Monday, June 22, 2009

Mr. Smith [is desperately needed in] Washington*

(*AND Beijing, Berlin, Brazalia, Cairo, Canberra, Damascus, Harare, Havana, Jakarta, Khartoum, Kingston, Kinshasa, Lima, London, Madrid, Manila, Moscow, New Dehli, Oslo, Ottawa, Paris, Riyadh, Rome, Santiago, Seoul, Stockholm, Tegucigalpa, Tehran, Tokyo, Warsaw, and every other place inbetween that is feeling the pressure of extremes from laissez-faire ideology to command economies; AND in every corporate boardroom)

Adam Smith’s “invisible hand” has been presumptively extracted from his 1000-plus page treatise on economics to mean “hands-off” business. Too bad those who wrap themselves in this invisible hand haven’t taken his books in-hand. Mr. Smith was not a laissez-faire determinist, but a moderate, aware of the need for balance between the private and the public good; and fully aware of the dangers inherent in accumulated power and wealth. Here, for the record, are a few of Mr. Smith’s observations:

On the Public Good:
The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. 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. (The Wealth of Nations, p. 287-8—I.XI.III)

Though the standard by which casuists frequently determine what is right or wrong in human conduct be its tendency to the welfare or disorder of society, it does not follow that a regard to the welfare of society should be the sole virtuous motive of action, but only that, in any competition it ought to cast the balance against all other motives [emphasis added]. (The Theory of Moral Sentiments, p. 304—VII.II.III)

The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest of his own particular order or society. He is at all times willing, too, that the interest of this order or society should be sacrificed to the greater interest of the state or sovereignty of which it is only a subordinate part: he should, therefore, be equally willing that all those inferior interests should be sacrificed to the greater interest of the universe, to the interest of that great society of all sensible and intelligent beings, of which God himself is the immediate administrator and director. (The Theory of Moral Sentiments, p. 236—VI.II.III)
[In the interests of full disclosure, Mr. Smith also wrote, when speaking of the invisible hand, that he had “never known much good done by those who affected [emphasis added] to trade for the public good.” (The Wealth of Nations, p. 485)]

On Labor:
Labour, it must always be remembered, and not any particular commodity or set of commodities, is the real measure of the value both of silver and of all other commodities. (The Wealth of Nations, p. 214—I.XI.III)

The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition, and of ending his days perhaps in ease and plenty, animates him to exert that strength to the utmost. Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious than where they are low: … Some workmen, indeed, when they can earn in four days what will maintain them through the week, will be idle the other three. This, however, is by no means the case with the greater part. Workmen, on the contrary, when they are liberally paid by the piece, are very apt to overwork themselves, and to ruin their health and constitution in a few years. … Something of the same kind happens in many other trades, in which the workmen are paid by the piece, as they generally are in manufactures, and even in country labour, wherever wages are higher than ordinary. Almost every class of artificers is subject to some peculiar infirmity occasioned by excessive application to their peculiar species of work. (The Wealth of Nations, p. 84—I.VIII)

If masters would always listen to the dictates of reason and humanity, they have frequently occasion rather to moderate than to animate the application of many of their workmen. It will be found, I believe, in every sort of trade, that the man who works so moderately as to be able to work constantly not only preserves his health the longest, but, in the course of the year, executes the greatest quantity of work. (The Wealth of Nations, p. 94—I.VIII)

On Management:
The directors of such companies [joint stock company, i.e., corporation], 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. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. It is upon this account that joint stock companies for foreign trade have seldom been able to maintain the competition against private adventurers. They have, accordingly, very seldom succeeded without an exclusive privilege, and frequently have not succeeded with one. Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it. (The Wealth of Nations, p. 800—V.I.III)

On Corruption:
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. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary. (The Wealth of Nations, p. 148—I.X.I)

... This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect, persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages. (The Theory of Moral Sentiments, p. 58—I.III.III)

When masters combine together in order to reduce the wages of their workmen, they commonly enter into a private bond or agreement not to give more than a certain wage under a certain penalty. Were the workmen to enter into a contrary combination of the same kind, not to accept of a certain wage under a certain penalty, the law would punish them very severely; and if it dealt impartially, it would treat the masters in the same manner. (The Wealth of Nations, p. 164—I.X.I)

On Monopolistic Tendencies:
But the cruellest of our revenue laws, I will venture to affirm, are mild and gentle in comparison of some of those which the clamour of our merchants and manufacturers has extorted from the legislature for the support of their own absurd and oppressive monopolies. Like the laws of Draco, these laws may be said to be all written in blood. (The Wealth of Nations, p. 700— IV.VIII)

… Were the officers of the army to oppose with the same zeal and unanimity any reduction in the numbers of forces with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; were the former to animate their soldiers in the same manner as the latter enflame their workmen to attack with violence and outrage the proposers of any such regulation, to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature [emphasis added]. The Member of Parliament [or Congress] who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists. ¶ …The legislature, were it possible that its deliberations could be always directed, not by the clamorous importunity of partial interests, but by an extensive view of the general good, ought upon this very account, perhaps, to be particularly careful neither to establish any new monopolies of this kind, nor to extend further those which are already established. Every such regulation [favoring monopolists] introduces some degree of real disorder into the constitution of the state, which it will be difficult afterwards to cure without occasioning another disorder. (The Wealth of Nations, p. 501-2—IV.II)

References: Adam Smith’s: 1) The Theory of Moral Sentiments (Mineola, New York: 2006, Dover Philosophical Classics) first published 1759; & 2) The Wealth of Nations (New York: 2000, Modern Library Paperback Edition) first published 1776.
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