The invisible mind of Adam Smith

By Ronald M. Horvath | May 12, 2010

Contrition is not an aspect of the capitalist ideologue. Watching a group of senators grill the econo-fascists of Goldman Sachs recently was certainly proof of that. The anything-goes attitude on display before the incredulous legislators was proof positive that the free market had become what L. William Seidman, a former adviser of Republican presidents who led the savings and loan bailout in the 1990s, called “a barroom brawl instead of a prize fight.”

“To make the market work well,” said Seidman, “you have to have a lot of rules.”

And rules are what the free marketers hate. “Government intervention” is the term they use for rules and Adam Smith is their philosopher of choice when it comes to decrying what they call “meddling” in the free market. As usual, though, they’ve gotten it wrong. Like all patron saints, idols or prophets Smith’s words have been twisted out of their author’s original shape and perverted into meanings they were never meant to have. Any reading of Smith’s "The Wealth of Nations" soon reveals that he considered government a necessary component of a functioning free market. The chief villains in Smith’s story are the capitalists themselves.

“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,” Smith wrote. He also wrote of “the mean rapacity, the monopolizing spirit of the merchants and manufacturers” and that they “neither are, nor ought to be, the rulers of mankind.” Goldman Sachs would most likely disagree.

It becomes obvious when reading Smith that those who bemoan the government’s intervention the loudest are simply those who would willingly do the most damage to the market if given the slimmest of chances. If Wall Street hasn’t proven that in the last few years then we haven’t been paying attention. Once off the government leash they ran amok and millions of Americans are now suffering the consequences.

Smith could little have imagined what the world economy would become in our times. The industrial revolution was just beginning as he wrote his book. He did have, however, some inkling of what political power would be wielded by today’s multinational corporations. He knew what power was held by wealthy men and how such “corporations” as the British East India Company could acquire a monopoly of power and influence from a government that listened only to powerful men. “Whenever the legislature attempts to regulate the differences between masters and their workmen, its counselors are always the masters,” said Smith.

“Smith’s concern,” writes author Jerry Z. Muller in "The Mind and the Market: Capitalism in Western Thought," “was to ensure that the political process contributed to the welfare of the nation as a whole.”

The basis of Smith’s philosophy was that element that is so completely absent from those free market conservatives that hide their own self-interest behind his name, the improvement of the human condition. Indeed, there are times when this conservative idol sounds like an early member of the political left. “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,” he wrote. “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 labor as to be themselves tolerably well fed, clothed and lodged.”

Smith did not envision a free market devoid of government intervention. He knew human nature too well for that. In Smith’s own words it was the commercial elite that “generally have an interest to deceive and even to oppress the public.” He knew that the invisible hand of the market could not exist without the all too visible hand of government guaranteeing its freedom of exchange and maintaining the level ground of competition. He knew that the greatest danger to competition and free enterprise was not government but the “merchants,” the capitalists of his day who, just as in our own time, used their wealth to corrupt government, destroy competition, extort more wealth from the public and tilt the playing field in their own favor. If left in the hands of capitalists, Smith knew, the free market would soon become occupied territory, a playground only for the chosen few devoid of any “hand,” invisible or not. In other words an economic oligarchy and the Republican dream scenario.

There are few areas of human endeavor that do not require a collectively accepted system of discipline. Custom and rules of conduct are the matrix of every society, the lines of separation between the individual’s self-interest and the common good. Those who preach the glory of the so-called free market and take from Adam Smith only what supports their own desires refuse to accept any discipline or inhibitions on their own actions just as they refuse to recognize any consequences from those actions. When the minions of Goldman Sachs can brag about selling toxic assets to “widows and orphans” then certainly free market delusionalism has won the day.

If history tells us anything about the free market it is that it more often than not rises to its own collapse. It’s happened too many times, and the Great Depression was only the harshest reminder that the free market fails as often as it succeeds. It is simply strange that conservatives who frequently predict the downfall of an overly permissive society -- in a cultural sense -- can’t see the same end for an overly permissive economy. Certainly if a lack of personal discipline can destroy a culture then surely it can destroy an economy as well, with even more tragic consequences.

Ronald M. Horvath lives in Camden.

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