Adam Smith, Moral Philosopher of the Marketplace: Rethinking Liberal Theory 5

8/3/2019 Adam Smith, Moral Philosopher of the Marketplace: Rethinking Liberal Theory 5

http://slidepdf.com/reader/full/adam-smith-moral-philosopher-of-the-marketplace-rethinking-liberal-theory 1/7

Adam Smith,

Moral Philosopher of the MarketplaceRethinking liberal theory part 5

by John MacBeath Watkins

In 1776, two important documents in the evolution of

liberalism were published: The Declaration of

Independence and The Wealth of Nations.

The Declaration of Independence is a political

document, based on a legal system of values. It is

almost entirely about who is to blame (hint: his first

name was George, and he lived in a very large

dwelling in England.) A great deal of it has to do with

the king's efforts to keep the colonies from governing themselves. The quartering of

soldiers, outlawed in our constitution, was one of the things they objected to, because

they were being required to give a place to live to the very troops that were burning their

towns (for example, Falmouth, Maine, located on the site of modern-day Portland, burned



on Oct. 18, 1775.)

The Declaration objects to the King preventing the colonies from naturalizing

new citizens, or encouraging their migration, because apparently the colonists did not

regard themselves as entirely English or want only English subjects to immigrate. In

short, they were saying that they were not exactly part of the English tribe, and should be

allowed to absorb people of other ethnicities. That's a fundamental difference in their

view of who they were, and not one the king was likely to welcome.

Adam Smith, on the other hand, was not so concerned with law, which may at

first glance seem strange, because he was by profession a moral philosopher. He was at

one time the Head of Moral Philosophy at Glasgow University, and his major work there

was The Theory of Moral Sentiments. In short, he was a man interested in values.

Through the good offices of David Hume, a fellow philosopher of the Scottish

Enlightenment, he got a very well-paid position as tutor to Henry Scott, the Duke of

Buccleuch, which makes me very happy to be writing this rather than trying to pronounce

Buccleuch. This enabled him to travel the continent and meet such great minds as

Voltaire, Benjamin Franklin, and François Quesnay, a prominent physiocrat.

It always struck me as odd that the first widely recognized school of economics

should be the physiocrats, who considered only the agricultural sector productive of

wealth. This is a view they share with Confucious, strangely enough. The economic

philosophy they rebelled against, mercantilism, bears in many ways more resemblance to

modern economics. The physiocrats divided the world into the proprietary class, the

landowners, the productive class, those who worked the land, and the sterile class, the

merchants and artisans. They were influenced by Vincent de Gournay, French intendent

http://en.wikipedia.org/wiki/Fran%C3%A7ois_Quesnay


http://en.wikipedia.org/wiki/Mercantilism



http://en.wikipedia.org/wiki/Vincent_de_Gournay







of Commerce in the 1750s, who's motto was Laissez faire et laissez passer, le monde va

de lui même! (let do and let pass, the world goes on by itself.) In Thomas Jefferson's

mistrust of cities and idealization of the independent yeoman we see the influence of the

physiocrats, in the Federalist advocacy for the role of the government in developing the

nation we see the influence of the mercantilists.

Mercantilism focused on the balance of trade, on the wealth of kings, and the

accumulation of gold. The current economic policies of China might be said to have

evolved from the physiocrat phase, in which intellectuals were sent to work with the

peasants because this would teach them what was truly of value, to the mercantilist phase,

in which the goal is to get more wealth from the world than you give up.

But in any case, it set Smith's mind to work on the issue of how values work to

produce wealth. Unlike the physiocrats, he did think merchants and craftsmen could

produce wealth. Like the physiocrats, he thought people acted in their own self-interest,

producing the public good as a side effect:

"It is not from the benevolence of the butcher, the brewer, or the baker,

that we expect our dinner, but from their regard to their own interest. We

address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

But he also foresaw the concept of market manipulation:

“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.”

And why is this bad? Because it is an attempt to pervert the system for expressing value

judgments that we've been discussing since Part 1 of this series, the value system Hobbes

adapted from commerce to give secular legitimacy to sovereigns and stop the religious



wars that were tearing England and Europe apart. Coercion and deception are morally

objectionable because they are efforts to corrupt the system of values on which

commerce is based, therefore parasitic and a threat to the system's proper functioning.

Once again, that Hobbes quotation I keep going back to:

The Value, or WORTH of a man, is as of all other things, his Price; that is

to say, so much as would be given for the use of his Power: and therefore

is not absolute; but a thing dependant on the need and judgement of another.

The worth of things is expressed in the marketplace with prices, and an effort to

rig prices is an effort to pervert social values; a sort of lie. Smith laid out the moral

justification, in other words, for anti-trust law, because one of the the intersections of the

legal and market systems of value was at the points where markets were not allowed to

function. Smith was not a fan of the laissez-faire advocated by Gournay, because he

thought the participants in any trade would prefer to pervert the system of social values

rather than have to deliver value for money. Thus, regulation of some sort was needed,

but even that could be perverted.

Today, pundits like Matthew Yglesias argue that a great deal of our legal structure

is designed to protect economic incumbents from competition, and Smith would have

agreed, as he wrote: 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 be adopted till after having been long and carefully examined, not only with the

most scrupulous, but with the most suspicious attention.

So if people, for example, who do cosmetic things to fingernails and toenails say

that their profession should require licensing, and the license should require X years of



working in the field, we should ask if bad cuticle treatments are a major medical problem,

or if this is intended to raise the incomes of people who do nails. What's important about

this is that it shows Smith understood that a market is a made thing, a social artifact that

can be perverted by social means such as lies and coercion. Without the legal system of

values to place blame for such behavior and punish wrongdoers, could markets survive?

And if the markets are subjected to arbitrary political intervention, what begins as

a political problem, described again in the Declaration of Independence...

He has obstructed the Administration of Justice, by refusing his Assent to Laws for

establishing Judiciary powers.

He has made Judges dependent on his Will alone, for the tenure of their offices, and the

amount and payment of their salaries.

... becomes an economic problem, to the point where stout merchants dress up in disguise

and throw tea into Boston Harbor. If the courts are not just, but corrupted by the power

and purse of the sovereign, can property be secure? If the sovereign's navy bombards

your town with incendiary shot, then sends in the marines to finish burning the town,

what does the deed to a property mean? The values of the marketplace can create wealth,

but only when there is a functioning legal system. This is an additional problem to the

notion that society is formed to protect property: Until such protection exists, even the

concept of property is incoherent, and only the passion to possess exists.

In fact, to bring the discussion to the present day, I think one of the problems with

modern Russia is that the advisers they brought in to help them form a market economy

http://en.wikipedia.org/wiki/Burning_of_Falmouth

http://en.wikipedia.org/wiki/Burning_of_Falmouth



had lived so long in a society with functioning laws and courts, they did not realize how

important these things are to the functioning of capitalism. As a result, Laissez faire et

laissez passer was the motto of the new Russian state (until the oligopolists became

entrenched and the state went back to being repressive.) Add to that the fact that they had

spent generations convincing themselves that capitalists were gangsters, and their

interpretation of capitalism soon became a society in which economic activity resembled

a criminal enterprise, the courts were corrupted by those in power to reward their friends,

and the wealth of the nation was lost as all the evils that old moral philolosopher Adam

Smith warned of were realized.

Capitalism at its very beginnings faced a dilemma, that it needed regulation to

function properly, but the regulation itself could produce mischief that would either

unfairly benefit or unfairly penalize commerce. And that's important, because the system

of values Smith described was a system for rewarding or penalizing behavior to produce

actions that would benefit society as a whole rather than just the individual. A lack of

regulation, excessive regulation, or regulation designed to unfairly benefit certain people

was a corruption of the way we negotiate the meanings of our actions. Again, this goes

back to Ferdinand de Saussure and his theory that language gives us the structure and

categories of meanings that allow us to think in that abstract world that is so distinctively

human. Manipulations of meaning make our structure of thought less coherent, and could

even cause it to break down.

We speak of commercial speech in terms of advertising, but commerce itself is a

kind of speech designed to answer the question, how much does that item mean to you?



And if the question cannot be answered honestly because of lies or manipulation, our

actions cannot accurately reflect this meaning.

Adam Smith, Moral Philosopher of the Marketplace: Rethinking Liberal Theory 5

Documents

Transcript of Adam Smith, Moral Philosopher of the Marketplace: Rethinking Liberal Theory 5