Has Adam Smith been reimagined by capitalists?

[FreeFocus]

I often come across Noam Chomsky stating (as he did here (http://informationclearinghouse.info/article22546.htm)) that Adam Smith was basically anti-capitalist, and his thinking has been distorted and reimagined by capitalists today. I'm yet to read the Wealth of Nations, but is Chomsky correct in his analysis?

[Die Neue Zeit]

His economic thinking (the notion of "free markets") was distorted since about WWI or so:

http://www.revleft.com/vb/classical-economic-rent-t103272/index.html

[IcarusAngel]

The betrayal of Adam Smith (from when corporaitons ruled the world):

It is ironic that corporate libertarians (http://www.pcdf.org/corprule/assault.htm) regularly pay homage to Adam Smith as their intellectual patron saint, since it is obvious to even the most casual reader of his epic work The Wealth of Nations that Smith would have vigorously opposed most of their claims and policy positions. For example, corporate libertarians fervently oppose any restraint on corporate size or power. Smith, on the other hand, opposed any form of economic concentration on the ground that it distorts the market's natural ability to establish a price that provides a fair return on land, labor, and capital; to produce a satisfactory outcome for both buyers and sellers; and to optimally allocate society's resources.

Through trade agreements, corporate libertarians press governments to provide absolute protection for the intellectual property rights of corporations. Smith was strongly opposed to trade secrets as contrary to market principles and would have vigorously opposed governments enforcing a person or corporation's claim to the right to monopolize a lifesaving drug or device and to charge whatever the market would bear.

Corporate libertarians maintain that the market turns unrestrained greed into socially optimal outcomes. Smith would be outraged by those who attribute this idea to him. He was talking about small farmers and artisans trying to get the best price for their products to provide for themselves and their families. That is self-interest, not greed. Greed is a high-paid corporate executive firing 10,000 employees and then rewarding himself with a multimillion-dollar bonus for having saved the company so much money. Greed is what the economic system being constructed by the corporate libertarians encourages and rewards. [See An Economic System Dangerously Out of Control (http://www.pcdf.org/corprule/failure.htm).]

Smith strongly disliked both governments and corporations. He viewed government primarily as an instrument for extracting taxes to subsidize elites and intervening in the market to protect corporate monopolies. In his words, "Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.'' Smith never suggested that government should not intervene to set and enforce minimum social, health, worker safety, and environmental standards in the common interest or to protect the poor and nature from the rich. Given that most governments of his day were monarchies, the possibility probably never occurred to him.

The theory of market economics, in contrast to free-market ideology, specifies a number of basic conditions needed for a market to set prices efficiently in the public interest. The greater the deviation from these conditions, the less socially efficient the market system becomes. Most basic is the condition that markets must be competitive. I recall the professor in my elementary economics course using the example of small wheat farmers selling to small grain millers to illustrate the idea of perfect market competition. Today, four companies--Conagra, ADM Milling, Cargill, and Pillsbury--mill nearly 60 percent of all flour produced in the United States, and two of them--Conagra and Cargill--control 50 percent of grain exports.

In the real world of unregulated markets, successful players get larger and, in many instances, use the resulting economic power to drive or buy out weaker players to gain control of even larger shares of the market. In other instances, "competitors" collude through cartels or strategic alliances to increase profits by setting market prices above the level of optimal efficiency. The larger and more collusive individual market players become, the more difficult it is for newcomers and small independent firms to survive, the more monopolisitic and less competitive the market becomes, and the more political power the biggest firms can wield to demand concessions from governments that allow them to externalize even more of their costs to the community.

Given this reality, one might expect the neoliberal economists who claim Smith's tradition as their own to be outspoken in arguing for the need to restrict mergers and acquisitions and break up monopolistic firms to restore market competition. More often, they argue exactly the opposite position--that to "compete" in today's global markets, firms must merge into larger combinations. In other words, they use a theory that assumes small firms to advocate policies that favor large firms.

Market theory also specifies that for a market to allocate efficiently, the full costs of each product must be born by the producer and be included in the selling price. Economists call it cost internalization. Externalizing some part of a product's cost to others not a party to the transaction is a form of subsidy that encourages excessive production and use of the product at the expense of others. When, for example, a forest products corporation is allowed to clear-cut government lands at giveaway prices, it lowers the cost of timber products, thus encouraging their wasteful use and discouraging their recycling. While profitable for the company and a bargain for consumers, the public is forced, without its consent, to bear a host of costs relating to water shed destruction, loss of natural habitat and recreational areas, global warming, and diminished future timber production.

The consequences are similar when a chemical corporation dumps wastes without adequate treatment, thus passing the resulting costs of air, water, and soil pollution to the community in the form of health costs, genetic deformities, discomfort, lost working days, a need to buy bottled water, and the cost of cleaning up contamination. If the users of the resulting chemical products were required to pay the full cost of their production and use, there would be a lot less chemical contamination in our environment, our food and water would be cleaner, there would be fewer cancers and genetic deformities, and we would have more frogs and songbirds. If the full cost of producing and driving cars were passed on to the consumer we would all benefit from a dramatic reduction in urban sprawl, traffic congestion, the paving over of productive lands, pollution, global warming, and depletion of finite petroleum reserves.

There is good reason why cost internalization is one of the most basic principles of market theory. Yet in the name of the market, corporate libertarians actively advocate eliminating government regulation and point to the private cost savings for consumers while ignoring the social and environmental consequences for the broader society. Indeed, in the name of being internationally competitive, corporate libertarians urge nations and communities to increase market distorting subsidies--including resource giveaways, low wage labor, lax environmental regulation, and tax breaks--to attract the jobs of footloose corporations. An unregulated market invariably encourages the externalization of costs because the resulting public costs become private gains. In the end it seems that corporate libertarians are more interested in increasing corporate profits than in defending market principles.
The larger the corporation and the "freer" the market, the greater the corporation's ability to force others to bear its costs and thereby subsidize its profits. Some call this theft. Economists call it "economies of scale."

Neva Goodwin, ecological economist, head of the Global Development and Environment Institute at Tufts University, and an advocate of cost internalization, puts it bluntly. "Power is largely what externalities are about. What's the point of having power, if you can't use it to externalize your costs--to make them fall on someone else?"

Corporate libertarians tirelessly inform us of the benefits of trade based on the theories of Adam Smith and David Ricardo. What they don't mention is that the benefits the trade theories predict assume the local or national ownership of capital by persons directly engaged in its management. Indeed, these same conditions are fundamental to Adam Smith's famous assertion in The Wealth of Nations that the invisible hand of the market translates the pursuit of self-interest into a public benefit. Note that the following is the only mention of the famous invisible hand in the entire 1,000 pages of The Wealth of Nations.


By preferring the support of domestic to that of foreign industry, he [the entrepreneur] intends only his own security, and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Smith assumed a natural preference on the part of the entrepreneur to invest at home where he could keep a close eye on his holdings. Of course, this was long before jet travel, telephones, fax machines, and the Internet. Because local investment provides local employment and produces local goods for local consumption using local resources, the entrepreneur's natural inclination contributes to the vitality of the local economy. And because the owner and the enterprise are both local they are more readily held to local standards. Even on pure business logic, Smith firmly opposed the absentee ownership of companies.


The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own .... Negligence and profusion, therefore, must always prevail, more or less in the management of the affairs of such a company?
Smith believed the efficient market is composed of small, owner-managed enterprises located in the communities where the owners reside. Such owners normally share in the community's values and have a personal stake in the future of both the community and the enterprise. In the global corporate economy, footloose money moves across national borders at the speed of light, society's assets are entrusted to massive corporations lacking any local or national allegiance, and management is removed from real owners by layers of investment institutions and holding companies.

It seems a common practice for corporate libertarians to justify their actions based on theories that apply only in the world that by their actions they seek to dismantle. Economist Neva Goodwin suggests that neoclassical economists have invited this distortion and misuse of economic theory by drawing narrow boundaries around their field that exclude most political and institutional reality. She characterizes the neoclassical school of economics as the political economy of Adam Smith minus the political and institutional analysis of Karl Marx:


The classical political economy of Adam Smith was a much broader, more humane subject than the economics that is taught in universities today.... For at least a century it has been virtually taboo to talk about economic power in the capitalist context; that was a communist (Marxist) idea. The concept of class was similarly banned from discussion.
Adam Smith was as acutely aware of issues of power and class as he was of the dynamics of competitive markets. However, the neoclassical economists and the neo-Marxist economists bifurcated his holistic perspective on the political economy, one taking those portions of the analysis that favored the owners of property, and the other taking those that favored the sellers of labor. Thus, the neoclassical economists left out Smith's considerations of the destructive role of power and class, and the neo-Marxists left out the beneficial functions of the market. Both advanced extremist social experiments on a massive scale that embodied a partial vision of society, with disastrous consequences.

If corporate libertarians had a serious allegiance to market principles and human rights, they would be calling for policies aimed at achieving the conditions under which markets function in a democratic fashion in the public interest. They would be calling for an end to corporate welfare, the breakup of corporate monopolies, the equitable distribution of property ownership, the internalization of social and environmental costs, local ownership, a living wage for working people, rooted capital, and a progressive tax system. Corporate libertarianism is not about creating the conditions that market theory argues will optimize the public interest, because its real concern is with private, not public, interests.

http://www.pcdf.org/corprule/betrayal.htm

Also see:
Milton Friednman unmasked:
http://sjlendman.blogspot.com/2007/10/capitalism-and-freedom-unmasked.html

[Die Neue Zeit]

Meh, I prefer the anti-rent argument.

[Lynx]

He (Chomsky) has some choice words regarding the educational system that should be taken note of.

[Invariance]

Yeah, Adam Smith was anti-capitalist, and Lenin was bourgeoisie and anti-worker. Got to love Chomsky.

I'll try and reply later on but for now I've got to go.

[JimFar]

Yeah, Adam Smith was anti-capitalist, and Lenin was bourgeoisie and anti-worker. Got to love Chomsky.

I'll try and reply later on but for now I've got to go.

I am not sure that I would describe Smith as anti-capitalist, but I do think that he would have disliked the way that capitalism evolved after his time for pretty much the same reasons that Chomsky cited. And while Smith on the one hand celebrated the economic benefits of the division of labor as it was evolving during his lifetime, he was also quite aware of its negative consequences as well in terms of the alienation and dehumanization of workers.

As I once wrote on this board a couple of years ago:
---------------------------------------------------
Another issue you might wish to concern you with is Smith's views concerning the division of labor. Now every schoolchild knows that Smith argued that the development of the division of labor was essential to continued economic growth. Smith begins his case for that thesis right away in the the first chapter of Book I (of The Wealth of Nations). What lots of people don't recognize is that Smith also outlined a critique of the effects that an intensified division of labor has on workers; a critique that in some respects anticipated the one Marx would make later on. This kernel of a critique was presented by Smith in Book V. There Smith wrote:

In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become... His dexterity at his own particular trade seems to be acquired at the expense of his intellectual, social, and martial virtues. But in every improved and civilised society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.

Smith proposed to relieve these deleterious effects of the division of labor by having the state provide education to the workers. Karl Marx while appreciative of Smith's analysis of the deleterious effects of the division of labor referred scornfully to Smith’s modest proposals for educating the workers as consisting only of the administration of “homoeopathic doses.” Nevertheless, Smith did provide a sophisticated and nuanced treatment of the division of labor in both its positive and negative aspects that remains a model of sophisticated social analysis.

[Invariance]

I often come across Noam Chomsky stating (as he did here (http://informationclearinghouse.info/article22546.htm)) that Adam Smith was basically anti-capitalist, and his thinking has been distorted and reimagined by capitalists today. I'm yet to read the Wealth of Nations, but is Chomsky correct in his analysis?

No he's not, although Chomsky raises some good points which I would agree with. However, neoclassical economics has the classical in it for a reason, and it would be more dishonest for someone to claim Smith as an anti-capitalist than for someone to claim Smith as a defender of 'corporate capitalism.'

Smith is similar to modern economics in that:

1) He is critical of monopolies:

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....

The interest of dealers in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it

2) And like modern economics Smith was also critical of government intervention in the economy (which, in his time, wasn't too different from being critical of monopolies, since monopolies were really government sanctioned companies with exclusive trade rights).

3) A firm supporter of division of labour. His analysis of this involved two separate areas. Firstly, specialisation of the labour force that brought the 'greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is any where directed or applied.' This subdivision of labour presupposed a society where production for exchange existed. Hence subsistence economies restricted the division of labour. Therefore, the division of labour was limited by the extent of the market. Measures to widen that market - geographically by transport or communication, or economically - through the removal of trade restraints - allowed a further division of labour.

Smith's concept of division of labour extended to those 'employed in useful labour and those not so employed.' This was relevant to capitalist accumulation which was the foundation for economic growth. Marx also examined the difference between productive and unproductive labour, yet differed from Smith in that Smith regarded the production of tangible objects as a precondition for being a productive worker and that those production of commodities gave rise to a surplus. This is what also differed him from the Physiocrats. Modern economics isn't really concerned with this distinction at all, since it holds no labour theory of value.

4) The concept of self-interest as motivating economic behaviour. 'It is not of the benevolence of the baker that we get our bread.' However, differs from modern economics in that he does not follow a methodological individualist approach.

Smith differs from modern economics in that:
1) Has as his basis of analysis class; capitalists, landlords and workers. Modern economics avoids classes altogether.

2) Employs more of a historical materialist approach, whereas modern economics largely ignores political economy and focuses on abstract models, largely devoid of historical experience.

3) So far as value-theory is concerned, Smith drew a distinction between value in use and value in exchange (the whole 'diamond versus water' problem) and distinguished between 'natural price' and 'relative price.' Smith applied a labor theory of value, but it really only had application in a primitive state of society:

'In the early and rude state of society which precedes both the accumulation of stock (capital) and the appropriation of land, the proportion between the quantities of labour necessary for acquiring different objects seems to be the only circumstance which can afford any rule for exchanging them for one another. If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a dear, one beaver should naturally exchange for or be worth two deer.'

4) Smith ran into problems, however, when trying to measure the quantity of labour required for a commodity, the intensity or skill of the particular labour must be taken into account. Smith attempted to solve the problem by reducing time, hardship, and ingenuity to a common denominator by holding that differences in time, hardship and ingenuity are reflected in the wages paid to labour; the wage will reflect differences in skill or ingenuity. However, this merely restates the problem. The purpose of value theory is to explain the forces that determine relative prices, but wages themselves are one of a number of prices in an economy. He is begging the question, he is saying that a good has value according to the wages paid to labour and not according to the quantity of labour contained in the good. One set or prices, wages, is used to explain another set. This is circular reasoning.

Hence, the application of the labour theory was limited to a primitive society. He did apply it to an advanced economy where final prices were made up of payments of wages, profits and rents. The size of each of these shares also had a natural level:
When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market according to their natural rates, the commodity is then sold for what may be called its natural price.

The commodity is then sold precisely for what it is worth, or for what it really costs the person who brings it to market ...

5) There were problems with this approach, hence Smith veered towards away from 'command over labour' theory and towards a cost production theory of relative prices. Smith also recognised the role of supply and demand, however supply had a stronger role in his analysis.

This is a second difference to modern economics - Smith found that average costs do not increase with increases in output, which gives us a constant or horizontal supply line. Modern economics, with the law of diminishing marginal utility, differs from this. However, as Sraffa demonstrated in 1926, the classical school was right on this account (and has been empirically supported too). As Keynes pointed out, 'it is rare for anyone but an economist to suppose that price is predominantly governed by marginal cost.'

6) Was critical of landowners who loved 'to reap where they never sowed' and as given to 'indolence which is the natural effect of the ease and security of their situation'.

7) Wrote about the tendency of the rate of profit to fall over time. Briefly, it would fall over time for three reasons: 1) Competition in the labour market, 2) Competition in the commodity market, 3) Competition in the investment market. Increased wages, increased competition among produces, limited opportunities of investment. Some data supported his conclusions, some didn't (e.g North American colonies which had high wages and high profits).
It is true that Smith was writing at a time where the mercantilist thought was most dominant - stage regulation of the market which Smith saw as damaging economic output. It is true that this extended to monopolies. Few here have mentioned that Smith also extended the attack on government intervention to the Poor Laws. At the time the Poor Laws required residence within a parish as a condition for eligibility which Smith argued restricted mobility of labour and thwarted economic growth. Smith was also a defender of an unequal distribution of income and private property since capital accumulation depended on it, and if capitalists received on the same amount as workers, which Smith maintained was a subsistence amount, that capital accumulation, and therefore growth, would not occur.

That being said, Smith did recognise that labour is at a disadvantage in the wage-bargaining process. Since there are fewer employers than employees, they can group together to strengthen their position, which is why employer groups were allowed and unions not, and why there were laws against raising wages but not against lowering them. 'Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment.' Hence, employees are at an inherent disadvantage.

The above article mentions that Smith only writes of the 'invisible hand' once in the Wealth of Nations. This is true. However, he uses similar analogies and reasoning. However, his case against mercantilism and for laissez faire rested on the assumption that competition maximised growth. But effective competition could only be taken for granted in an atmosphere of economic expansion. Hence, there were restrictions to his argument.

JimFar mentions Smith's recognition that the division of labour creates a class of detached clones. But modern economics, where it does mention Smith, also mentions this "critique" of the division of labour (probably more aptly called an apology) - and even the most vulgar economic books do. Yet for Smith, the 'undivision of labour' was problematic too:

A man commonly saunters a little in turning his hand from one sort of employment to another. When he first begins the new work he is seldom very keen and hearty; his mind, as they say, does not go to it, and for some time he rather trifles than applies to good purpose. The habit of sauntering and of indolent careless application, which is naturally, or rather necessarily acquired by every country workman who is obliged to change his work and his tools every half hour, and to apply his hand in twenty different ways almost every day of his life; renders him almost always slothful and lazy, and incapable of any vigorous application even on the most pressing occasions. Independent, therefore, of his deficiency in point of dexterity, this cause alone must always reduce considerably the quantity of work which he is capable of performing.
I don't think his analysis of it is particularly sophisticated - writers before Smith argued from moralistic grounds of the nature of capitalism to destroy social relations. I'll quote the whole passage on it, however:
In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues. But in every improved and civilised society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.
However, Smith's treatment of the issue, in my mind, reeks of elitism. A kind of nonchalant attitude that those 'inferior ranks of people' should be educated so as to avoid superstition and that intelligent people are inherently 'decent':
The same thing may be said of the gross ignorance and stupidity which, in a civilised society, seem so frequently to benumb the understandings of all the inferior ranks of people. A man without the proper use of the intellectual faculties of a man, is, if possible, more contemptible than even a coward, and seems to be mutilated and deformed in a still more essential part of the character of human nature. Though the state was to derive no advantage from the instruction of the inferior ranks of people, it would still deserve its attention that they should not be altogether uninstructed. The state, however, derives no inconsiderable advantage from their instruction. The more they are instructed the less liable they are to the delusions of enthusiasm and superstition, which, among ignorant nations, frequently occasion the most dreadful disorders. An instructed and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one. They feel themselves, each individually, more respectable and more likely to obtain the respect of their lawful superiors, and they are therefore more disposed to respect those superiors. They are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition, and they are, upon that account, less apt to be misled into any wanton or unnecessary opposition to the measures of government. In free countries, where the safety of government depends very much upon the favourable judgment which the people may form of its conduct, it must surely be of the highest importance that they should not be disposed to judge rashly or capriciously concerning it.
Its interesting noting in Marx's writings where he comments on the effectiveness of the 'compulsory' system of education which was introduced, noting that even some of the 'teachers' couldn't write their names. The article IcarusAngel quotes has some good points. But it forgets the point that modern economics has nothing to do with 'corporate libertarians.' Austrians are a heterodox group of economics. Whilst they share some of the footings of economics, e.g. marginalism, they differ on other issues (e.g monopoly) as well as methodology. Economics hasn't 'betrayed' Adam Smith because economics isn't the Austrian school. Economists still argue that the small competitive firm is best. I do think its rather pathetic that some liberals try and claim Adam Smith as one of their own. He was a product of his time; arguing against the remenants of fedualist economics whilst only exposed to the manufacturing period of capitalism and not the full motion of the Industrial Revolution and large-scale factory production.

[heiss93]

I think Adam Smith's chapter on how capitalists as a class collude to prevent rising wages, is pretty radical
http://www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book01/ch08.htm

This could have come right out of Das Kapital


It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.
We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and one may say, the natural state of things, which nobody ever hears of. Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy, till the moment of execution, and when the workmen yield, as they sometimes do, without resistance, though severely felt by them, they are never heard of by other people. Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen; who sometimes too, without any provocation of this kind, combine of their own accord to raise the price of their labour. Their usual pretences are, sometimes the high price of provisions; sometimes the great profit which their masters make by their work. But whether their combinations be offensive or defensive, they are always abundantly heard of. In order to bring the point to a speedy decision, they have always recourse to the loudest clamour, and sometimes to the most shocking violence and outrage. They are desperate, and act with the folly and extravagance of desperate men, who must either starve, or frighten their masters into an immediate compliance with their demands. The masters upon these occasions are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen. The workmen, accordingly, very seldom derive any advantage from the violence of those tumultuous combinations, which, partly from the interposition of the civil magistrate, partly from the necessity superior steadiness of the masters, partly from the necessity which the greater part of the workmen are under of submitting for the sake of present subsistence, generally end in nothing, but the punishment or ruin of the ringleaders.
But though in disputes with their workmen, masters must generally have the advantage, there is, however, a certain rate below which it seems impossible to reduce, for any considerable time, the ordinary wages even of the lowest species of labour.
A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation. Mr. Cantillon seems, upon this account, to suppose that the lowest species of common labourers must everywhere earn at least double their own maintenance, in order that one with another they may be enabled to bring up two children; the labour of the wife, on account of her necessary attendance on the children, being supposed no more than sufficient to provide for herself. But one half the children born, it is computed, die before the age of manhood. The poorest labourers, therefore, according to this account, must, one with another, attempt to rear at least four children, in order that two may have an equal chance of living to that age. But the necessary maintenance of four children, it is supposed, may be nearly equal to that of one man. The labour of an able-bodied slave, the same author adds, is computed to be worth double his maintenance; and that of the meanest labourer, he thinks, cannot be worth less than that of an ablebodied slave. Thus far at least seems certain, that, in order to bring up a family, the labour of the husband and wife together must, even in the lowest species of common labour, be able to earn something more than what is precisely necessary for their own maintenance; but in what proportion, whether in that above mentioned, or in any other, I shall not take upon me to determine.

[Guerrilla22]

While it's true that capitalism today does not resemble capitalism as Smith described it, for the most part, I think you would be hard pressed to find an example in history when the capitalist system did actually resemble what Smith described. There is no invisble hand, people have been intervening in the market place since day one.

[JimmyJazz]

I think Adam Smith's chapter on how capitalists as a class collude to prevent rising wages, is pretty radical
http://www.marxists.org/reference/archive/smith-adam/works/wealth-of-nations/book01/ch08.htm

This could have come right out of Das Kapital

No, it isn't, and no, it couldn't have.

The basis for Smith's objection to backdoor collusion between capitalists is his love of free competition. Only in the era of monopoly capital can people like "libertarians" start to portray free trade and free competition as "radical" ideas. In reality, they're just historically regressive. The era of free competition is dead and gone, get over it. It was just a stage of capitalism, not the whole thing.

All the most reactionary pro-capitalist presidents in U.S. history railed against trusts in order to raise their populist credentials. But it's the wrong target.

In fact, although I don't know Smith well enough to say for sure, it certainly seems from that passage--and from my overall impression of him--that he would have opposed combinations of workers (unions) as readily as he opposed combinations of masters; all in the name of "free trade", since without "distortions", the invisible hand of the market will work it all out:


But though in disputes with their workmen, masters must generally have the advantage, there is, however, a certain rate below which it seems impossible to reduce, for any considerable time, the ordinary wages even of the lowest species of labour.And in fact he seems to talk about a subsistence wage, or Marx's "minimum wage", that "quantum of the means of subsistence which is absolutely requisite to keep the labourer in bare existence as a labourer", as a reassuring thing rather than a moral outrage and the material basis for a working class revolution:


A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more; otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation. Mr. Cantillon seems, upon this account, to suppose that the lowest species of common labourers must everywhere earn at least double their own maintenance, in order that one with another they may be enabled to bring up two children; the labour of the wife, on account of her necessary attendance on the children, being supposed no more than sufficient to provide for herself. But one half the children born, it is computed, die before the age of manhood. The poorest labourers, therefore, according to this account, must, one with another, attempt to rear at least four children, in order that two may have an equal chance of living to that age. But the necessary maintenance of four children, it is supposed, may be nearly equal to that of one man. The labour of an able-bodied slave, the same author adds, is computed to be worth double his maintenance; and that of the meanest labourer, he thinks, cannot be worth less than that of an ablebodied slave. Thus far at least seems certain, that, in order to bring up a family, the labour of the husband and wife together must, even in the lowest species of common labour, be able to earn something more than what is precisely necessary for their own maintenance; but in what proportion, whether in that above mentioned, or in any other, I shall not take upon me to determine.He even tries to reassure us that the extremely high rate of infant death among the working class means they will have fewer mouths to feed! :lol:

What a radical!

All the section you posted proves is that Smith believed that the labor market should operate freely, just like markets for consumer goods, capital, and every other kind of market should operate freely. For Marx, the very existence of a labor market, the very fact of the commodification of labor, was the problem:


In proportion as the bourgeoisie, i.e., capital, is developed, in the same proportion is the proletariat, the modern working class, developed — a class of labourers, who live only so long as they find work, and who find work only so long as their labour increases capital. These labourers, who must sell themselves piecemeal, are a commodity, like every other article of commerce, and are consequently exposed to all the vicissitudes of competition, to all the fluctuations of the market.

Adam Smith was a pure free marketeer. That made him a bastard in his own day, but today, simply irrelevant.

And the fact that he thought he could actually sooth inevitable working class angers over their lot as bare subsistence wage-slaves by "reasoning" with them that only half of their children grow to adulthood anyway, is typical of bourgeois idealists. That the apologists and rulers of capitalism have such an absurdly twisted view of human nature, particularly that of the classes below them, is probably our single greatest ally; it means they will frequently oppress too much, will frequently overshoot, and will end up creating the conditions for revolution.

[Hit The North]

Posted by Jimfar quoting Adam Smith:
But in every improved and civilised society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.

This at least indicates that if Smith was anti-government-intervention into the economy he at least saw a need for its social intervention. This puts him at odds with the small government, free social market advocates of the bourgeoisie who invoke Smith's name the most often.

[JimFar]

This at least indicates that if Smith was anti-government-intervention into the economy he at least saw a need for its social intervention. This puts him at odds with the small government, free social market advocates of the bourgeoisie who invoke Smith's name the most often.

Smith was opposed to most of the forms of state intervention that were current in his day because he perceived those interventions as promoting monopolies or benefiting certain special interests. However, he was not against all government interventions, and he recognized certain forms of government intervention as necessary for sustaining the long term viability of capitalism. In that respect he was much more pragmatic than our contemporary libertarians who frequently invoke his name. He recognized that the development of the division of labor whose benefits he did so much to celebrate in The Wealth of Nations, also had negative side effects for workers and he advocated limited forms of state intervention to alleviate these consequences, though as Marx pointed out, Smith's proposals were woefully inadequate for dealing with these problems. But he at least did admit the existence of these problems, which many capitalist apologists since his time have been loathe to do so.

[heiss93]

I don't think Smith was making a libertarian argument blaming low wages on lack of competition. Instead I think he was making a sociological argument that the masters under free competition will always be in a stronger position to collude than the workers. The implication is that the libertarian utopia tends towards monopoly even in theory. Smith and Ricardo may have been conservative in their analysis of wages being pushed towards subsistence, but there are obvious radical implications.