The Ideological Distortions of the ‘Invisible Hand’ | Adam Smith #1
The Glasgow Moral Philosopher vs. The ‘Free-Market’ Economic Doctrinaire
Do you believe in Adam Smith? The fantastic vitality of a ‘free-market’ economy? The mysterious power of the “invisible hand”? The revolutionary effect on productivity brought about by the ‘division of labor’?
Are you convinced, AT ALL, of the mainstream economists’ euphoria for Capitalism? Of the consensus around the soaring efficiency and the vigorous growth as a result of a ‘market economy’? Of the destructive effect of government regulations on the amazing engine for progress? Of the persuasiveness in the teachings of — Adam Smith?
Well, stop. First of all, which ‘Adam Smith’ do you have in mind when you blindly follow the steps of others in the first place? I’ve looked. There is no voice above your head at the zenith telling you the exactly and objectively ‘right’ interpretation of Smith, as far as the stars or the bluebirds are concerned.
And throw all of your notes that you took from some forgotten professors, or textbooks written by the same crew of people, away in the garbage. Ask yourself, if you’re certain AT ALL, by the virtue of Smith’s writings alone: what did he say?
In a series of essays, this will be precisely the question that we shall address by directly examining the works and ideas of Adam Smith, the only son of a solicitor and prosecutor, and related scholarships around this faithful yet complicated preacher of the Scottish Enlightenment.
The ‘Invisible Hand’
But the people who wear the Adam Smith tie are not doing so to honor literary genius. They are doing so to make a statement of their devotion to the idea of free markets and limited government. What stands out in WofN, however, is that their patron saint was not pure or doctrinaire about this idea…
– Herbert Stein, the 9th Chair of the Council of Economic Advisers in the Nixon administration and the Ford administration ¹ ²
As one of the earliest modern economists, if not the ‘Father of Economics’, whose status can demonstrate the intriguing effects of the distortion mechanism in western society that’s often characterized by political reverence, Adam Smith is widely regarded as the champion of the so-called ‘free-market’ economics and ‘laissez-faire’ governance, so much so that the neoliberal think tank instrumental in shaping British conservative public policies, the Adam Smith Institute (ASI), was named after him. However, for such a dogmatic portrayal of the figure, anybody that hasn’t gone through the purgatory trials of economics courses in college may find a hard time not to give a second thought about whether these biblical revelations in “economic science” are the fanciful imaginations of the patron saint himself, or of the false prophets.
In the renowned introductory textbook, Principles of Microeconomics, N. Gregory Mankiw, a neoliberal economist who served in the second Bush administration and the Robert M. Beren Professor of Economics at Harvard University, invoked an elementary concept in Economics called the ‘invisible hand’. The concept, which, in Mankiw’s words, is “the most famous observation in all of economics”, was taken from Adam Smith’s “celebrated” An Inquiry into the Nature and Causes of the Wealth of Nations, supposedly for the purpose of establishing the basic law to explain the functionality of a market economy. It was defined as follows: if “[h]ouseholds and firms” rationally judge the “prices when deciding what to buy and sell”, they wouldn’t only result in “desirable market outcomes”, but also “maximize the well-being of society as a whole”. In other words, by pursuing “self-interest”, the “participants in the economy” would unknowingly “promot[e the] general economic well-being” (Mankiw, 2001).
While it is true that there are a lot of similar definitions/interpretations of the phrase, sometimes even come into conflict with one another, it’s more important to note that neither of the two key founders of neoclassical economics in the Anglo-sphere, William Stanley Jevons, and Alfred Marshall, ever used the term in their works and textbooks. Nor was this phrase noted or quoted in the works of any notable economists roughly until the turn of the 19–20th century (incl. Thomas Malthus, David Ricardo, Jean-Baptiste Say, J. C. L. Sismondi, James Mill, John R. McCulloch, John Stuart Mill, Frédéric Bastiat, Pierre-Joseph Proudhon, Karl Marx, Henry George). Till this day, the root of this interpretative theory is still unclear, but the first noticeable case can be found in the 1948 textbook, Economics, which was written by a Neo-Keynesian economist, Paul Samuelson³, though the context in which Samuelson used the term was rather more critical than not. As he stated, “the mystical principle” was an “unguarded conclusion” that’s not only “too often” been required to “remember” in “college course in economics”, but “has done almost as much harm as good in the past century and a half” (Samuelson, 1948).
However, the perception of Smith as an advocate for ‘free-market’ capitalism goes back much earlier. In an article on Aeon, Glory Liu, a fellow in Social Studies at Harvard University and “a postdoctoral research associate at the Political Theory Project at Brown University”, observed: Adam Smith was “invented and reinvented by different people, writing and arguing in different times, for different purposes.” She traced the ideological reverence of Smith to Dugald Stewart, “Smith’s first biographer” who “downplayed” certain parts of his work that questioned existing political authorities like the “merchants” and “religion” while “cherrypick[ing]” his arguments for laissez-faire governance, “mark[ing] the beginning of Smith’s association with ‘conservative economics’”. From here onwards, the political spectrum of the politicians who advocated for their policies in the name of Adam Smith for political appeal extended from ‘free-trade’ platforms of Gov. George McDuffie, a spokesperson for the Jacksonian Nullifier Party in South Carolina, to “those who championed protectionism” like the Whig and Republican Rep. Edward J. Morris from Pennsylvania (Liu, 2019-a & Liu, 2018).
The catchphrase popularity of the ‘invisible hand’, and, perhaps, its association with greed as a moral good, on the other hand, can arguably be attributed to the second generation of the Chicago School of Economics, particularly Milton Friedman and George Stigler. Liu suggests that the two Chicago economists propagandized and legitimized their interpretation of ‘self-interest’ in the name of Adam Smith. Without directly using the term, Stigler praised Smith’s supposed advocacy for “self-interest” as “‘Newtonian in its universality’” and the “‘crown jewel’” of his work; Friedman directly defined the “‘invisible hand’” as “[Smith’s] vision of the way in which the voluntary actions of millions of individuals can be coordinated through a price system without central direction” (Friedman, 1977); despite that their mentors, Frank Knight and Jacob Viner, “treated Smith as a complex thinker whose ideas could not — and should not — be reduced to the doctrine of ‘laissez-faire’”, and cautioned against politicizing Smith as a neoliberal icon (Liu, 2019-b).
Notice, as this essay will point out later, that every economist mentioned so far fundamentally misunderstood the original meaning of the phrase, the ‘invisible hand’, even for those who are known for their ideological antipathy towards neoliberalism. Such was the case with the New Keynesian economist, Joseph Stiglitz, a fierce critic of globalization who deemed the phrase as a “neoliberal fantasy” in defense of “our exploitive capitalism” (Stiglitz, 2019). Even as the ‘About’ page of the ASI recognized that The Wealth of Nations isn’t an “endorsement of economic greed,” and that Smith thought of “human nature” as “complex” rather than merely selfish, it still holds that the “[s]elf-interest” is a “force for good” that “drive[s] the economy”, in which “the poor” “benefits [the] most” from the so-called “economic and social freedom”, without any clarification or qualification of the statement nor any empirical evidence for support (“About Adam Smith”, n.d.).
History aside, to see the flaws in the Mankiw-Friedman interpretation of a phrase that appeared only once in The Wealth of Nations, as well as another occasion in his earlier work first published in 1759, The Theory of Moral Sentiments, which most economists seem to forget, it is necessary to first demonstrate Mankiw’s textbook quote, reproduced as follows:
“Every individual . . . neither intends to promote the public interest, nor knows how much he is promoting it. . . . 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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it” (Mankiw, 2001).
However, analyzing the original passage in The Wealth of Nations, in which the phrase was applied, we find crucial parts missing in Mankiw’s quote:
“But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; 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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it” (Smith, 2007).
While clearly seeing that the way in which the term was used is largely metaphorical, it’s true that Smith stressed the importance for this logic of the ‘invisible hand’, whatever it means, to be accepted seriously and generalized in “many other cases”. What he didn’t say, however, is that the logic should be applied in all cases, as with the natural laws of Newtonian Physics, which Stigler and probably other economists propounded. Now, Smith didn’t exactly specify here to what extent should this logic be applied for “every individual”, let alone in public policy, but the context in which the metaphor was used gave us an insightful example of how Smith himself applied the term to which he was famous for. Therefore, we shall start by analyzing Smith’s own usage of the term, and look for more cues from other similar instances where the same subject, the merit of self-interest, was involved.
First, looking into the quote, Smith did lay out the precondition, at least “in this” case of international trade, for the results of the individual ‘self-interest’ to correlate with the promotion of the public good, that is, in direct contradiction to the policy agenda of ‘capitalist globalization’ that lines and lines of neoliberal crusaders like Mankiw himself preached — the capitalists’ preference in “support of domestic to that of foreign industry”. In contrast to the original text, regardless of whether the decision was intentional or otherwise, Mankiw sliced Smith’s rationale off with his magical ellipses, leaving only the skeletons of his conclusion: the advantage of spontaneous individual decision-making free from state coercion, with the specific context of international trade and the assumptive role of human psychology, which in this case — ‘home bias’ (not homesickness, but the cost and risk associated with distance), completely absent. The same omissions were to be found in every other textbook compiled, including those by Samuelson, McEachern, McConnell, Shapiro, and Mateer (McEachern, 2006; McConnell, Flynn, & Brue, 2009; Shapiro & Greenlaw, 2018; Mateer & Coppock, 2014). In fact, the chapter in which the passage was referenced from is precisely on the subject of trade protections⁴ rather than on the role of the ‘self-interest’ in relation to the public good per se. Yet, most orthodox economists seem to be more possessed in a few cherry-picked quotes than the actual content.
Just earlier in the same chapter, Smith stated that “by restraining… the importation of such goods from foreign countries” that the home market is already capable of producing and supplying, through “high duties or” “absolute prohibitions”, “the monopoly of the home market” can be secured for the “domestic industry” with “great encouragement” that would lead to the “employment” of “a greater share of both the labour and stock of the society.”
Smith argued this was the result of “the study of [individuals’] own advantage”, which might not necessarily be advantageous for society in subjective views, would nevertheless “naturally, or rather necessarily” lead them to the preference that’s the “most advantageous to the society.” Most orthodox economists, as we’ve seen just earlier, might suggest this quote to be an inviolable law of nature, with little to no regard for what specific reasons and in what context Smith meant in the quote.
As it turns out, however, two reasons were immediately attributed by Smith thereafter: (1) “every individual endeavours to employ his capital as near home as he can”, given the merchants’ “uneasiness” of “being separated so far from” their capital that can’t be under their oversight, and the “extraordinary” cost of oversight in “the carrying trade” as partly the result of trade protections; (2) “every individual who employs his capital in the support of domestic industry, necessarily endeavours so to direct that industry that its produce may be of the greatest possible value”, given that “the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry”, which means that the “capital employed in the home trade” “necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country, than an equal capital employed in the foreign trade of consumption”. For the latter reason, Smith stated that the benefits of “the capital employed in the home market” for the domestic industry isn’t necessarily the original and subjective intent of this capital employment but rather “only his own security”. Thus, without intending it, the merchant capitalists were, almost by accident yet completely predictable, promoting “the public interest” as if they’re “led by an invisible hand” (Smith, 2007).
His proof for the presence of ‘home bias’ as the psychological motivation that resulted in this correlation is a bit long and produced below for those interested:
“In the home trade his capital is never so long out of his sight as it frequently is in the foreign trade of consumption. He can know better the character and situation of the persons whom he trusts, and if he should happen to be deceived, he knows better the laws of the country from which he must seek redress. In the carrying trade, the capital of the merchant is, as it were, divided between two foreign countries, and no part of it is ever necessarily brought home, or placed under his own immediate view and command. The capital which an Amsterdam merchant employs in carrying corn from Konigsberg to Lisbon, and fruit and wine from Lisbon to Konigsberg, must generally be the one half of it at Konigsberg and the other half at Lisbon. No part of it need ever come to Amsterdam. The natural residence of such a merchant should either be at Konigsberg or Lisbon, and it can only be some very particular circumstances which can make him prefer the residence of Amsterdam. The uneasiness, however, which he feels at being separated so far from his capital generally determines him to bring part both of the Konigsberg goods which he destines for the market of Lisbon, and of the Lisbon goods which he destines for that of Konigsberg, to Amsterdam: and though this necessarily subjects him to a double charge of loading and unloading, as well as to the payment of some duties and customs, yet for the sake of having some part of his capital always under his own view and command, he willingly submits to this extraordinary charge; and it is in this manner that every country which has any considerable share of the carrying trade becomes always the emporium, or general market, for the goods of all the different countries whose trade it carries on. The merchant, in order to save a second loading and unloading, endeavours always to sell in the home market as much of the goods of all those different countries as he can, and thus, so far as he can, to convert his carrying trade into a foreign trade of consumption. A merchant, in the same manner, who is engaged in the foreign trade of consumption, when he collects goods for foreign markets, will always be glad, upon equal or nearly equal profits, to sell as great a part of them at home as he can. He saves himself the risk and trouble of exportation, when, so far as he can, he thus converts his foreign trade of consumption into a home trade. Home is in this manner the centre, if I may say so, round which the capitals of the inhabitants of every country are continually circulating, and towards which they are always tending, though by particular causes they may sometimes be driven off and repelled from it towards more distant employments. But a capital employed in the home trade, it has already been shown, necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country, than an equal capital employed in the foreign trade of consumption: and one employed in the foreign trade of consumption has the same advantage over an equal capital employed in the carrying trade. Upon equal, or only nearly equal profits, therefore, every individual naturally inclines to employ his capital in the manner in which it is likely to afford the greatest support to domestic industry, and to give revenue and employment to the greatest number of people of his own country” (Smith 2007).
Without contending the tenability of the ‘home bias’ argument, it should be explicit that this is far from the Mankiw-Friedman interpretation of the ‘invisible hand’, not only the determinants ascribed by Smith in his example and the outcomes that they lead to are not aligned with the agenda of globalization, but also, for the philosopher of mind himself, the rationale based upon empirical psychology is in direct contradiction to the rational choice theory of the neoclassical economics that presumes perfect and equal knowledge of every economic agent: Smith assumes the individuals as inevitably flawed in knowledge, resulting in the tendency towards their “own security” (risk aversion) and their cluelessness of societal impact. It was perfectly understood at the time that it is nothing but an unsurprising fact that the current field of science and philosophy is utterly incapable of explaining extremely complex phenomenon of the human mind (or, for that matter, human nature), such as the cognitive origins of motivation and ‘self-interest’, or in his words, “of which no further account can be given”.
Don’t take my words, take Smith’s. In his earlier work, The Moral Sentiments, the phrase ‘invisible hand’ was also mentioned, but the message conveyed through the metaphor might rather confuse the orthodox economists’ understanding of ‘self-interest’ even more, as it is not at all confined to greed and selfishness but, for Smith, on the contrary, “sympathy”. Despite the “natural selfishness and rapacity” of the “rich” “landlord[s]”, who “only select from the heap what is most precious and agreeable”, Smith says, they are nevertheless “obliged to distribute [the necessaries of life] among” their subordinates in “nearly the same” way that “would have been made had the earth been divided into equal portions among all its inhabitants”. In this process, “without intending it, without knowing it,” the rich landlords are “advanc[ing] the interest of the society” as if they’re being “led by an invisible hand”. Similar to the usage of the phrase in The Wealth of Nations, the public interest, in this case it is the obligation for the subordinates, was unintentionally secured by the realizations of ‘self-interest’, except the term has hardly anything to do with greed and selfishness, but their opposite, involving what Smith called the “love of system” (traditions and customs). In addressing the obscure nature of the motive for this re-distributive process, Smith explained: the landlords were “eager to promote the happiness of [their] fellow-creatures, rather from a view to perfect and improve a certain beautiful and orderly system than from any immediate sense or feeling of what they either suffer or enjoy”, just as “a patriot exerts himself for the improvement of any part of the public police, his conduct does not always arise from pure sympathy with the happiness of those who are to reap the benefit of it” (Smith, 1853).
Of course, theory isn’t the whole picture. But what this illustrates is not so much what’s widely considered the worship of greed as the free and spontaneous element both inherent in human nature and socially conditioned in traditions and institutions. Sympathy, in this sense, is completely compatible within Smith’s conception just as well as greed and other complex elements of human psychology. The key, therefore, lies not in the metaphor ‘invisible hand’ itself, but its real-world implications, as the late John Kenneth Galbraith stated:
“The reference to the invisible hand has for many a mystic overtone: here is a spiritual force that supports the pursuit of self-interest and guides men in the market so to the most benign of ends. So to believe does Smith a grave disservice; the invisible hand, the most famous metaphor in economics, was just that, a metaphor. A man of the Enlightenment, Smith did not resort to supernatural support for his argument… in our own time, the market has, indeed, acquired a theological beneficence; Smith would not have approved” (Galbraith, 2017).
Indeed, upon examining Smith’s actual implications in society, one can conclude with certainty that he bitterly condemns the merits of greed and selfishness. In an earlier chapter of The Wealth of Nations, Smith referred to the selfish tendency of “[a]ll for ourselves and nothing for other people” as “the vile maxim of the masters of mankind”, which is apparent in its negative connotation. The context in which this commentary was conveyed revolved around the flourishing but vicious effects of “foreign commerce and manufactures”, which encouraged “the great proprietors” to utilize the surplus produce of the land in market exchange for their own desire, thereby abandoning the traditions and customs of sharing the surplus with their fellow subordinates, whose labor are the very source of the real values in their products seized by landlords as labor surpluses. In Smith’s own words, because of “the gratification of the most childish, the meanest, and the most sordid of all vanities”, rather than employing this surplus produce for those in need, the landlords would use it in exchange for something “frivolous and useless” like “a pair of diamond buckles”, which would “be all their own”, leading to the erosion of the social fabric that naturally compelled them into a kind of general interests in providing security for their subordinates (Smith, 2007).
But, as a nuanced and subtle thinker, Smith was no mercantilist either. In terms of public policy, he was highly skeptical of the role of the state in “direct[ing] private people” on economic decisions that individuals themselves can “judge much better than any statesman or lawgiver”, which not only would lead to the “most unnecessary attention” but subsequently the decrease in the general trust in government. Regulations such as “the monopoly of the home market”, much as it may be instrumental in promoting the trade advantage of “a particular manufacture” much “sooner than it could have been otherwise”, “must” be “either… useful or… hurtful” “in almost all cases”.
The promotion and security of the domestic industry and its employments are rather the natural and inevitable results of the psychology of ‘home bias’ and does not depend upon the mercantilist regulations whatsoever. He says, “[t]hough the same capital never will maintain the same quantity of productive labour in a distant [employment] as in a near employment,” for many of such “nearer employments” to carry on, foreign goods might prove to be “necessary”. In this, Smith sees both the advantages of domestic capital investment and employment, and its limitations that can only be remedied through some foreign investment and employment. However, in either way, rather than letting “both capital and industry” promote “their natural employments” “of its own accord… with the greatest possible rapidity”, “the sum total… of its industry, or of its revenue” certainly can not be “augment[ed]” but to be “diminishe[d]” as “the immediate effect of every such regulation.”
Notice that this is not the same as professing that market competition, if left unregulated, will automatically result in the nirvana of optimal equilibrium — there is no such thing as an equilibrium for Adam Smith and other Classical economists. If there must be any such thing, it is the natural price of goods determined by labour time, an empirically supported theory that’s universally rejected and bashed by mainstream economics. Furthermore, Smith’s mixed view of ‘free trade’ nowhere amounts to the level of an ideological doctrine, which “can only be sustained by a distortion of Smith” (Meeropol, 2004). If anything, it should be the empirical effects of the policies that Smith tends towards that should be taken seriously, which led him to the policies in the first place, as opposed to ideology and doctrine. In fact, it was acknowledged, with the exception of “the rude produce of the soil” (husbandry and agriculture), that:
“If the free importation of foreign manufactures were permitted, several of the home manufactures would probably suffer, and some of them, perhaps, go to ruin altogether, and a considerable part of the stock and industry at present employed in them would be forced to find out some other employment.”
Nor was this a capitalist manifesto, defending the so-called ‘success stories’ of private tyranny. At the core of the neoliberal conception of politics in economics is the false dichotomy between the oppressive state control and free capitalist enterprise, which was somehow often been attributed to Smith. In an essay modestly named and translated as “The General Theory of Surpluses as a Formalization of the Underlying Theoretical Thought of Adam Smith, His Predecessors and His Contemporaries”, Maurice Allais, a ‘Nobel’ Laureate, considered Smith’s Wealth of Nations as “a stinging criticism of interventionism by governments.” The “one fundamental guiding idea,” he claimed, is “that the free decentralized action of economic agents in a system of competition and private property brings advantages for each of them. In Smith’s own famous words, each one, moved by his selfish interest, is in reality led by an ‘invisible hand’ to satisfy the interests of all the others [and] constantly brings the economy towards a situation of coherent interdependence where a certain ‘optimum’ is realized” (Allais, 2005).
Is it? One can imagine Smith turning over in his grave in reaction to this passage. With class as the basic components of economic analysis in Classical economics rather than merely individuals and firms, Smith was no less skeptical of the capitalist class than the state. The main political issue at stake, for him, is rather the capture of the state by the capitalist class. In fact, it is the “merchants and manufacturers” who are “the contrivers of this whole mercantile system”, “the principal architects” of the very policies Smith devoted the book in critiquing, whose interest “has [predictably] been most peculiarly attended to” while the interest of “the consumers… [and] some other sets of producers, has been sacrificed to it.” The mercantile regulations, Smith asserted, were so designed to precisely serve the interest of those who designed them (Smith, 2007).
As a matter of fact, Smith wasn’t against state intervention altogether: he actually advocated for some regulatory measures that most of his ardent followers would never dare to imagine. Take the case of the ‘division of labour’. Smith was known for favorable comments on the division of labor in the opening chapters in The Wealth of Nations, in which it was credited for leading to “[t]he greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied”. And by cherry-picking and stressing such commentary in universities, it has been utilized to rationalize the regime of Capitalism as, to some limited degree of accuracy, an efficient system for progress and innovation (which would certainly collapse without the lavish aid from the nanny state). However, what’s rarely been taken notice of is Smith’s comments against the “division of labour” later in the text, in which the only solution suggested was the government prevention of such practice (if readers take his words at their face value). He says, parallel to the early Marx’s theory of alienation, due to the absence of the opportunity to develop and utilize their “understanding” for creative “invention” within such a mode of production, “the great body of the people,” “whose whole life is spent in performing a few simple operations,” “naturally loses” and “generally becomes as stupid and ignorant as it is possible for a human creature to become.” The “torpor of his mind” that the process of “the division of labour” brought about not only would disable the workers from having “any rational conversation”, “conceiving any generous, noble, or tender sentiment”, and “forming any just judgment”, but also “corrupts the courage of his mind” and “the activity of his body”. And “unless [the] government takes some pains to prevent it”, “the labouring poor” “in every improved and civilised society” would inevitably sacrifice their “intellectual, social, and martial virtues” (Smith, 2007).
With respect to class, the rich and powerful, including the capitalist class, are precisely the ones who receive the strongest distrust from the thinker. “[W]hoever imagines… that masters rarely combine, is as ignorant of the world as of the subject.” Smith observed, echoing Karl Marx’s theory of capitalist exploitation roughly a century later: “Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate… sometimes enter into particular combinations to sink the wages of labour even below this rate”, driving the “desperate… workmen”, those “servants, labourers, and journeymen” “who must either starve, or frighten their masters into an immediate compliance with their demands”, into “tumultuous combinations” with the “recourse” of “the loudest clamour, and sometimes to the most shocking violence and outrage.”
“The masters upon these occasions are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen. The workmen, accordingly, very seldom derive any advantage from the violence of those tumultuous combinations, which, partly from the interposition of the civil magistrate, partly from the necessity superior steadiness of the masters, partly from the necessity which the greater part of the workmen are under of submitting for the sake of present subsistence, generally end in nothing, but the punishment or ruin of the ringleaders.”
And I would highly encourage all to read the exposition of capitalist exploitation and conspiracy against the public that Smith explained with such eloquence in full:
“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. Their superiority over the country gentleman is not so much in their knowledge [capitalists’] of the public interest, as in their having a better knowledge of their own interest than he has of his [country gentleman’s]. 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. 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. 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.”
The exact point can also be reflected from Smith’s Lectures on Jurisprudence (aka. Lectures on Justice, Police, Revenue and Arms), written in 1763 and published posthumously. In the words of an economic historian from Connecticut College, in these lectures that “display on almost Marxist quality” (especially in the similarities in the conception of history), “[a] close reading… shows that there are two basic types of rules and regulations which Smith argues should be eliminated: those that are antiquated and outmoded; and those which were basically made by and for the interest of the rich and powerful. It is these two particular sets of rules and regulations which Smith argues should be repealed; not any and all government rules and regulations” (Pack, 1994). Wouldn’t it be ironic to see the most adamant and fanatic preachers of Smith are precisely those that are the most enthusiastic in advocating for the business interest? As J. K. Galbraith once remarked:
“Devout free enterprisers in our day, who genuflect the mentions of Adam Smith’s name, rarely base their sermon on this particular text” (Galbraith, 1977).
Being one of these “enterprisers”, Milton Friedman once bragged about his patron saint’s “skepticism” against the active pursuit of public interest in a famous 1970 New York Times opinion article, using it to support a ‘critique’ against the (somehow) so-called “pure and unadulterated socialism”, short for the businesses’ “responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers” (or essentially anything that would normally be seen as centrist or even right-wing in all developed countries except the U.S.), making nonsensical logical extensions such as “it is hard for ‘good’ people to do ‘good[’ in a free society,] but that is a small price to pay for making it hard for ‘evil’ people to do ‘evil,’ especially since one man’s good is another’s evil” (Friedman, 1970). Commenting on the interest of the capitalist class, Smith stated:
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.”
“Merchants and manufacturers are the people who derive the greatest advantage from this monopoly of the home market. The prohibition of the importation of foreign cattle, and of salt provisions, together with the high duties upon foreign corn, which in times of moderate plenty amount to a prohibition, are not near so advantageous to the graziers and farmers of Great Britain as other regulations of the same kind are to its merchants and manufacturers.”
“I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it” (Smith 2007).
Taking Smith’s words into context, my guess is that a three-year-old could see that the subject matter here is what George W. Bush’s favorite philosopher, Jesus Christ, famously called ‘hypocrisy’. Friedman is absolutely correct to point out the contemptible nature of the capitalist enterprise, and such genuineness is indeed rare for his profession and shall be lavishly congratulated. Besides that, there is no need whatsoever to further elaborate to demonstrate the fallacious naivety of the ‘Friedman doctrine’. If the same logic was applied, it is as if Mr. Friedman would devoutly advise a fascist dictator not to impose parliamentary democracy upon the freedom-loving people, for it is not considered within the interest of the political class. And if history has any valuable lesson for any student who preaches the ‘freedom to choose’, it would be a great disservice to any discipline to overlook the sordid records of the ‘Chicago Boys’, all of whom were mentored by Mr. Friedman and/or other crops of neoliberal doctrinaires, in shaping the policies of Pinochet’s junta in Chile, or what was called “structural adjustment” by the IMF and the World Bank, during a period of brutal authoritarian oppression that the neoliberals proudly referred to as the ‘Miracle of Chile’, after a violent coup staged by the CIA that overthrew the democratically-elected Marxist president, Salvador Allende, in September 11th, 1973.
“[P]olitical freedom, once established, has a tendency to destroy economic freedom.”
— Milton Friedman, in a 1991 lecture ⁵
[1]: Stein, H. (1994, April 6). Board of Contributors: Remembering Adam Smith. The Wall Street Journal (Eastern Edition). https://isip.piconepress.com/courses/msstate/ece_8463/projects/1998_spring/data/lm_training/wsj94_001.text
[2]: Lee, M. (2006, June 9). Adam Smith Did Not Wear an Adam Smith Necktie. The Progressive Economics Forum. https://www.progressive-economics.ca/2006/06/adam-smith-did-not-wear-an-adam-smith-necktie/
[3]: Later in collaboration with William Nordhaus for editions from 1985 onwards.
[4]: The chapter was named: “Of Restraints upon the Importation from Foreign Countries of such Goods as can be produced at Home” (Smith 2007).
[5]: Friedman, M. (1992). Economic Freedom, Human Freedom, Political Freedom [Lecture transcript]. The Hoover Institution.
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