The Adam Smith Institute vs Adam Smith

“Our merchants and master manufacturers complain much of the bad effects of high wages in lessening the sale of their goods, both at home and abroad. They say nothing concerning the bad effects of high profits; they are silent with regard to the pernicious effects of their own gains; they complain only of those of other people.”

What kind of anti — enterprise, anti — freedom, degenerate soyboy leftist could possibly have said this? Chomsky? Piketty? Howard Zinn? Karl Marx himself? No. The answer? It was Adam Smith, the father of capitalism, the man who is so often mischaracterised and misquoted by the pseudo — intellectual charlatans of the modern Right. Smith was not, as many of his modern adherents claim, an advocate for unrestrained free markets, nor was he a dogmatic devotee of laissez — faire economics. Rather, he prudently recognised not only the role of government in providing public works and crucial infrastructure, but the malevolent influence of big business in accruing to itself more and more capital and acting as a barrier to competition.This short piece will argue that the Adam Smith Institute’s neoliberal agenda runs contrary to the philosophy and thought of Smith himself, who would bitterly oppose them were he alive today. He supported workers against their profiteering bosses, resolutely opposed monopolies, and disliked the sort of reductive pseudoscience that characterises ‘marginal utility’ economics, instead espousing the labour theory of value.

The ASI is one of Britain’s leading free market thinktanks, which along with the Institute for Economic Affairs (IEA) and Centre for Policy Studies (CPS) formed Margaret Thatcher’s inner circle during the 1980s. The ASI’s President, Madsen Pirie, has been described as the architect of Thatcher’s privatisation programme.

The ASI has frequently supported trickle — down economics, asserting the disposability of low — wage workers and advocating against a living wage. For instance, they published an article on 24th February 2017 arguing against a living wage, and have consistently railed against the minimum wage. Smith, by contrast, argued that rates of profit were highest in poorer countries and lowest in richer countries, defending adequate wages on the basis that if the costs of housing, utilities and clothes could be covered by wages, the result would be a more content and productive workforce. It is here that Smith elucidates the diametric opposition of the interests of bosses and those of workers; it is in the interests of bosses to gain political power and legislate for punitive economic policies, which maximise the number of hours that workers are forced to work, thus eliminating time for them to gain political knowledge. He stated that “although the interest of the labourer is strictly connected with that of society, he is incapable of comprehending that interest, or of understanding its connection with his own.” As such, Smith noted that society cannot prosper if its majority are kept overworked, underpaid, and systematically denied an educated political voice. He even supported workers’ organisations to counteract the nepotistic interests of a mercantile class which still enjoyed disproportionate political influence during the late 18th Century.

These sentiments stand in stark contrast with the repugnant, bigoted and crypto — eugenicist assertions put forward by the ASI. In January 2016, Andrew Sabinsky asserted, in a book review, that “habitual welfare claimants tend to be less conscientious and less agreeable than the average person”, and “tend to reproduce at higher rates than the general population”, going on to allege that they “adjust their fertility in response to changes in the generosity of welfare provisions, having fewer children in times of austerity.” The difference between the ASI’s propaganda and Adam Smith himself could not be much clearer.

Moreover, one of the primary tenets of Adam Smith’s economic philosophy was his opposition to monopolies, on account for the preclusion of competition and the political lobbying inherent within the obtaining of higher market share. Smith stated that “to widen the market may frequently be agreeable enough to the interests of the public; but to narrow the competition can only serve to enable the dealers…to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens.” At the time, Britain was entering its Industrial Revolution, and the agglomeration of capital into industrial monopolies followed the concentration of labour in urban areas. Smith diagnosed the perils of unaccountable corporations as assiduously as he did the dangers of unaccountable governments, arguing that corporations should remain accountable to the workforce, and that monopolies would alleviate the fear of losing customers through ineptitude or negligance. Smith even went on to argue against merchants setting public policy, stating that “The proposal of any new law or regulation which comes from this order ought always to be listened to with great precaution, and ought never to be adopted ‘till after gaving been long and carefully examined…with the most suspicious attention.” It is within the context of of the late 18th Century, during which time Mercantilism remained the prevailing economic orthodoxy, that Smith’s espousal of the ‘invisible hand’ of the market mechanism must be situated. Smith was not warning about the effects of State intervention, but of merchant — led State capture of economic policy to raise prices for ordinary consumers through the establishment of monopolies on colonial trade and exclusion of foreign competition.

Smith’s warnings against governments captured by mercantile, monopolistic policy were not confined to the merchant class, but applied to all broad, reductive ideological prescriptions for how the economy and society could function. Holding that the ‘spirit of system’, an ideological tactic in which politicians attempted to bend the will of the population to their own whims, imposing a dogmatic, positivist view of human nature on ordinary people would inevitably fail, Smith appeared to reject not only rigid State socialism, but the equally prescriptivist neoliberal ideology that his ASI adherents ascribe to him. Whether Smith would have considered “the market” a quasi — scientific and self equilibrating mechanism as his Thatcherite successors now do, is highly debatable. Smith’s Theory of Moral Sentiments states, regarding such political ideologues, that “He does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great chessboard of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it”. For Smith, it is therefore a dangerous presumption that the lives of ordinary people can be sacrificed on the altar of grand pronouncements about the way that ‘human nature’ is meant to function. It should be careful and considered judgement, and in depth consideration of the predicaments of the nation and their solutions, that drives public policy and the actions of politicians, not an agenda such as Thatcherism.

The positivist tendencies of the neoliberal agenda which the ASI pushes, which hold that human nature is inherently rational, and human actors inevitably make rational choices in markets, meaning that price signals are true indicators of the value of a good or service, are directly at odds with Smith’s own worldview. The implication that the dictates of supply and demand are those of the human conscience itself, and that profit maximisation is indelibly woven into the fabric of human beings, is contradicted by Smith’s espousal of the labour theory of value. The Wealth of Nations itself states:

“The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labor which it enables him to purchase or command. Labor, therefore, is the real measure of the exchangeable value of all commodities.”

Smith recognised that the “real” value of a commodity is determined by the mass of labour embedded within it, which is distinct from the “nominal” value of a good, represented by its market price. Supply and demand may be able to tell us how much a good is worth in relation to other goods, but prices can only fluctuate around objective value. The idea that valuable goods are valuable because they are scarce, and that the more we consume of any good, the less valuable it becomes to us, is the cornerstone of the neoliberal conception of economics espoused by the ASI, initially developed by theorists such as Carl Menger and Eugene von Bohm — Bawerk. Smith however, as an anti — mercantilist, recognised that supply and demand could be distorted and therefore, although they could determine market price, they could not determine objective value. That the Dutch East India Company (VoC) frequently bought up stocks of grain and artificially restricted supply, drove up prices, and sold them at high prices indicates the futility of using supply and demand as objective measures of value. Smith understood, therefore, that what all commodities had in common was that labour had to be expended to produce them, and was the real determinant of value.

The misrepresentation of Adam Smith by the ASI and other modern neoliberal institutions betrays an attempt to give simplistic, unfounded ideas a sense of legitimacy by implying that they have a historical precedent. In fact, the father of capitalism would almost certainly disown his current progeny. Smith recognised the benefits of a well paid and educated workforce, advocating for the formation of workers’ associations to counter the greed of the merchant class. The ASI would do well to remember his principled opposition to monopolies, as we live in an age in which the overwhelming majority of the global economy is comprised of oligopolistic multinational firms. Smith recognised, most importantly, that grand ideological narratives, which subordinate human nature to the dictates of the market and perceive us all as rational, calculating and dispassionate beings, are not to be trusted.