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Saturday, December 08, 2007

How Laissez Faire was Adam Smith?

Gavin Kennedy of Adam Smith's Lost Legacy says not as much as you may have been led to believe:

How Laissez Faire was Adam Smith?, by Gavin Kennedy: Greg Whiteside writes ... here: "Adam Smith must be rolling over in his grave right now":

Arguably the father of modern economics, Adam Smith was a proponent of a Laissez-Faire style of economics. ...

Comment ‘Rolling over in his grave’? Not quite. I’m glad Greg Whiteside began with ‘arguably’. He wasn’t so sure then, and he shouldn’t be because Adam Smith did not recommend laissez faire economics, though he had many opportunities to do so. He doesn’t mention laissez faire (leave alone; or ‘laissez nous faire’, leave us alone', in its original format) in Wealth Of Nations, nor in anything else he wrote, including his correspondence.

That he is reputed to be a proponent of laissez faire is a fault of the people who started this assertion on no other basis than they had not read Wealth Of Nations through, confining their reading to selected quotations. If they had read Wealth Of Nations they would find items on the following list:

To the generally accepted roles for government, Smith added others of a more controversial nature. For some, it is an issue of fundamental principle; for others it is a boundary dispute. Among these issues Smith identified:

● The Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’;
● Punishment and enforcement after acts of dishonesty, violence, and fraud;
● Sterling marks on plate and stamps upon linen and woollen cloth
● Enforcement of contracts by a system of justice;
● Wages to be paid in money, not goods;
● Regulations of paper money in banking;
● Obligations to build party wars to prevent the spread of fire;
● Rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’);
● Premiums and other encouragements to advance the linen and woollen industries’;
● Police or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
● ensuring the ‘cheapness or plenty [of provisions]’;
● patrols by town guards, fire fighters and of other hazardous accidents;
● Erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours);
● Coinage and the Mint;
● Post office;
● Regulation of institutions, i.e., company structures (joint stock companies; co-partneries, regulated companies);
● Temporary monopolies, including copyright, patents, if fixed duration;
● Education of youth (publicly funded ‘village schools’, curriculum design,);
● Education of people of all ages (tythes or land tax)
● Encouragement of ‘the frequency and gaiety of publick diversions’:
● The prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population;
● Encouragement of martial exercises;
● Registration of mortgages for land, houses, and boats over two tons;
● Government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’;
● Limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’)
● Moderate export taxes on wool exports for government revenue

In short, Adam Smith was more concerned with what worked in a commercial society than he was with abstract principles. He did not believe that the exercise of self interest ensured that social benefits would necessarily follow and he gave 50 instances in Books I and II of the malign outcomes of self interest from ‘merchants and manufacturers’, ‘rulers of mankind’, ‘legislators’ and people who influence them, ‘sovereigns’, and ‘employees of monopolists’. On historical precedent, the situation was not likely to change quickly. In fact it still hasn’t and, if anything, in many aspects it has got worse.

Living not far from where Adam Smith is buried in Edinburgh, I can report there have been no reports of any unusual disturbances from his grave site.

This is important, "Adam Smith was more concerned with what worked in a commercial society than he was with abstract principles," and failure to recognize this leads to many misinterpretations of what Smith wrote. As for the term "laissez faire," my recollection is that "laissez faire, laissez passer" originates with the Physiocrat Vincent de Gournay.

Update: Gavin Kennedy follows up with a nice discussion of the origins of the phrase laissez faire.

    Posted by on Saturday, December 8, 2007 at 10:26 AM in Economics, History of Thought | Permalink  TrackBack (0)  Comments (15)

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