea party or whatever made up conglomeration being stoked up into raising a clamour in favor of positions that worsen their own standard of living and benefit no one but the elite 2% that run this country.
And what of this third great order...
His employers constitute the third order, that of those who live by profit. It is the stock that is employed for the sake of profit, which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin.During the post World War II years, what Robert Reich calls "the not quite golden age," the American economy was built into the strongest the world had ever seen. Income inequality was at historic lows. Treasury Secretary Henry Morganthau in 1941 even said:
"In times like this if a corporation earns 6% on its invested capital it ought to be satisfied."Things changed eventually and globalization began in those post war years. It began to take hold in the 60's and 70's and has accelerated every since. There is no going back to the relatively self-contained economy of the 40's and 50's. But those natural changes which resulted in the stagflation of the 70's have been used in the ensuing decades to re-arrange our economic system to undo all the hard work that went into creating that system of relative equality. America has sustained itself through the momentum of its huge economy and its great technological advantage but its fall from the heights of global dominance have been obvious for quite some time. It is not a coincidence that this fall has been accompanied by such a sharp rise in the inequality of income and wealth. These are part and parcel of the same phenomenon and apparently Smith had observed the same thing in previous societies.
The interest of this third order, therefore, has not the same connection with the general interest of the society as that of the other two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects, than with regard to the latter.To be clear... he is saying that the merchant, manufacturing and profit earning class are focused on their own interests and profits and not the good of society.
He also states clearly here that when they do express their opinions on what is good for society they are not to be trusted. They are often not honest and even when they are their opinions reflect their self-centered view of what is "good" and are not capable of reflecting what is truly good for the whole of society.
Nothing's changed there.
Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public.So much for the Patron Saint of Capitalists. Let's say that again...
The interest of those who live by profit are always different from, and even opposite to, that of the public good.
To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.Excessive profits are "an absurd tax upon the rest of their fellow-citizens.
The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.And continue to do so to this very day.
Those are harsh and unremitting criticisms of the profit taking class of society. Of the decent sort, they are too focused on their own selfish interests to be capable of doing or advocating what is good for society. Of the rest, they are dishonest, criminal in nature, and oppressive of the society and the public good.
And we let them run our country.