Adam Smith again and a few more miracles

Gavin Kennedy, Adam Smith enthusiast after my own heart e-mailed me recently to tell me of a weblog post he’d done after reading a column of mine on on-line opinion (the longer version of which was posted at troppo) arguing that economic and social success comes not from a preponderance of self interested or of co-operative behaviour and attitudes, but from the quality of the dialectic between them. It’s an excellent post in my opinion. (Click here and search for the heading “More welcome ideas from Australia”)

If I manage to make the time I will have more to say about the marvelous quote that he points me to in his post. As Kennedy points out “the “fundamental error” among modern economists” is that Smith believes that markets are driven by self-interest “when in fact they are driven by its mediation, even its neutralisation or suspension”. Here is the Smith quote Kennedy provides from his Lectures on Jurisprudence given more than a decade before Wealth of Nations was published (though Wealth of Nations sat in Smith’s draw for the best part of a decade itself).

Many continually standing in need of the assistance of others, must fall upon some means to procure their help. This he does not merely by coaxing and courting; he does not expect it unless he can turn it to your advantage or make it appear to be so. Mere self-love is not sufficient for it, till he applies it in some way to your self-love. A bargain does this in the easiest manner. When you apply to a brewer or butcher for beer of for beef you do not explain to him how much you stand in need of these, but how much it would be in 1 interest to allow you to have them for a certain price. (emphasis added)

For now I’ll respond to Kennedy’s comment that, in reading my column, “First, ignore the hyperbole of the use of “miraculous”. I don’t want to style this as a disagreement with Kennedy, because if it is a disagreement it’s trivial compared with the agreement. It seems to me that our response to the word really just reflects different things that we’re trying to do (and our feeling about the politics of what we’re trying to persuade others of.) But I do want to reassert the ‘M’ word and I don’t think its hyperbole.

For me it is quite fundamental to assert as often as necessary that capitalism is a miracle. This thought came to me with particular force in a debate on Troppo and via private e-mail with Mark Bahnisch and Chris Sheil on Imanuel Wallerstein. In reading Wallerstein and others of his ilk it struck me how ridiculous was their constant rehearsal of the evils of capitalism. Not that capitalism doesn’t have evils. Not that we shouldn’t probably be devoting most of our energies to trying to alleviate them. But Wallerstein et al are clearly writing within an ideological and peer group code in which the incredible achievements of capitalism are not the backdrop of the critique of capitalism.

But, hey guys, have a think. Have a think about what was going on before capitalism, about what has gone on in the modern world without it. Have a think about what capitalism has done to alleviate poverty in the world. Capitalism is the great miracle of modern times. We should be grateful every day. It is to me completely miraculous that it works and that it does so as it must if it is to succeed as a whole social system. It has to work at the level of our economy and also has to garner political support. And to be really good it has to work in a democratic state. It does all this.

I think Smith was saying something like this and of course he was also a powerful critic of the worst of modern capitalism. He commented with great force about its tendency to dehumanise workers caught up at the pointy end of the division of labour (sorry for the weak pun his example of the division of labour is a pin factory). He wanted higher wages and wasn’t hostile to the idea of workers operating as a cartel to raise their wages and improve their conditions (I’m not necessarily a supporter of this but things are very different now). He wanted the state to invest in education etc.

However, at a deeper level, Smith’s project was to document and argue that his ‘system of natural liberty’ represented the workings of a benign Nature being played out in human beings. He argued that it provided a way of mediating human nature to bring about a parallel ascent of opulence, safety, civility, freedom, autonomy and virtue. Smith’s thought his system had someting of the beauty and power of Newton’s theory of gravity.

an immense chain of the most important and sublime truths, all closely connected together by one capital fact, of the reality of which we have daily experience.

That’s Smith describing Newton. Its also what he hoped he might achieve in writing The Wealth of Nations according to the “Newtonian Method” by building a theory of economics and civilisation from the single postulate that us humans had an innate drive to connect and communicate with each other to mutual advantage which, in the economic sphere was played out as the tendency to “truck, barter and exchange”.

I think he succeeded.

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2024 years ago

It is most unfortunate that so much talk about economics has revolved around criticisms of capitalism on one side and talk about the way that “the market will decide” on the other. It would be more helpful for leftwing folk to address their criticisms to the full deck of the laissez faire agenda which has at least three components. (1) a set of freedoms, including the freedom to exchange goods and services, (2) the rule of law and (3) a moral framework includng things like honesty and compassion.
As for markets, these are best conceived as the process (or the place) where people exchange goods and services. The market decides nothing, it is people who decide, what they want and how much they want to charge/pay for it. Of course under some circumstances, usually with the help of the state, monopolies or other exploitive situations can arise, and these circumstances provide a part of the agenda for reform. Usually the necessary reform involves stripping special intersts of privileges that the state has assigned to them.
Strangely enough, many people who hate capitalism love to set up market stalls to trade their craft goods and other wares, or just going to the market to see what bargains are on offer.

Nicholas Gruen
2024 years ago


I’m happy to hop into the Wallersteins of the world, but I don’t regard the market as a neutral theatre in which all that happens is that people’s preferences get satisfied. It certainly IS the case that capitalism has provided a miraculous way of getting people’s economic preferences satisfied. But the left’s concern with other things markets do seems perfectly OK to me. (As for instance is Catholic teaching about some of the human inadequacies of markets).

My only quibble with what I’ll call for want of a better word the ‘vulgar’ left in this post was that if one wants to criticise and improve on the market, I want to start from a very firm understanding of the incredible benefits that markets have brought and continue to bring us. I expect there’s the odd throw-away line in Wallerstein et all that says this, but their heart and their rhetoric is most decidely contrary to this.

Then again, the Wallerstein aside (two paras in the post) was intended as an aside. I’d be interested in comments on the rest of what I was trying to get at.

2024 years ago

It seems sacriligeous but aren’t we heading for the Mother of all Market Failures? That is, within our lifetimes major institutions will not be able to afford the water and fuel they have come to depend on. It doesn’t seem like the system has shown foresight or got the prices right. I prefer the ecological to the faith based model; it allows for major stuff ups.