“While some men are born small and some achieve smallness, it is clear enough that Adam Smith has had much smallness thrust upon him.”
- Amartya Sen, Harvard economist and Nobel laureate
Economists may be the most misquoted and misrepresented historical figures.
The vast majority of critics of Keynesian economics don't seem to be aware that today's markets and economic policies are contrary to John Maynard Keynes' designs.
Probably not one political pundit in a thousand could tell you the difference between Stalinism and Marxism, despite the vast ideological gulf between them.
Possibly the most misrepresented of all economists is Adam Smith.
Free-market fundamentalists are not much different from religious fundamentalists, in that neither know much about the "book" that they take as gospel.
I have yet to encounter a religious fundamentalist that has ever heard of the Council of Nicaea, and I have yet to encounter a free-market fundamentalists online that has read the entire An Inquiry into the Nature and Causes of the Wealth of Nations. Both are guilty of worshiping an idea based on little information and a black/white view of the world.
Only 8 pages into Wealth of Nations do we find Smith's pin factory (shortly before he describes the "playful" joy of a young boy working in a factory between a piston and a boiler). Early in the book Smith describes general ideas about how economies work.
It isn't until far later in the book that he casts warnings about capitalist economies in the real world.
Most free-market fundamentalists call themselves libertarians, and are largely unaware that libertarianism was/is based in radical left-wing ideology (primarily anarchism).
Only through general ignorance has Adam Smith and libertarianism been hijacked by the extreme right wing.
Without further adieu, let's look at what Adam Smith actually said.
More than just an Invisible Hand
But what all the violence of the feudal institutions could never have effected, the silent and insensible operation of foreign commerce and manufactures gradually brought about. These gradually furnished the great proprietors with something for which they could exchange the whole surplus produce of their lands, and which they could consume themselves without sharing it either with tenants or retainers. All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. As soon, therefore, as they could find a method of consuming the whole value of their rents themselves, they had no disposition to share them with any other persons.
This quote isn't from some Marxist manifesto. It's from Book 3 of The Wealth of Nations
. Smith is denoucing the rentier economy, which in those days was represented by large landowners. Today it is represented by owners of financial debt instruments.
To widen the market and to narrow the competition, is always the interest of the dealers…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 oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
This doesn't sound like a man who trusts capitalists, does it? This doesn't sound like the hero of laissez-faire
. Smith is talking about capitalists that use our government to write legislation, a common practice today in Washington.
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.
There you have it: Adam Smith points out that profits and wages don't go hand in hand, and when not shared leads to destruction. What's more, he points out the obvious - that wealth inequality is a bad thing.
What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.
And yet Smith goes even one step beyond this.
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.
And so the Apostle of the Invisible Hand just proclaims that the interests of the merchant class are often contrary to the interests 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.
That's pretty simple and obvious and totally contrary to the belief that the market is self-regulating
. In fact, Smith was quite clear that capitalists were naturally incline to create monopolies, to the detriment of the markets and consumers in general.
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.
Libertarians and pro-market capitalists are consistent in their denial that monopolies can work in a "free market". In other words, they prefer to deny centuries of evidence and countless examples, while blaming everything on governments.
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities...
And thus Adam Smith supports progressive taxation.
Libertarians and Anarchists
Libertarianism in America is different from libertarianism in the rest of the world.
In America it is a mix of gun-rights activists, anti-tax'ers, and Social Darwinist who believe that "you get what you deserve".
For instance, American libertarians generally believe that if you work hard you will succeed, and if you don't work hard then you will fail and deserve to fail. Simple enough, right?
However, if you run into bad luck and something happens to you, American libertarians will also be the first to tell you the truism of "life isn't fair".
The problem with American libertarianism is that "life isn't fair" directly conflicts with "you get what you deserve".
When American libertarians mash these two incompatible ideas together and it resembles "I'm looking out for #1, so f*ck you."
This isn't a political philosophy, it's a personal one.
The American libertarian idea of freedom is basically based around "the freedom not to be bothered by anyone". Or as Mikhail Bakunin said: "the revolt of the individual against all divine, collective, and individual authority."
That is what I would call a "negative freedom".
A "positive freedom" would be as Bakunin said: "the fullest development of all the faculties and powers of every human being, by education, by scientific training, and by material prosperity."
Notice how one freedom is a reaction against the present, while the other is a hopeful vision of the future.
The other thing worth noting is how the positive freedom can only be accomplished within a society, while the negative freedom is all about the individual.
Peter Kroptopkin, in his book The Conquest of Bread writes:
The development of individualism during the last three centuries is explained by the efforts of the individual to protect himself from the tyranny of capital and of the state. For a time he imagined, and those who expressed his thought for him declared, that he could free himself entirely from the state and from society. "By means of money," he said, "I can buy all that I need."
But the individual was on the wrong track, and modern history has taught him to recognize that without the help of all, he can do nothing, although his strongboxes are full of gold.
It's increadible to read a book from 130 years ago by an early libertarian that describes exactly what so many libertarians today think and why they are doomed to fail.
But what can you expect from a group that believes that property rights is the most important right of all? (as I have been told by libertarians)
American libertarians are for freedom for capital above all else, and thus they aspire to be the ones exploiting others.
American libertarianism is the sad and morally bankrupt side of what started out as a very positive and rich, left-wing philosophy that was full of hope and promise for the future.
Hopefully, one day, libertarians will rediscover their roots.
"Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all."
- Adam Smith, Wealth of Nations
The most interesting thing about this quote is that this idea is one of the primary pillars of thought behind anarchism.
First of all, forget anarcho-punk
. While these kids put out some great music, their idea of anarchy was little more than youth rebellion.
Anarchism, on the other hand, was a fully developed political philosophy that dominated left-wing thought through much of the 19th Century.
Short history of Anarchism
At the heart of any concept of Anarchism is anti-state. As Adam Smith described above, the State is historically used as a cudgel by the wealthy and powerful against the poor and weak.
This idea is not new, it developed with the writings of John Locke and Thomas Paine, but it never really became a philosophy until the French Revolution with the writing of William Godwin.
Interestingly, Godwin was hated and slandered by the conservative press of the time.
Peter Kropotkin, an libertarian-communist of the 19th Century, wrote that Godwin when "speaking of property, he stated that the rights of every one ‘to every substance capable of contributing to the benefit of a human being’ must be regulated by justice alone: the substance must go ‘to him who most wants it’. His conclusion was communism."
The actual term "libertarian", while sometimes used before, can be considered coined by Pierre-Joseph Proudhon, the greatest mind of the Anarchist movement. Starting in 1857, it was the anarchists that brought the concept of "libertarianism" into modern political thought.
You might better recognize Prouhon for two of his famous phrases: "Property is theft" and "Anarchy is order".
Anarchists generally favor workers' associations or co-operatives, as well as individual worker/peasant possession, over private ownership. Most anarchists originally believe that revolution of society could be achieved peacefully, and this is primarily why Proudhon and Karl Marx had a falling out.
Leading anarchist Mikhail Bakunin opposed Marxism, correctly predicting that if a marxist party came to power it would create a dictatorship "all the more dangerous because it appears as a sham expression of the people's will."
It's an almost totally ignored fact that the greatest resistance to the Bolshevik Revolution in Russia wasn't from conservatives and capitalists, but from socialists and anarchists.
There are many flavors of anarchists, and there are many flavors of libertarian, although America only has one - basically anarcho-capitalism.
It seems amazing, given our experience with libertarians today, that their world views could be so diverse at one time
All around the world, but not in the United States, libertarians generally associated themselves with left-wing movements until the 1970's.