Latest update: January 10th, 2013
We wonder about the endlessly volatile markets and also (not often enough) about plainly unequal distributions of national wealth, but are the nation’s official policy responses based on correct views of classical economic theory? In particular, what about Adam Smith and his oft-quoted arguments for “free market capitalism”? More than any other classical theorist, Smith has been embraced by conservatives.
In brief, Smith reasoned, always capably and persuasively, that a system of private property, though naturally unequal, could still permit the poor to live tolerably. Rejecting Jean Jacques Rousseau’s contrary position that in commerce, “the privileged few…gorge themselves with superfluities, while the starving multitude are in want of the bare necessities of life,” Smith saw in capitalism not only an enviably rising productivity, but also the ultimate prerequisite for political liberty.
Adam Smith published his Inquiry into the Nature and Causes of the Wealth of Nations in 1776. A revolutionary book, Wealth did not aim to support the interests of any one class over another, but rather the overall well being of an entire nation. He discovered, as we all know, “an invisible hand,” an unsought convergence whereby “the private interests and passions of men” will lead to “that which is most agreeable to the interest of a whole society.”
Through capitalistic modes of production and exchange, reasoned Smith, an inextinguishable social inequality might still be reconciled with broad human progress.
Significantly, however, today’s conservative defenders of Smith usually ignore, either deliberately or unwittingly, the full depth of his relentlessly complex thought. A system of “perfect liberty,” as Smith called it, could never be based upon any encouragements of needless consumption. Instead, he argued, the laws of the market, driven by competition and a consequent “self-regulation,” strongly demanded a principled disdain for all vanity-driven consumption. “Conspicuous consumption,” a phrase that would be used far more effectively later on by Thorsten Veblen, could therefore never become the proper motor of economic or social improvement.
Adam Smith understood the dynamics of conspicuous consumption, but he disliked them altogether. For him, it was only reasonable that the market regulate both the price and quantity of goods according to the final arbiter of public demand. Yet, he continued, this market ought never to be manipulated by any avaricious interferers. More precisely, Smith excoriated all who would artificially create or encourage contrived demand as mischievously vain meddlers of a “mean rapacity.”
Today, of course, with engineered demand and hyper-Consumption as both permanent and allegedly desirable market features, we have lost all sight of Smith’s “natural liberty.” As a result, we try, foolishly and interminably, to construct our economic recovery and vitality on sand. Below the surface, we still fail to recognize, lurks a truly fundamental problem that is not political, economic, fiscal or financial. Instead, as Adam Smith would have us understand, it is a plainly psychological or human dilemma, one we should acknowledge can never be resolved by either Barack Obama or Mitt Romney.
Wall Street’s persisting fragility is largely a mirror image of Main Street’s insatiable drive toward hyper-consumption. This manipulated drive, so execrable to Adam Smith, has already prompted certain learned economists to warn repeatedly against saving too much. Could any advice be more ironic?
Whether Democrats or Republicans, all voters believe our national economic effort must always be oriented toward buying more. No one seems to ask, Exactly what sort of society can we expect from an economic system based on imitation and conformance?
Contrived demand has not always been a basic driver of our economy. Before television, and before our latest social networking gadgets, such demand could not have had any such overwhelming power and effect.
Writing in the middle of the nineteenth century, the American Transcendentalist philosopher Ralph Waldo Emerson spoke presciently of “self-reliance.” Foolish “reliance upon property,” Emerson had understood, is the unwanted result of “a want of self‑reliance.”
Now, living apprehensively amid a literally delirious collectivism, the ever-fearful American wants, more or less desperately, to project a “successful” image. This projection, in turn, remains founded upon material acquisition of “all the right things.”
In the final analysis, as Adam Smith himself would have understood, it will be the relentlessly conformist call of American mass society that critically undermines our core economy.
To create a robust economy, and a stable stock market, we Americans will finally have to reorient our larger society away from its long-corrupted ambience of mass taste.
In that expansive part of America that still knows very little of Wall Street, there is now great fragility and a palpable unhappiness. Taught again and again that respect and success will lie securely in high salaries, and corollary patterns of high consumption, the compliant American mass dutifully celebrates “fitting in.” At the same time, this nation widely abhors real literature, difficult ideas, or any hint of “civilizing” education. Not surprisingly, our universities, for the most part, are now more genuinely concerned with popular magazine ratings and “branding” than with any serious learning.
In his Theory of Moral Sentiments, appearing in 1759, Adam Smith noted that human beings are not made happier by their possessions but that the rich, in seeking the “gratification of their own vain and insatiable desires,” simultaneously “advance the interest” of society as a whole. Without intending any such general benefit, the wealthiest members of the nation “are led by an invisible hand” to bring forth reductions in social inequality.
None of this should ever be understood to mean, however, that the preferred path to economic growth and stability ought to come from any specifically engineered patterns of hyper-consumption.
Even if we can accept Smith’s entire core argument about the “invisible hand,” America’s best path to economic well-being can only lie in a steady retreat from mass society and in sturdy new personal affirmations of self-reliance.
About the Author: Louis René Beres (Ph.D., Princeton, 1971) is professor of political science and international law at Purdue University and the author of many books and articles dealing with international relations and strategic studies.
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