anhailla

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Adam Smith's Soft Side

By Sherrod Brown | Wednesday, December 14, 2005

In the global trade debate, Adam Smith is usually heralded as perhaps history’s greatest proponent of capitalism. Against that backdrop, U.S. Congressman Sherrod Brown, author of "Myths of Free Trade," has a surprising finding. He argues that, contrary to the teachings of Smith's 20th- and 21st-century apostles, the Scottish philosopher more often than not sided with workers.




s Adam Smith wrote in his 18th century book, "The Wealth of Nations," "When the regulation is in support of the workman, it is always just and equitable — but it is sometimes otherwise when in favour of the masters."



Smith advocated high wages as beneficial to employer and employee alike, and he advocated the abolition of slavery.




The distinguished American economist John Kenneth Galbraith said about "The Wealth of Nations:" “It is much celebrated by the ministry of the righteous right, few of whom have read it.


“Were they to do so — disapproval of the corporate form, approval of a wealth tax — they would be greatly shocked.”



The elite vs. the public

Throughout his life, Smith recognized and understood the goals of the elite.


The elite’s interest, he wrote, “is never exactly the same with that of the public, who [the elite] 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 advantages of high wages

He advocated high wages as beneficial to employer and employee alike, and he advocated the abolition of slavery because “the work done by free men comes cheaper in the end than that performed by slaves.”


Two hundred years later, the invisible hand guides an economy driven by consumer behavior and measured by its ever-growing standard of living.




He took this view not so much because of a fear of revolt, but because generally satisfied well-paid workers would create wealth in a society and increase purchasing power for the domestic economy.


“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” Likewise, Adam Smith’s support of free trade seemed contingent on several things. He supported the Acts of Trade and Navigation, requiring British goods to be sent on British ships manned by British sailors.



The merits of tariffs

He believed that tariffs serve a useful purpose. He expressed caution when a nation contemplates lowering tariffs, for an immediate and precipitous reduction could throw large numbers of people out of work.


And he expressed little caution about temporary retaliatory tariffs when one nation had erected major barriers against another to harm that nation.


“The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods,” he wrote.



Selective memory

Economic historians and less-learned editorial writers seem to have forgotten that Smith — in foreign trade as in the domestic economy — believed that his invisible hand could do great harm to a nation and its citizens “unless government takes great pains to prevent it.”

Smith believed that his invisible hand could do great harm to a nation and its citizens “unless government takes great pains to prevent it.”




Two hundred years later, Adam Smith’s invisible hand would guide an economy driven by consumer behavior — occasionally regulated by government — and measured by its consumption and ever-growing standard of living.


Low prices mattered. Comparative advantage — British economist David Ricardo’s theory by which the lowest-cost producer should produce and sell — mattered. The buyer always stood paramount.



Traveling capital

And society’s success was a product of the degree and quantity of purchase. But neither Smith nor Ricardo foresaw the mobility of capital.


They expected capital to remain in the home country, while goods would be produced according to the law of comparative advantage.



The power of production

German economist Friedrich List, on the other hand, saw a different world, a world where a society’s success is defined more by what it could produce than by what it consumed. What is good for consumers today is not necessarily what is good for the country long term.



Government direction — especially in the areas of commercial navigation, national security and military preparedness — were of paramount importance.




“The forces of production are the tree on which wealth grows. The tree which bears the fruit is of itself of greater value than the fruit itself,” List wrote in his seminal 1841 work "The National System of Political Economy."


A nation is not measured by its wealth and its purchasing power, but “in the proportion in which it has more developed its powers of production.”


National interest, List said, should take precedence over cheap consumer goods purchased from a foreign power. Why, he asked, were European powers able to rule and colonize Asia, Africa and Latin America?



Darwinism revisited?

The less-developed countries were not able to make the tools and weapons and machines that they needed. In List’s view, it was not a question of right or wrong, it was simply a question of weak or strong, and he wanted his nation strong.


Other great economic thinkers throughout history have also strongly opposed unrestricted free trade.



A happy medium

As John Maynard Keynes wrote, “Ideas, knowledge, art, hospitality, travel — these are the things which should of their nature be international.

In the last 12 years of his life, Smith worked as a commissioner of customs, a job which charged him with “obstructing imports into Scotland.”




"But let goods be homespun whenever it is reasonably and conveniently possible, and above all, let finance be primarily national.” Free trade should never override local customs, laws, environmental protection and local rights. National interest also mattered a great deal to Adam Smith.


Regulation of the invisible hand and direction from the government — especially in the areas of commercial navigation, national security and military preparedness — were of paramount importance.



Domestic investment

Smith argued that investment at home produces “more revenue and employment” than investment in foreign trade.


“By preferring the support of domestic to that of foreign investment, [the capitalist] intends only his own security — and by directing that industry in such a manner as its produce what may be of the greatest value, he intends only his own gain, and he is in this, as in many other issues, led by an invisible hand to promote an end which was no part of his intention.”



Monopolistic mercantilism

Four score and some years later, Abraham Lincoln echoed Smith’s assertion: “Abandonment of the protective policy by the American Government must result in the increase of both useless labor, and idleness — and so, in proportion must produce want and ruin among our people.”



"The Wealth of Nations is much celebrated by the ministry of the righteous right, few of whom have read it."




Smith was most opposed to mercantilism. He saw merchants set up large corporate monopolies like the East India Company.


He seemed to be a free trader sometimes and an anti-free trader other times.


But he was never a mercantilist. “The government of an exclusive company is perhaps the worst of all governments for any country whatever.”



Smith’s true outlook

In the last 12 years of his life, Smith, as if to convince history of his true sentiments, worked as a commissioner of customs in Edinburgh, a job which charged him with “obstructing imports into Scotland” and enforcing Great Britain’s protectionist trade policy, mostly aimed at the fledgling, new country across the Atlantic.


“To expect that freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or a Utopia should ever be established in it,” he told succeeding generations.


Adapted from the book "Myths of Free Trade: Why American Trade Policy Has Failed" by Sherrod Brown, copyright © 2004. Reprinted by arrangement

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anhailla

Mr Malky and Mr DRS....if you do not respond to my thread...

I will cry

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Oscar Wilde

Malkavian

....Much like the Bible

On higher wages:
Higher wages are beneficial in the long term... in the short term, moving manufacturing back to the US will result in higher prices and reduced purchasing power.

On tariffs:
Adam Smith was writing when US was a deadbeat nation/colony facing British economic power... So lol, no wonder he was sympathetic to tariffs... He wasn't stupid.

On traveling capital:
There nothing wrong with traveling capital as such. However, in a true free market freedom of capital must be accompanied by the freedom of labor. That is not the case. Chinese peasant has far less opportunity to come to US seeking better wage than a US firm looking to invest in China. So unless outsourcing nations completely abolish their immigration laws, i'd say developing nations should be free to place restrictions on capital movement.

On List:
While List is correct about industrial capacity and colonialism (well, there was a political dimension to that but anyway...)... such economic nationalism is what lead to WWI, so i'm not sure we want to go that road again.

On domestic investment:
In the current conditions, domestic investment is superior to export led growth. It will remain the case as long as fiat money (such as USD) serve as a global reserve currency. If the currency is fixed in value (ie gold standard) and is freely convertible/investable (unlike USD), i would expect export and domestic development to be about the same.

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Malkavian

There. Don't cry please

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Looks like i picked the wrong week to quit sniffing glue

anhailla

what's your game Malky?
Are you for "true" free markets or do you believe, as it seems most of the major economic thinkers did...that government intervention will always be neccessary?

__________________
...either I go, or that wallpaper does.

Oscar Wilde

DRS112

lol

Adam Smith like any revolutionary writer must be taken into the context of his time. Also I don't have the context of what he was saying other than a few quotes taken out of context and your link doesn't work. His writing were revolutionary to be sure...but not the beginning and the end. Further you can take anything that anybody similarly heralded...like when you see creationist trumpet how Darwin was religious or whatever...or Aristotle advocating a philosopher king instead of a representational govt. The point is what their theories spurred...and compared to merchantilism and govt. control his theories were revolutionary...but just the first of many.

The_Heretic

There's no mistaking Smith's statements regarding the benefits to companies who pay their employees a decent wage.

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DRS112

kind of leaves me shrugging my shoulders....decent? who is the arbiter on decent? The people that choose to work for those wages? The company? somebody else?

anhailla

Adam Smith's Soft Side by Sherrod Brown - The Globalist > > Global Trade

this link should work, not sure what happen with my last one...
thanks much for pointing it out

__________________
...either I go, or that wallpaper does.

Oscar Wilde

anhailla

Imo...decent means a wage that one can support themselves on.
food, clothing, shelter, healthcare, transportation...etc,
now ideally...a "worker" will make enough of a wage to also have "capital" to spend in a supposed "capitalist" society

wasn't that the whole idea?

we could start there anyhow.

__________________
...either I go, or that wallpaper does.

Oscar Wilde