The Real Adam Smith

The Scottish philosopher Adam Smith (1723-1790) is known as the "Father of Capitalism" or the "Father of Economics." These titles derive from his most famous work, The Wealth of Nations (1776). In it, Smith describes in detail the manufacturing and distribution system of his day in Europe, and especially Britain, which was then in the first throes of the Industrial Revolution. (Image: Adam Smith)

Smith famously declares the "division of labor" as a main source of growing productivity in his time. His description of how it had brought exponential increases in production in a pin factory is almost legendary. [Image: The Pin Factory]

Smith described the law of supply and demand, and demonstrated its effects on the availability and prices of marketable goods. He argued that competition in a free market would deliver more goods at lower prices than a centrally directed economic system. Things that interfered with the free market, such as monopolies, subsidies, and tariffs should therefore to be eliminated. 

These policies formed part of what historians called the "mercantile system" which also sought to increase wealth from the economic exploitation of colonies. Smith declared that more wealth would be created by free trade with independent nations. He favored granting independence to the thirteen colonies that formed the United States of America in the year his book was published. 

Advocates of unregulated capitalism love to stress these things. But to limit Smith's arguments to them and his metaphorical "invisible hand" that supposedly ensures economic harmony is to caricature and distort his ideas. 

Smith would have been appalled by the gross inequalities produced by the vulture and crony capitalism of our age. To use the now hackneyed term Boris Johnson gave us, Smith was an advocate of "leveling up." The difference is that Smith was sincere. 

Smith's sympathies lay with ordinary people. He famously said that a common street porter was not intellectually inferior to a philosopher. He opposed slavery and imperialism, and condemned gross inequality. Moreover, he was well aware of the real-world consequences of everyday economic actions and decisions. He knew that these consequences could be extremely harsh for those lacking the capital to establish businesses of their own: the vast majority of people. 

Smith praised innovators, but that does not mean he was pro-business. He was pro-consumer, and stressed that the interests of the consumer were often quite different from those of the businessman. "Consumption is the sole end and purpose of all production," he wrote; "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."

His comments on merchants, manufacturers, and traders were often hostile, even scathing. Of course, he famously said that they benefited the nation through the pursuit of their self-interest. By striving to enrich themselves, they produced and distributed the goods consumers needed or wanted: 

"It 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, and never talk to them of our own necessities but of their advantages."

That was the best thing Smith said about the business class: that their pursuit of wealth helped to enrich the nation. Capitalist apologists often claim that Smith favored allowing business to regulate itself. That was far from the case. 

Left to themselves, Smith argued, businessmen would never leave their interests to the mercy of the free market. They would fight for monopolies, protective tariffs, and government subsidies, and they would do everything they could to repress workers wages: 

"Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above the actual rate ... Masters too sometimes enter into particular combinations to sink the wages of labour even below this rate."

Proposals for laws or regulations of commerce emanating from businessmen, he stressed, "ought never to be adopted, till after having been long and carefully examined ... with the utmost suspicion." 

The reason for suspicion? The proposals came from men who had "an interest to deceive or even oppress the public. "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Government tended to abet the predatory instincts of the wealthy in general, whether landed aristocrats or businessmen: "Most government is by the rich for the rich. Government comprises a large part of the organized injustice in any society, ancient or modern. Civil government insofar as it is instituted for the protection of property, is in reality instituted for the defence of the rich against the poor, and for those who have property against those who have none." Marx could not have put it more radically than that.

Smith argued that anything that acted to inhibit free markets was a drag on the economy. That included efforts by workers or employers to stack the economic cards in their favour. But he condemned the efforts of businessmen to protect themselves much more strongly than those of workers.

In any conflict with workers over wages or working conditions, he declared, the employers had the upper hand. Having greater resources, they could survive strikes more easily than the workers. They had other advantages: 

"The masters, being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, while it prohibits those of the workmen ... Whenever the law has attempted to regulate the wages of workmen, it has always been rather to lower them than to raise them." (Governments generally prohibited trade unions well into the 19th century or beyond.)

Smith declared that a just society would ensure that the working classes would be fairly compensated for their labour, which he saw as the ultimate source of wealth: 

"No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity besides, that they who feed, clothe, 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, clothed, and lodged."

Finally, the just society would also mandate a system of graduated taxation based on wealth: "It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but in something more than in that proportion."

It is well past time to relegate the faux Adam Smith, the so-called guru of unregulated capitalism, to the dustbin of history. (Image: Muir's portrait of Smith, done shortly after Smith's death.)

Smith died in 1790 and is buried in the Canongate Churchyard. His grave marker is on the back wall of the church.