Adam Smith and the Free Market

A friend sent this along for comment.

Have Adam Smith and his writings been hijacked by free market economics?

Yes. Smith was deeply suspicious of the business class. When I was teaching, I used to give quotes without attribution for students to comment on, and they regularly treated Smith quotes as being from Marx. Smith knew nothing of capitalism, which barely existed in his day, and would be appalled by the idea of an economy based on a class of workers without property. His insight that people’s selfishness might produce collectively beneficial results (“the invisible hand”) has been taken over by so-called free market economics, and debased into a “greed is good” mantra that is totally antithetical to Smith’s teaching.

Smith complemented The Wealth of Nations with The Theory of Moral Sentiments, which explained that the moral sentiments of trust and compassion were required, among other things, to make a market economy operate at all. This idea has no role in “free market economics,” which imagines that economic actors are soulless egoists. Smith also maintained the first modern version of the labor theory of value, on which the exchange value of a commodity is the labor embodied in it. “Free market” economics rejects this in favor of a subjective theory of value on which price is determined entirely by supply and effective demand, what people with money will pay for it, because labor value is deemed “Marxist,” because Marx developed the most sophisticated version of value theory. A theory without labor value is not Smithian.

The problem here begins with knowing what is meant by “Adam Smith and his writings” and following that what is meant by “free market economics”. And then with making sense of “economic actors are soulless egoists” and “a ‘greed is good’ mantra”. Then beyond all of that, there is this which makes his argument utterly vacuous: “Marx developed the most sophisticated version of value theory” which he rounds us to “a theory without labor value is not Smithian” which means in his hands that only Marxists with their labour theory of value can truly state that they are following in the genuine tradition of Adam Smith.

Adam Smith is best understood via the invisible hand, that an economy is driven by individual decision making through entrepreneurial activity. The quotation is attempting to argue that Karl Marx is the true descendent of Adam Smith. Every aspect of this argument is false, an attempt to appropriate Smith, who advocated free markets, on behalf of Marx, who advocated a centralised tyranny in which markets play no role in directing resources towards their highest valued uses.

The quiet disaster of modern economic theory

Quite an interesting article with the title The quiet triumph of economics which takes the contrary view to my own view which thinks of economics as have almost entirely sold its soul to the left. So what is the case for?

Economic science has long settled what in his time was the most pressing empirical issue: whether a system of production coordinated and planned from the top could yield better outcomes than the independent actions of individual people guided by the price system.

Today, there is no serious intellectual case for the planned economy. That proponents of more central planning — through, for example, industrial policy — wrap their arguments in vague language about “long-term strategy” and “mission-oriented directionality” is a testament to the lack of economic credibility such views command.

What has actually settled the score has been the irrefutable empirical evidence of the Soviet Union, Maoist China, Cuba and now Venezuela. Not that there aren’t still plenty of economists who will still tell you about the benefits of socialism, and if you think a modern Keynesian model, with its C+I+G, is the very essence of a free market sentiment then have a look at the way our economies are now managed. The only element that still survives are the entrepreneurially managed firms that the dismal record of regulation and taxation have not quite managed to kill off. We live in a crony capitalist state, not that different from the mercantilist system Adam Smith was writing about in 1776.

And if you want a sense of how out to lunch this chap is, hard to beat this for stupidity:

Whereas John Stuart Mill, Karl Marx and John Maynard Keynes championed, when they didn’t themselves lead, such causes as women’s rights, revolution and post-war reconciliation (respectively), today’s economic scribblers largely speak to their own tribe in a language increasingly bewildering to the layperson.

Yet, Mill, Marx and Keynes were much more than practicing economists. They were eminent public intellectuals of their time, so using their trajectory as a benchmark for today’s average economist is like asking any small business owner to measure up to Henry Ford.

Mention of Keynes is bad enough, but Marx! The quiet disaster of modern economic theory goes apace.


For Hegel I would not give a bagel!

Born 200 years ago today

Karl Marx 001.jpg

Karl Marx in 1875
Born 5 May 1818
TrierKingdom of Prussia
Died 14 March 1883 (aged 64)
Resting place Tomb of Karl MarxHighgate Cemetery, London, England, UK
Residence Germany, France, Belgium, UK
Nationality Stateless after 1845
Spouse(s) Jenny von Westphalen (m. 1843d. 1881)
Children 7, including JennyLaura, and Eleanor
Relatives Louise Juta (sister)
Jean Longuet (grandson)

Philosophy career

Alma mater University of Bonn
University of Berlin
University of Jena
Era 19th-century philosophy
Region Western philosophy
School Continental philosophy
Main interests
Politics, economics, philosophy, history
Notable ideas
Marxist terminologysurplus value, contributions to the labour theory of valueclass strugglealienation and exploitation of the worker, materialist conception of history
Karl Marx Signature.svg

Cannot think of a thing to say. So let me instead suggest you read Lewis Feuer’s brilliant and fun, The Case of the Revolutionist’s Daughter: Sherlock Holmes Meets Karl Marx. And then when you have read that, that you read anything else you can get your hands on written by Lewis Feuer. Feuer was the most outstanding anti-Marxist of my youth and I bring him up because I would rather that his name was remembered instead of Karl Marx’s. But like hurricanes, the only ones you remember are the ones that did the most damage.

From his NYT obit:

His interest in matters philosophical was matched by a fascination with Sherlock Holmes. He condensed it in a historical whimsy of a novel, ”The Case of the Revolutionist’s Daughter: Sherlock Holmes meets Karl Marx” (Prometheus, 1983), which remains in print. In it, Holmes is hired by Marx to investigate the disappearance of his daughter, Eleanor, who actually committed suicide in 1898.

After his own break with Marx, the philosopher, Dr. Feuer, according to his family, adopted a personal mantra, ”For Hegel I would not give a bagel!”

May Day, m’aidez, Marx @ 200

Being May Day and all, I thought I would jump in early to remind everyone that Karl himself will have his 200th birthday on Saturday. And in looking online to see how the celebrations will be going, I came across this which captures my sentiments exactly: Why Is the EU Celebrating Karl Marx’s Birthday?

The evil ideology known as communism left a track record of unimaginable horror. Experts estimate that 100 million people were killed by Marxist regimes.

Some were murdered. Other starved to death because of the pervasive economic failure of communism.

Yet there are dupes and apologists who overlook all this death and misery.

One of them is Jean-Claude Juncker, the President of the European Commission. A few days from now, this über-bureaucrat will help celebrate the 200th birthday of Karl Marx.

The European Commission President will travel to Trier, Germany, where he will give a speech to celebrate the 200th anniversary of Marx’s birth. …The Commission President will give a speech at the opening ceremony of the Karl Marx exhibition in the city. …The chief eurocrat’s trip has received critics, who have suggested the 63-year-old forgetting how Marx’s “warped ideology” led to millions of deaths across the world. Ukip MEP and the party’s former leader Paul Nuttall said: “It is appalling that Jean-Claude Juncker feels it necessary to commemorate a man whose ideology—Marxism/Communism—led to more than 100 million deaths. …Conservative MP Daniel Kawczynski…, who as a seven-year-old boy fled to Britain with his family from the Communist regime in Poland, said Mr. Juncker should reject any invitations to commemorate the event. He said: “I think it’s in very poor taste we have to remember that Marxism was all about ripping power and individual means away from people and giving to State. “Marxism led to the killing of millions around the world as it allowed a small band of fanatics to suppress the people we must learn the lessons from this and share with our children.”

It will be interesting to see how the celebrations go on Saturday. It does just seem that some people seek the furthest extremes, and that is the kind of political niche Marxists inhabit so that there is a Venezuela or Cuba in everyone’s potential future. Political inertia can be your friend, but once you fall into one of these socialist traps, it can take a long long long time to get back out.

NEW YORK TIMES UPDATE: This really is from The New York Times: Happy Birthday, Karl Marx. You Were Right!

And where we will also find these words:

While most are in agreement about Marx’s diagnosis of capitalism, opinion on how to treat its “disorder” is thoroughly divided. And this is where Marx’s originality and profound importance as a philosopher lies.

Proving once again that there is nothing so stupid that some intellectual won’t believe it.

MORE HERE: Marx at 200: Germany torn over revolutionary’s legacy.