WE ALL know about Adam
Smith, don’t we? The "high priest of capitalism",
"the founder of modern economics", a believer in
"laissez faire" economics, and in favour of a "Night
Watchman State" reduced to minimal expenditure.
Oh, yes, says who? Well,
actually, say a lot of 19th-century writers taking selected quotes
from Smith’s writings and using them to claim his support for
business misbehaviour and spendthrift governments.
But a look back at Adam
Smith’s actual work shows him to be a supporter of society’s
weakest members, in favour of government investment in physical and
social infrastructure and indeed a man who wouldn’t have known the
meaning of the word "capitalist".
Surprises await those
searching for the real Adam Smith, his life and his ideas. He was a
complex man, deeply private and disinclined to hog the limelight. He
perfected an actor’s role of the absent-minded professor.
Modern economics developed
a century after Smith died in 1790. He neither knew the word
"capitalism" nor what we mean by it.
He never advocated complete
freedom for business to do whatever it wanted, no matter what the
social costs. He did, however, support government investment in major
areas, including roads, harbours, defence, education and health.
Smith wanted the state to
act in the public interest, but remained sceptical that state
officials would know when it was time to stop interfering, that
politicians would not become tyrannical, or that businessmen would
refrain from acting selfishly.
The world that Adam Smith
studied didn’t have large-scale manufacturing or highly complex
money markets.
It was agricultural, with a
smattering of growing businesses peopled by artisans, traders and
common labourers.
Its factories were cottage
rooms, small workshops and forges, not dark satanic mills.
Smith took the long view,
seeing the growing commercialism of mid-18th century Britain as
evidence of a revitalised commerce after an interregnum of over a
thousand years following the fall of the Roman Empire.
He looked backwards to
before 500AD, not forwards to the 19th century, his writing filled
with examples from classical Greece and Rome.
He did predict that by 1870
the rebellious American colonies would become the most powerful
economy on Earth, but based his extraordinary prediction on wealthy
American agriculture, not its tiny industry.
BUT if his views were based
on pre-industrial economics, his social beliefs were well ahead of his
time. He equated civilisation with moral self-control, and recognised
society’s inequities, although without advocating what should be
done about them.
He believed that for the
individual, serving the best interests of others also best served
their own interests, and considered markets to be the most powerful,
and moral, instruments for spreading domestic and international
harmony.
He suspected the motives of
"fanatics" and "legislators" who regarded human
society as a "great chess board" where people were to be
moved about as if they were wooden objects.
People are not like that,
he said, they have free will. And he warned all "schemers and
dreamers" that when they cannot "conquer the rooted
prejudices of the people by reason and persuasion, they must not
attempt to subdue them by force".
Smith exhibited sympathy
for the common poor. He scorned the idle rich landlords, who reaped
what they never sowed.
He railed against the
monopolising ways of his business associates, their conspiracies
against poor labourers who were governed by laws designed to keep them
in their places.
Labourers, he observed,
suffered unfairly from laws prohibiting them from combining to raise
their wages, while there were no laws against their employers
combining to lower them.
He considered no society
could be harmonious while the great mass of the labouring poor, who
created everything, was kept in poverty, bereft of a fair share in
what it created.
This is a very different
man from the one portrayed by 19th-century economists claiming his
support of business misbehaviour and spendthrift governments.
Smith did not have a heart
of stone, and to consider him otherwise is to squander his moral
legacy.
Not that he was a soft
touch. Smith saw wealth creation as a realistic opportunity to raise
incomes for the poor and everybody else too. He favoured higher taxes
on the rich, but also thought everybody could, and should, gain from
economic growth.
HE favoured investment in
roads, harbours, clean water and drainage, but this was to support the
individual efforts of thousands of farmers and small businesses to
grow the economy.
He wanted government to
fund (though not to manage) a school in every village so that all
children could become literate and numerate, with the brightest,
irrespective of their family circumstances, going on to universities.
He even advocated government intervention in the treatment of
contagious diseases.
Long before the Industrial
Revolution and the long struggle to mediate the balance of power
between employees and employers, Smith outlined an ethical social and
economic programme aimed at achieving a wealth-creating society based
on the rule of law, personal liberty and representative democracy.
That capitalism created the
highest per capita incomes ever known in history is not in doubt. But
if, instead of relying on isolated quotations from Adam Smith’s
works used to justify the worst vestiges of human behaviours in the
19th century, and still so used in the 21st century, what a difference
it would make if we took his real advice and merged secular
democracies and ethical conduct in our open market economies.
That would be a true
realisation of Adam Smith’s moral legacy.
• Gavin Kennedy is professor and director of
contract at the Edinburgh Business School, Heriot-Watt University, and
author of Adam Smith’s Lost Legacy, to be launched on March 15 and
published by Palgrave Macmillan
