Thoughts on economics and liberty

Tag: Adam Smith

Adam Smith’s work was driven by his deep concern for the poor

If you have read BFN you will know that I am motivated to reform India not because I care much for India’s so-called “greatness” (which is a good thing to have, no doubt) but because I care a lot for the poor of India (and of the world).

I don’t want to have to experience the sight of any child standing inside a mound of rubbish to salvage something to sell – or worse: something to eat. If socialism merely meant deep concern for the poor then both Adam Smith and I are socialists.

The great difference between me and Nehru is that I demonstrate care for the poor not by stealing money from your pocket or stopping you from becoming rich, but by asking you to help bring about the conditions by which these poor can be empowered to bootstrap themselves into prosperity. These conditions go by the common term (often mistakenly used), CAPITALISM.

People forget that Adam Smith was primarily a philosopher, not economist. Economics is all fine as a tool, but we must be clear about our moral philosophy, first.

Smith's concern for the poor came out in many ways. For instance, his view on taxation was basically progressive. The first such expression, perhaps (well before Marx): 

"it is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion" [Wealth of Nations]

The poor must therefore not be asked to shoulder the bulk of the costs of running the state (during his time all taxes were regressive: it was only Milton Friedman who first brought about the progressive income tax in the West). (See also:

Smith objected to sheer (reckless, arrogant) greed: "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…"

He was keen that the poor should have access to basic necessities. This was to be primarily achieved through the free market. Necessities including not only goods required for survival, but those commonly believed to be basic to a reasonable life style. This might include linen shirts or leather shoes, goods which he thought all members of the British working class deserved [Source]

It is but equity, besides, that they who feed, cloathe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged. [WN, 79]

Note that (as is the case with the arguments I make): "However, only the direst poverty was of concern to Smith, who thought that, thanks to the 'invisible hand,' it was a rare phenomenon" [Source].

And no natural right accrues to our charity: "A beggar is an object of our charity and may be said to have a right to demand it; but when we use the word right in this way it is not in a proper but in a metaphorical sense". Unlike Marx who thought that violent theft from the rich was acceptable, Smith was totally opposed to violent means. Adam Smith's is therefore DEFINITELY not a concept of positive liberty (which leads to socialism and to the destruction of wealth and freedom).

And so Sandy Baum concludes:

While he never explicitly stated that the government should intervene in favor of the oppressed to facilitate the workings of unbiased market forces, such a conclusion is consistent with Smith's writings [Source].

This understanding is important, particularly in relation to a distorted version of "laissez faire" that was apparently taught to British civil servants of India – which allegedly led them to ignore mass deaths in the many famines that afflicted British India.

I'll briefly comment on these famines presently.

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The exquisite brilliance of Adam Smith

During my doctoral studies I did a lot of mathematical economics but choose also to do a course by Dr John Elliott in Political Economy. His brilliance (despite his inclination to social liberalism, even socialism) was sufficient motivation for me to request him to be a member of my dissertation committee.

Dr Elliott unfortunately died in 2002 (see a tribute by Richard Dayhere andhere). But why I bring him into this discussion is because he knew every word that Adam Smith (and many other thinkers) had written. For instance, in his lectures on Adam Smith he would summarise massive sections of the book and then illustrate through some fascinating extracts – which he would find in an instant by flicking through his heavily dog-eared and annotated copy of The Wealth of Nations . And of course, we had homework – I did manage to read up considerable quantities of the original works of Smith and many other economists (including Marx, the delusional anti-economist). 

I never could finish the entire Smith, though. But these were fascinating times for me. It was my first serious introduction to thinkers like Marx, Mill, and Smith (apart from Nozick, Rawls, and many others), having never learnt the history of economic thought before. A key book we used was by Mark Blaug, another socialist. It was of great interest, then, to discover that Blaug had finally started not only to appreciate but even advocate capitalism. I haven't read Blaug recently, but it would be worthwhile reading him now. A brilliant scholar, he would be able to best summarise why capitalism beats socialism hands down.

Either way, in my mind Adam Smith had already won hands down. No competitor came even close.

In my spare moments (and particularly when my eyes are not hurting too much these days – I'm reading up desperately and trying different remedies, to figure out a cure – and will see a specialist on 17 February), I try to catch up with Adam Smith's work. A lifelong occupation.

Each time I read Smith, I discover some new, extremely modern idea. For instance, the extract below pre-dates Hayek by over 150 years but in this he outlines succinctly the importance of local knowledge. 

Although Smith's work, The Wealth of Nations is huge, his expression is often exquisite, even poetic. Flick though it as if you would the Bible (say), and you are sure to find something of great significance each time!  

In this very short extract, below, Smith outlines some of the most powerful ideas of classical liberalism, and the most direct attack on socialism – which had not yet been invented. Hayek merely clarified Smith. Smith was the original thinker. All others were mere copycats, or elaborators. 

If any country follows ONLY these three paragraphs below, it is GUARANTEED GREAT SUCCESS! I personally guarantee that! 

In fact if Nehru had read ONLY THE FIRST PARAGRAPH, below, he would have created unbelievable wealth in India. Unfortunately, Nehru perhaps never cared to read Smith.


What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

To give the monopoly of the home market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful. It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for.

What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage. 

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A fascinating look at Adam Smith’s life and philosophy

I came across an outstanding review of a new book on Adam Smith, entitled Adam Smith: An Enlightened Life by Nicholas Phillipson.

The review, by Adam Gopnik,originally published in The New Yorker on 18 October 2010 is extremely well written and throws vital light on Adam Smith the great classical liberal.

How to read the review?

I'd like to commend the review to you, which, however, is available at New Yorker only through subscription. If you don't subscribe to the New Yorker, you can read it on Synchrospace (here). (I don't know how the copyright system works in this case!) So go ahead and read it (here).

Just a short extract to stoke your interest:

[T]he idea that people live in groups, and that a shared sense of well-being is essential to an individual’s sense of himself, is at the heart of what Smith learned from him [David Hume]. “Man, born in a family, is compelled to maintain society, from necessity, from natural inclination, and from habit,” Hume wrote. Smith pressed harder at the question of how we do live together. Policing, force, plays a role, but people mostly get along well enough even when the cops are far away. “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it,” Smith wrote.

The key leap between Hume’s thoughts on sympathy and Smith’s thoughts on money took place in the lectures on moral philosophy that Smith gave in the seventeen-fifties, and then turned into “The Theory of Moral Sentiments,” which he published in 1759. For Smith, social sympathy rests on that “principle to persuade which so much prevails in human nature.” His key concept is the idea of an impartial observer who lives within us, and whom we invent to judge our own actions. Sympathy alone, Smith makes plain, isn’t enough to make us good. If we saw our brother or our best friend being tortured on the rack, could we truly sympathize? Not unless we could imagine what it felt like ourselves; it is our own mind that makes us kind. Sympathy isn’t a reflex or a serene internal search; it’s work. Smith’s witness is the imaginary other we install inside ourselves to watch our own behavior.

It was this connection – between the work of being a social being and the work that social beings do – that began to rule Smith’s meditations on the market. For Smith, the market is imaginative sympathy on speed. “Man continually standing in need of the assistance of others, must fall upon some means to procure their help,” a student’s s lecture notes record Smith as saying. “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 love is not sufficient for it, till he applies in some way to your self love. A bargain does this in the easiest manner.”

That last sentence is the really explosive one. A bargain does this in the easiest manner. Where can you find a sympathetic community, people working in uncanny harmony, each aware of the desires of the other and responding to them with grace and reciprocal charm? Forget the shepherds in Arcadia. Ignore the poets in Parnassus. Visit a mall. For Smith the plain-seeing Scot, the market may not be the most elegant instance of human sympathy, but it’s the most insistent: everybody has skin in the game. It can proceed peaceably only because of all those moral sentiments, those imaginary internal judges. That’s what keeps the mob from rushing the Victoria’s Secret and stealing knives from the Hoffritz and looting the Gap. Shopping, which for the church moralist is a straight path to sin, is for Smith a shortcut to sympathy. Money is the surest medium of exchange.

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The virtue of selfishness: an exploration of the concept

Ayn Rand was a truly bold writer, venturing deep into the crevices of concepts of which most mortals had merely skimmed the surface. The idea of self-interest has a long history, starting perhaps with the writings of Machiavelli and expanding into scientific politics with Hobbes. But Adam Smith was its finest proponent. Through his Theory of Moral Sentiments and The Wealth of Nations he wrote about almost the same things that Ayn Rand wrote about, but he was reserved: he did not provoke nor taunt; he did not rip apart opposing ideas of collectivism and flaunt the morality of self-interest.

Thus, in his Wealth of Nations he politely wrote: "It is not from the benevolence of the butcher, the brewer, or the baker, that we canIt is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love." We read this brilliant insight and nod in agreement, unable to realise how deep is this concept's underlying morality. It is almost as if someone has told us something about self-interest in a very circuitous and round-about way. We barely see a fraction of the meaning of this concept through his writings. 

But Ayn Rand was never circumspect nor reserved. She was a gladiator for freedom and would not pull her punches.

So read this extract from the introduction to her book, The Virtue of Selfishness. If nothing else this challenging piece will make you think. Her reasoning is sharper than the sharpest knife. It tears apart all hypocrisy and pretence. No collectivism can possibly survive Ayn Rand's direct attack. Note how she goes on the attack from almost the very beginning of this essay. No wonder she polarised people: either they loved her or hated her. Above all those who hated her could not stomach her guts, for in her writings she remained aloof and didn't care about what anyone thought about her. She brought into this world a bold self-confidence that has put a spring into mankind's step. She showed us that politely offering one's views doesn't help when we are defending ideas as important as morality and freedom. The claims of freedom have to be boldly and vigorously asserted. Her boldness definitely had genius, power, and magic in it!

But note carefully at her great caution. Selfishness is not about whimsy. It is all about freedom WITH RESPONSIBILITY.

=== EXTRACT ===

The title of this book may evoke the kind of question that I hear once in a while: "Why do you use the word 'selfishness' to denote virtuous qualities of character, when that word antagonizes so many people to whom it does not mean the things you mean?" To those who ask it, my answer is: "For the reason that makes you afraid of it." But there are others, who would not ask that question, sensing the moral cowardice it implies, yet who are unable to formulate my actual reason or to identify the profound moral issue involved. It is to them that I will give a more explicit answer.

It is not a mere semantic issue nor a matter of arbitrary choice. The meaning ascribed in popular usage to the word "selfishness" is not merely wrong: it represents a devastating intellectual "package-deal," which is responsible, more than any other single factor, for the arrested moral development of mankind. In popular usage, the word "selfishness" is a synonym of evil; the image it conjures is of a murderous brute who tramples over piles of corpses to achieve his own ends, who cares for no living being and pursues nothing but the gratification of the mindless whims of any immediate moment. Yet the exact meaning and dictionary definition of the word "selfishness" is: concern with one's own interests. This concept does not include a moral evaluation; it does not tell us whether concern with one's own interests is good or evil; nor does it tell us what constitutes man's actual interests. It is the task of ethics to answer such questions.
The ethics of altruism has created the image of the brute, as its answer, in order to make men accept two inhuman tenets:
(a) that any concern with one's own interests is evil, regardless of what these interests might be, and
(b) that the brute's activities are in fact to one's own interest (which altruism enjoins man to renounce for the sake of his neighbors).
For a view of the nature of altruism, its consequences and the enormity of the moral corruption it perpetrates, I shall refer you to Atlas Shrugged – or to any of today's newspaper headlines. What concerns us here is altruism's default in the field of ethical theory.
There are two moral questions which altruism lumps together into one "package-deal":
(1) What are values?
(2) Who should be the beneficiary of values? Altruism substitutes the second for the first; it evades the task of defining a code of moral values, thus leaving man, in fact, without moral guidance.
Altruism declares that any action taken for the benefit of others is good, and any action taken for one's own benefit is evil. Thus the beneficiary of an action is the only criterion of moral value-and so long as that beneficiary is anybody other than oneself, anything goes. Hence the appalling immorality, the chronic injustice, the grotesque double standards, the insoluble conflicts and contradictions that have characterized human relationships and human societies throughout history, under all the variants of the altruist ethics.
Observe the indecency of what passes for moral judgments today. An industrialist who produces a fortune, and a gangster who robs a bank are regarded as equally immoral, since they both sought wealth for their own "selfish" benefit. A young man who gives up his career in order to support his parents and never rises beyond the rank of grocery clerk is regarded as morally superior to the young man who endures an excruciating struggle and achieves his personal ambition. A dictator is regarded as moral, since the unspeakable atrocities he committed were intended to benefit "the people," not himself.
Observe what this beneficiary-criterion of morality does to a man's life. The first thing he learns is that morality is his enemy: he has nothing to gain from it, he can only lose; self-inflicted loss, self-inflicted pain and the gray, debilitating pall of an incomprehensible duty is all that he can expect. He may hope that others might occasionally sacrifice themselves for his benefit, as he grudgingly sacrifices himself for theirs, but he knows that the relationship will bring mutual resentment, not pleasure -and that, morally, their pursuit of values will be like an exchange of unwanted, unchosen Christmas presents, which neither is morally permitted to buy for himself. Apart from such times as he manages to perform some act of self-sacrifice, he possesses no moral significance: morality takes no cognizance of him and has nothing to say to him for guidance in the crucial issues of his life; it is only his own personal, private, "selfish" life and, as such, it is regarded either as evil or, at best, amoral.
Since nature does not provide man with an automatic form of survival, since he has to support his life by his own effort, the doctrine that concern with one's own interests is evil means that man's desire to live is evil-that man's life, as such, is evil. No doctrine could be more evil than that.
Yet that is the meaning of altruism, implicit in such examples as the equation of an industrialist with a robber. There is a fundamental moral difference between a man who sees his self-interest in production and a man who sees it in robbery. The evil of a robber does not lie in the fact that he pursues his own interests, but in what he regards as to his own interest; not in the fact that he pursues his values, but in what he chose to value; not in the fact that he wants to live, but in the fact that he wants to live on a subhuman level (see "The Objectivist Ethics").
If it is true that what I mean by "selfishness" is not what is meant conventionally, then this is one of the worst indictments of altruism: it means that altruism permits no concept of a self-respecting, self-supporting man-a man who supports his life by his own effort and neither sacrifices himself nor others. It means that altruism permits no view of men except as sacrificial animals and profiteers-on-sacrifice, as victims and parasites-that it permits no concept of a benevolent co-existence among men that it permits no concept of justice.
If you wonder about the reasons behind the ugly mixture of cynicism and guilt in which most men spend their lives, these are the reasons: cynicism, because they neither practice nor accept the altruist morality-guilt, because they dare not reject it. To rebel against so devastating an evil, one has to rebel against its basic premise. To redeem both man and morality, it is the concept of "selfishness" that one has to redeem. The first step is to assert man's right to a moral existence-that is: to recognize his need of a moral code to guide the course and the fulfillment of his own life.

For a brief outline of the nature and the validation of a rational morality, see my lecture on "The Objectivist Ethics" which follows. The reasons why man needs a moral code will tell you that the purpose of morality is to define man's proper values and interests, that concern with his own interests is the essence of a moral existence, and that man must be the beneficiary of his own moral actions. Since all values have to be gained and/or kept by men's actions, any breach between actor and beneficiary necessitates an injustice: the sacrifice of some men to others, of the actors to the non-actors, of the moral to the immoral. Nothing could ever justify such a breach, and no one ever has. The choice of the beneficiary of moral values is merely a preliminary or introductory issue in the field of morality. It is not a substitute for morality nor a criterion of moral value, as altruism has made it. Neither is it a moral primary: it has to be derived from and validated by the fundamental premises of a moral system.
The Objectivist ethics holds that the actor must always be the beneficiary of his action and that man must act for his own rational self-interest. But his right to do so is derived from his nature as man and from the function of moral values in human life – and, therefore, is applicable only in the context of a rational, objectively demonstrated and validated code of moral principles which define and determine his actual self-interest.It is not a license "to do as he pleases" and it is not applicable to the altruists' image of a "selfish" brute nor to any man motivated by irrational emotions, feelings, urges, wishes or whims.
This is said as a warning against the kind of "Nietzschean egoists" who, in fact, are a product of the altruist morality and represent the other side of the altruist coin: the men who believe that any action, regardless of its nature, is good if it is intended for one's own benefit. Just as the satisfaction of the irrational desires of others is not a criterion of moral value, neither is the satisfaction of one's own irrational desires. Morality is not a contest of whims. (See Mr. Branden's articles "Counterfeit Individualism" and "Isn't Everyone Selfish?" which follow.)
A similar type of error is committed by the man who declares that since man must be guided by his own independent judgment, any action he chooses to take is moral if he chooses it. One's own independent judgment is the means by which one must choose one's actions, but it is not a moral criterion nor a moral validation: only reference to a demonstrable principle can validate one's choices.
Just as man cannot survive by any random means, but must discover and practice the principles which his survival requires, so man's self-interest cannot be determined by blind desires or random whims, but must be discovered and achieved by the guidance of rational principles. This is why the Objectivist ethics is a morality of rational self-interest-or of rational selfishness.
Since selfishness is "concern with one's own interests," the Objectivist ethics uses that concept in its exact and purest sense. It is not a concept that one can surrender to man's enemies, nor to the unthinking misconceptions, distortions, prejudices and fears of the ignorant and the irrational. The attack on "selfishness" is an attack on man's self-esteem; to surrender one, is to surrender the other.
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