Adam Smith, the forgotten liberal

For many, many, years Adam Smith has been praised by conservative thinkers and condemned by liberals. However, I am beginning to think that neither side has really read his Wealth of Nations. During my MBA program I had two economics professors and I asked both of them, both with PhDs in Economics, whether they had read Adam Smith’s famous work. One of them admitted that he hadn’t and the other claimed to have read it at part of his graduate studies, but didn’t remember much about it. His recollection was that it was a dry and uninteresting work which spent far too much time on the manufacture of pins.

I’m not going to claim to be an expert on Adam Smith, or economic theory for that matter. However, there are parts of The Wealth of Nations which strike me as completely opposed to the common belief that he recommends that government stay out of all business transactions.

The main reason for such a belief was that The Wealth of Nations was written to show government’s how to extract the most income from their economy. It was written to show government, in his case a monarchy, how monopoly power stifles business and reduces the income available to the government. It’s hard to be anti-government with that agenda.

What his thesis really boils down to is that should a government grant a monopoly, making it illegal for other people to engage in the same business as the person holding that monopoly, government revenues suffer. That is his point, the whole bit about the “invisible hand” is justification for his point, but to accept his analysis without acknowledging his point about how government regulates business is to miss his entire thesis.

However, that’s not what I want to mention in this post. What I want to do is point out a few quotes from Adam Smith’s The Wealth of Nations and let you decide how conservative he is:

When the toll upon carriages of luxury … is made somewhat higher in proportion to their weight …, the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor, by rendering cheaper the transportation of goods to all the different parts of the country

What Smith is saying is that on toll roads we should tax the rich more in order to keep the cost of tolls down for transporting goods. He acknowledges that there is a cost to build and maintain a road, and that if the rich will bear a greater percentage of that cost, the entire country will benefit from a lower cost of goods, stimulating the economy. Yes, you got it, Adam Smith says it's okay to tax the rich more!

Or, how about this quote:

The tolls for the maintenance of a high road cannot with any safety be made the property of private persons. … The proprietors of the tolls upon a high road, … , might neglect altogether the repair of the road, and yet continue to levy very nearly the same tolls. It is proper, therefore, that the tolls for the maintenance of such a work be put under the hands of commissioners or trustees.

Yeap. Once again, Adam Smith is saying that private individuals or corporations cannot be trusted to maintain the roads and the only way to be certain the maintenance occurs is to have government be responsible for them. Hardly the Libertarian ideal here.

I admit that Smith goes on to say that there can be problems with governments managing the roads too, and even the problem of collecting more taxes than are required to maintain them. However, that doesn’t negate the point that Smith felt that private individuals or private corporations cannot be trusted by the monarchy (or any government) to adequately maintain the roads in a condition necessary for commerce. In fact, since Smith’s time we have developed a democratically elected government system which can be used by the citizens to ensure the roads are maintained, unlike the monarchies of his own day. So even Smith’s worries about government tolls and tariffs can be addressed in today’s system of government roads, which may not be as easily addressed in a corporate state.

Smith continues by having a long discourse on education, whether it is in the state’s interest to provide public education or not. Here is the money quote:

A man without the proper use of the intellectual facilities of a man, is, if possible, more contemptible than even a coward, …. Though the state was to derive no advantage from the instruction of the inferior ranks of people, it would still deserve its attention that they should not be altogether uninstructed. The state, however, derives no inconsiderable advantage from their instruction. The more they are instructed the less liable they are to the delusions of enthusiasm and superstition, …. An instructed and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one. … They are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition, and they are, upon that account, less apt to be misled into any wanton or unnecessary opposition to the measures of government.

It would be hard to find a more ringing endorsement of public education for the purposes of government stability.

Other examples abound in Smith’s great work. My title is, I admit, misleading. In fact, Smith was writing long before our modern definitions of liberal or conservative were forged. Smith was not a conservative, nor was he a liberal, not in the modern sense at least. Smith was a realist, and a monarchist. He believed in a strong central government, which regulated trade for its own benefit. He understood that the wealth of a nation increases when opportunities for individuals increase, and proposed using the power of the monarchy (the government) to increase the opportunities of individuals.

Many of his proposals, like the need for government owned public goods and government subsidized education are sometimes considered liberal proposals in the fractious political environment of the modern United States. However, it is clear to me that our Founding Fathers read Adam Smith’s seminal work and understood it. In fact they understood it far better than the cliff-notes version that many of today’s economists appear to use. Many of the checks and balances, the requirements for local control, and other facets of the government the framers of the Articles of Confederation and the United States Constitution attempted to establish are clearly responses to the difficulties raised by Adam Smith in the later chapters of The Wealth of Nations.

To claim that he wanted to eliminate government oversight of business is to defame one of the greatest economic theorists of all time.