OCTOBER 01, 1981 by PERRY E. GRESHAM
Dr. Gresham is President Emeritus and Distinguished Professor, Bethany College, Bethany, West Virginia. His latest book, With Wings as Eagles, concerns the joys of aging.
The name of Adam Smith, long neglected, has recently come back into fashion. The supply side economists all claim him as the great father of their ideas. In part they are correct, for Adam Smith pioneered the modern exposition of the division of labor, the necessity for capital and the saving which develops it, the importance of liberty, the magic of the market, the role of competition and all the factors that go into production. The new interest in the famous Scot, however, does not correct the false image which has developed the past two centuries.
The irony of history has left us with a profile of Adam Smith which is both false and unfair. He was the friend and champion of the poor, yet he is now regarded as the defender of privilege. He was a radical for liberty, but friend and foe alike now call him a conservative. He did not employ the word capital or capitalist in his several books, yet he is generally regarded as the economist of Capitalism. He is called “quaint” in some circles as if his message belonged only to Scotland in the 18th Century. His remarks are actually relevant to every time and place where the market operates. The division of labor, for example, was just as much a factor in human action in the days of Plato or in the latest decades of the 20th Century as in 1776.
What went wrong? How could the dedicated friend of the poor become the principal defender of the rich? The answer seems to be that, in part, the inversion was accidental—an accident of history. But there appears to be a deliberate bias which has perverted the message of Adam Smith in order to advance the message of those who are trying to escape freedom. Max Lerner, for example, knew what he was saying when he wrote of Adam Smith, “He was an unconscious mercenary in the service of the rising capitalist class.” Lerner continued by charging him with giving “a new dignity to greed and a new sanctification to the predatory impulses.” The combination of accident and deliberate bias has inverted the original message and intent. The public has assumed the falsehood and forgotten the truth.
Adam Smith was anything but a conservative. The conservatives of his day were all mercantilists and he wrote his great book, Wealth o£ Nations, in full rebuttal of their ideas. His thoughts, when applied to our current economic scene, are far from conservative. He called his doctrine “natural liberty” and the conservative of today finds the doctrine threatening to the status quo. While many conservatives ask the young to conform to past life styles, Adam Smith challenged them to live their own lives. Some conservatives are keen for protective tariffs, while Smith followed David Hume in declaring for free trade. While many conservatives were blowing their nationalist bugles, Smith was declaring for freedom to all peoples everywhere. “Natural liberty” meant the removal of government restraints so that free people could live their lives and manage their property according to individual preference as long as nobody else was injured through force or fraud.
Karl Marx, on the other hand, was an angry man, and he was particularly angry at Adam Smith. Marx used the word “capitalism” in a pejorative sense. Smith did not use the word at all. “Of the Nature, Accumulation, and Employment of Stock” was the title of Book II of The Wealth of Nations. Smith knew full well that investment is essential to any sort of economic activity. He also knew that thrift is necessary for the accumulation of capital. But he would have flinched at the word “Capitalism” by virtue of the fact that the “ism” suggests a sort of cult attitude. He saw capital as a prime ingredient for human action, but it was for him an instrument and nothing more. He did not revere capital, he only used it. The false dichotomy of property values vs. hu man values derives, in part, from the Marxian misuse of the term, “Capitalism.” Smith called his view of society “natural liberty” and that term is most surely tilted toward human values. The capital necessary for production is in full service of such values.
The charge that Adam Smith outlined a philosophy relevant only to 18th-century Scotland is ridiculous. The whole world is crying out for natural liberty today. The failure of socialism is a prime factor in the new interest in Adam Smith. George Santayana wrote in his Character and Opinion in the United States, “When he [the American] has given his neighbor a chance he thinks he has done enough for him; but he feels it an absolute duty to do that. It will take some hammering to drive a coddling socialism into America.” The hammering has been done and the socialism has been tried in part. The failure is apparent and the voice of liberty is heard once more in the land.
George Gilder in his Wealth and Poverty sees Adam Smith’s Wealth of Nations inspired by The Golden Rule. I have long pondered the divergence of emphasis in Smith’s Theory of Moral Sentiments and his subsequent volume. His early book speaks of human sympathy while his Wealth of Nations speaks of human greed. The motives of people are quite complex and ambivalent. Egoism enters all altruism and there is a redeeming touch of altruism in most egoism. Henry Ford was interested in profit, but he was also interested in making the best possible car for the least possible money. He was not only a genius at production and marketing, but he was proud of the fact that he was able to pay his workers very well. His amazing success was, in large part, the result of his dedication to The Golden Rule.
Smith was correctly describing our human nature when he said that the butcher and baker do not sell us our supper out of benevolence. He was also correct when he said, “I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.” This is only part of the human situation. The late philosopher, T. V. Smith, opened one of his essays in Live Without Fear with the remark, “No man is an S.O.B. to himself!” The merchant who has profit in mind also wishes to be a hero in his community. He wishes to be highly regarded and praised as a person of good will. These attitudes help his customers and help him as well. Natural liberty corrects and disciplines the greedy by means of competition, but it also affords opportunity for a generous person to serve his fellow man and profit in so doing. J. C. Penney lived by the golden rule and found it profitable.
“The invisible hand” of Adam Smith operates today as it did in 1776 and in 3000 B.C. Whenever imaginative and creative people are free to carry on their enterprises, the private good redounds to public benefit even though the pro bono publico effect is not deliberate. History is replete with periods of prosperity and happiness brought on by the unintentional beneficence of selfish people in a free society. Many contemporaries scoff at this idea. They love the word “mandatory” and lay stress on the recalcitrance of people who will do good only if forced to do so. They are blind to the natural effect of freedom. They are even more blind to the fact that enforced morality has bad implications and disappointing results.
On Choosing Freedom
The natural liberty philosophy assumed that sensible people would choose freedom if they had a choice. I am convinced that the assumption was and is correct. I have seen people by the dozens swimming from mainland China toward Hong Kong and risking their lives to gain individual liberty. I have seen people plan and dare to attempt crossing the Berlin Wall to West Germany and freedom. I have never seen people swimming toward socialism and away from liberty and I have seen nobody risk his life to get into East Germany from the free West. Eric Fromm in his Escape From Freedom overstated his case and was in mild contradiction with his own concept of “the productive man” or “the marketing man.” From babyhood on, a human being is annoyed by unnecessary restraints. Babies fight their covers and try to break free from their clothing or their pens. College students I have known in fifty years of teaching have cherished freedom to live their own lives and do their own thing. Liberty is truly natural.
The aggregate demand economics of John Maynard Keynes contributed substantially toward government intervention in economic matters. Keynes, himself a successful capitalist, advocated government action to stimulate consumption. He was in the tradition of Parson Malthus with regard to fear of thrift. In his busy life devoted to other things he appears to have overlooked the danger to liberty inherent in the burgeoning bureaucracy and the relentless growth of government. Nor did he fully appreciate the problems of violent force which is in any legitimate sense a government monopoly. Government officials seek power and enjoy exercising it. People are taxed to pay for the people and the programs that take away their natural liberty.
For the good of the poor that they may be free to rise, for the prosperity of the people that the economy may continue to grow, for the freedom of the individual to exercise his God-given right to initiate and invent, for relief from the tyranny of government intrusion into every aspect of life, for relief from excessive taxation and for the natural liberty of everybody, we need to take a new hard look at the Sage of Kirkcaldy. The absent-minded old professor who had no axe to grind except for the good of mankind has something very important to tell us. It is called Natural Liberty and we can regain it only if we bestir ourselves.
Our present world displays what Walter Lippmann called “The sickness of an over-governed society.” Competing ideologies are contending for the minds of leaders and thinkers. The socialists find the solution to the problem in still more government to make our present government work better. They seek wage and price controls to remedy inflation; super- bureaucrats to supervise the bureaucrats; transfer payments to relieve the poor; they call for a zero-growth economy; mandatory conservation of scarce products to avoid disaster; planning, to replace the market; and government control of our lives.
Marx did not ask anyone to promote his ideas. He saw society as devoid of choice in a headlong march which would destroy capitalism and place the proletariat in charge until all vestiges of bourgeois life had been liquidated; then the classless society would emerge. For Marx people could either join the inevitable revolution or be swept away by it. The years have proved him wrong. Russia and China are examples. The fringe socialist countries have illustrated his failures in less dramatic fashion.
The Road to Serfdom, by Friedrich A. Hayek, was a warning shot across the bow of every ship of state in the free world. He wrote, “We have progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past.” He saw the State socialism of Hitler’s Germany and Mussolini’s Italy as the direct result of our western drift toward socialism. Only now have some of the so-called free nations begun to reverse the trend. Many people, enthralled by the false promises of socialism, have unwittingly lent full support to more and more government control of our lives. Our interest-group society is forever seeking government support for its special advantage, and the costs of the new programs are so diffused that government continues to grow. The psychological fact that people enjoy running other people’s lives speeds the process. We wind up with more and more government, more and more taxes and less and less natural liberty. No wonder Adam Smith is once more coming into fashion.
Arthur Laffer and his convincing curve may tend to reduce taxes. This is a good thing in itself in that the government has less money to spend and the people have more; but if, as he argues, the government revenues are thereby increased we may wind up with still more government. Jude Wanniski, in The Way the World Works, makes a strong case for free trade and for lower taxes but fails to face the problem of natural liberty which is in jeopardy. George Gilder shows the benevolent face of capitalism and effectively answers the zero-sum economic growth predictions of the Club of Rome, but he does not quite recapture the vision of natural liberty which gave a sort of everlasting relevance to Adam Smith.
Smith Viewed with Hope What Angered Marx
While Marx was gloomy and angry, Adam Smith was happy, hopeful and objective. He was not trying to get even with anybody. There was no hate and little envy in what he said and did. His interests were those of an old professor devoted to the task of finding what is true and pre senting that truth to the world as best he could. His phrase “natural liberty” is felicitous and descriptive of his entire philosophy of political economy.
He assumed the freedom of the human will. He saw humanity as a mixture of greed and generosity, love and hate, hope and despair, joy and sorrow, good and bad. He concluded that nobody could be wise enough and good enough to manage the lives of other people, that each person manage his own life in a free society with laws to defend the realm and protect against force or fraud. He observed the long sweep of history and found prosperity, happiness and success in periods when people enjoyed “natural liberty.” He concluded that, with each person seeking his own gain, the public interest was served as if by “an invisible hand.” He saw the market operating as a natural tendency wherever the government did not pervert it.
Would this “natural liberty” work today, given our size, population and highly technical society? The answer is yes. The law of gravity keeps on working even though we fly airplanes and explore outer space, in apparent defiance of Sir Isaac Newton and his laws of motion.
Freedom of Thought
The people of our modern world are in search of an adequate world view. They feel the need of a general philosophy of life that explains things and provides a pattern for understanding. Fortunately, there is no one adequate view of the world. Adam Smith believed in freedom of thought and opinion even more than he believed in a free political economy. People continue, however, to search for modes of political and economic thinking. Their search leads them in the direction of either Karl Marx or Adam Smith, since these two pioneers represent the opposing views of a controlled economy on the one hand and a free economy on the other. John Maynard Keynes was quite perceptive when he wrote in his General Theory, “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else.” Our ideas enable us to explore and experiment, but they do not yield certainty.
Even the natural sciences cannot say “This is the way it is.” They depend on plausible formulation based on tacit assumptions. People once thought in terms of a fiat earth until Copernicus, and they failed to see the nature of relativity until Einstein. Political economy is still less exact, but each thoughtful person needs a world view to enlarge his limited observations. The two major competing realms of discourse in political economy are the dialectical materialism of Karl Marx and the natural liberty of Adam Smith. The socialism of Marx has succeeded nowhere in the world at any time. The natural liberty of Adam Smith has never failed anywhere in the world at any time.
Natural liberty is hard to come by, since governments are always getting in the way with personal ambitions and mandatory support. They defend themselves well since they have a monopoly on violent force. Only those who are hurt are willing to sacrifice “Life, fortune and sacred honor” to defend liberty. Only such sacrifice, however, can keep government within its bounds of defense of the realm, protection of civil and human liberties, judicial settlement of disputes, defense of each individual against wrongs to his person or property and such other limited functions as are beyond the reach of the private sector.
Liberty Follows No Blueprint
Natural liberty is not a neatly packaged system of political economy. Marxism is a religious system. Socialism is a control system based on government. Capitalism is a somewhat loose formulation of economic production and distribution, but it is an “ism” and is a system. Natural liberty is a descriptive term that eschews all systems and lets liberty obtain. It is a philosophy of society and human action which requires no system. When restraints are lifted the market works in a manner similar to the laws of motion—though not as precise and exact. The laws of the market are not determined but are formulated from the tendencies of people to act in a somewhat predictable manner. The magic of a free market is more nearly analogous to actuarial prediction, rather than a physical law such as the law of gravity.
Smith assumed the freedom of the will while Marx denied it. We can confidently say, however, that free people tend to act out their preferences in a certain way. When needed and attractive goods are produced, customers will find ways to buy them. Natural liberty does not mean chaotic behavior, even though it stoutly denies the economic determinism of Marx. Free and imaginative people are forever bringing surprises to the world. The great advances of history are the result of achievements which nobody could have predicted. This does not contradict the actuarial assumption that a free market will work. Natural liberty works so well that we are startled and amazed.
The Soviet Union cannot believe natural liberty will work, but when they gave each of their farmers liberty with one acre of land the production on 1 per cent of the land resulted in 27 per cent of all agricultural production! Politicians and bureaucrats in Western nations do not believe the market will work and they do their best to keep it from having an opportunity. I do not know of a single economist of stature who does not recognize the fact and performance of the market, yet many of them cling to the view that government control and intervention are better and more fair. It seems difficult for a person who thinks of himself as an expert on the economy to believe that the impersonal market, left to its devices, can better produce, allocate, price, inform sup pliers, improve products than can any panel of experts. In brief, intellectuals find it difficult to admit that everybody knows better than anybody what is best for everybody. No person is good enough or wise enough to run the lives of other people.
The practice of natural liberty means freedom from envy and hate. To each his own denies equality except for the fact that each person has equal opportunity before God and under the law. Natural liberty is the poor person’s opportunity to rise. It opens the way for more and better production and standards of living. The rich are not the enemy, but the example and the very useful source of capital for helping the poor to rise. The only people who lose position under natural liberty are the planners, the managers of other people’s lives, the politicians and the bureaucrats. When those who have tried to tell everybody else how to live finally give up and seek productive employment, they turn out to be the happiest people around. The world is about to give natural liberty a new chance. Bravo!