SMITH’S POVERTY OF NATIONS
The trouble with Adam Smith
by: Thomas K. McCraw.
in “The American Scholar”
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C OMMUNISM HAS FAILED , CAPITALISM HAS WON , AND ADAM SMITH (1723-1790) IS THE HERO OF THE HOUR.
YET MCCRAW, A HARWARD HISTORIAN, DOUBTS THAT SMITHS LAISSEZ-FAIRE VERSION OF CAPITALISM IS THE WAVE OF THE FUTURE.
Smith had a profound aversion to any form of collective action, McCraw notes. For him, individuals and markets were “natural,” but institutions and organizational hierarchies were not.
Whether the organizations were guilds, universities, political groups, or even (yes) business corporations made no difference. “In Smith’s world, something rotten is likely afoot wherever two or more individuals are gathered together, except as family members or in the unambiguous roles of buyer and seller.” Only agriculture, in Smith’s view, was fully “natural.”
The Industrial Revolution, then just getting under way, was, he thought, nothing more than the division of labor . Smith failed to recognize, according to McCraw, the key roles of “machine production, fuel and water power, human entrepreneurship, state promotion of manufacturing, and, most important of all, technology.”
In The Wealth of Nations (1776), Smith declared that consumption is the sole purpose of production, and he criticized the mercantile system of deliberate national economic development because it sacrificed the consumer s interest to that of the producer. ‘Historically, Smith’s logic held up so long as the individual did remained both the consuming and the producing unit,” McCraw writes. In the modern world, most production is done not by individuals but by complex organizations. Unlike individual producers who act in their own short-term interest, corporations now make investment decisions five to 10 years in advance. Such planning, McCraw says, is best done with the help of “wise public policy.”
Today, McCraw contends, consumer-oriented Smithian capitalism as practiced in the United States “is being consistently out-performed” by a more nationalistic, producer-oriented variety. “The German and Japanese economic systems today are just as market-oriented, just as ‘capitalistic,’ as is the American. But they are far less centered on the individual. Their architects, less fearful of deliberate applications of national economic strategies, less convinced that ‘human institutions’ inevitably produce ‘absurd’ results,” draw on the intellectual legacies of Alexander Hamilton (1757-1804) and the German nationalist Friedrich List (1789-1846). Their strategies, McCraw says, are well-suited to a modern world economy that is ‘dominated by... nationalism, technology, organization, and power,” the very things Adam Smith ignored or abhorred.
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