What Adam Smith's economic theory was really about.

[Kablooie]

Conservatives hold up Adam Smith's economic theories as the model that we follow in the U.S.
They believe that if government allows unfettered freedom for corporations to act in their own best interest that it will create the best society for everyone.

Well, this is an excerpt from a review of a new biography about Adam Smith.

'Smith, after all, did not offer up his economics in opposition to collectivism, which did not really emerge until the subsequent century. His adversary was mercantilism—by which each of the European powers set market rules that served the interests of a few large domestic manufacturers and trading companies working closely with the government. Mercantilism thus put economic policy in the service of the national interest, in order to advance the nation’s trading position. Smith believed this was counterproductive. Instead, he argued, legislators should govern the market in the interest of the common consumer. This was his key economic insight. As he put it:

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer.

By turning the logic of mercantilist economics on its head and establishing a market designed for the good of the common citizen, Smith believed governments could both unleash immense productivity and wealth and create economic institutions that encouraged discipline, moderation, and order in an open society. This would mean drawing a clear distinction between “pro-market” economic policy and “pro-business” economic policy, and Smith believed there were few threats to the moral order of a liberal society greater than the entanglement of the government with the nation’s largest producers.

That distinction has been lost in our time. In recent decades, the federal government has too often sought to advance the nation’s economic interests by tying itself to our largest corporations. What the left derides as crony capitalism and the right derides as state capitalism has been the policy of Republican and Democratic administrations alike, particularly since the economic crisis of 2008. The Bush administration’s bailouts of large Wall Street firms and the joint Bush-Obama bailouts of the nation’s largest automakers were the epitome of such entanglement. And the Obama administration’s economic reforms—empowering the largest health insurers over smaller competitors in last year’s health-care reform and the largest financial companies over smaller competitors in last year’s financial regulation reform—have taken this approach to new heights.'

Smith was much more savvy than our current crop of economists.

Read more:
http://www.tnr.com/book/review/adam-smith-nicholas-phillipson

[Myrina]

1. The US doesn't have 'unfettered capitalism' ... FAUX et al seems to overlook that

When corporations can buy legislation that favors them over other businesses, it's not 'free and fair capitalism'.

[Kablooie]

4. The bigger you are, the more freedom you get. Freedom to buy legislators is part of the deal.

[The Magistrate]

2. An Excellent Piece, Sir

"The laboring people are necessarily the greatest portion of society, and what is beneficial to the most numerous part cannot be adverse to the whole."

[TahitiNut]

6. The more things change, the more they stay the same ...

""We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. 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...Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people" In contrast, when workers combine, "the masters..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 combination of servants, labourers, and journeymen." (Wealth of Nations {of course})

[The Magistrate]

9. Indeed, My Friend: Mr. Smith Is More On Our Side Than Otherwise, Read Deeply

He can be counted in favor of progressive taxation, eing of the view that the better off gain more benefit from the ordinary processes of government than do the poor, and ought to pay accordingly; his strictures against government interference in markets, on close reading, are denunciations of laws merchants get governments to pass for their own benefit, and he is in favor of various safety regulations, such as fire-walls between adjoining houses, and restrictions on the denomination of paper money in circulation (the latter being, in context of the time, a safe-guard against fraud on par with regulation of bond issues nowadays).

[Ghost Dog]

12. ... And (more) progressive banking ...

"It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country."

[hootinholler]

13. Had the term been in use then, I believe he would have used it plainly and emphatically

The term? Fascism. The same collective of the mercantile class of which he so strongly states is unhealthy for an economy.

-Hoot

[nadinbrzezinski]

3. and as I like to point out often

the hand of the marketplace comes out ONCE in the whole book, followed by two pages of caveats.

[wurzel]

5. One thing seldom mentioned about Adam Smith

He actually warned about ever allowing Capitalists to gain political power.

[aquart]

7. Uh, he was also dead wrong.

"Smith believed there were few threats to the moral order of a liberal society greater than the entanglement of the government with the nation’s largest producers." True. But.

"Unfettered freedom" creates exactly the situation Smith warned against. It allows for the building of enormous wealth unfettered by expenses such as health and safety for both worker and consumer. This wealth is then used to buy government complaisance.

A "market designed for the good of the common citizen" is a market that is intensely regulated at every phase and that can only be by the government. Why? Because a "free" market regulates by death. If the point of national government is protection and encouragement of the well being of its citizens, and it damn well should be, then the government MUST step in and prevent those deaths which means very intense regulation.

Or do you think that Smith would be thrilled with China, where the government turns a blind eye until hundreds die and then it executes someone? Their economy is going gangbusters. Their children are poisoned.

[TahitiNut]

10. The Silk Road had "unfettered freedom" until traders finally got regulation.

Clearly, going back even further, it has been frequently proven that strong regulation without favoritism of any kind has been the sole basis for successful markets.

[JDPriestly]

11. Smith was not a god. Smith was just a human being with some good and some bad ideas.

[TahitiNut]

8. Proof-texting is a substitute for academic rigor on the right.

Academic rigor (i.e. integrity) being beyond their ken.

[Kablooie]

14. Just like with the Bible, conservatives use parts out of context and ignore the overall message.