Adam Smith, free-market nihilist

by Madawc Williams

Free-market systems are by their very nature self-destructive. The cash nexus denies and negates all other social values. Every society that tried to contain such a system has found itself warped out of all recognition, turned into something quite alien to the ideals of its founders.

Smith’s great contribution to the Industrial Revolution was to spread false reassurance. He told the ruling class and the thinking minority that all was well. The social and economic transformations of the time were in his eyes a simple matter of ‘improvement’. The vast upturns later called the Agricultural Revolution and the Industrial Revolutions were not expected to produce any comparable political changes. For Smith, all that was happening was the creation of a rational prosperity, the clearing away of a nonsensical chaos.

Smith absolutely rejected the view that it was ripping apart social traditions that would never again be re-created. Nor did he suppose that ‘improvement’ might go beyond what he thought proper – that it might change the balance of the constitution, for instance.

Smith was a decent, honest, good-hearted fellow who really believed all of the things that he was saying. But he was quite wrong. He wanted wage workers well looked after, given a fair share in the new prosperity. Yet the very economic principles that he endorsed ensured that this would not happen. And this led in turn to the rise of an independent working class and the growth of democratic power – developments that would have utterly appalled him.

We in Britain are the end-product of some two and a half centuries of free-market warping and transformation. As end products, we natural! y see many of the changes as great improvements. The spread of democracy, the equality of the sexes, the replacement of hierarchy and inherited privilege by relative equality, a much reduced role for hereditary wealth – all of these seem good to us.

To the 18^th century gentry who oversaw the start of the whole process, ‘democracy’ was a dirty word. Most of them saw equality of the sexes as an abomination, a breach of the natural order. Hierarchy and hereditary wealth meant everything to them. Privilege was the basis of civilised life.

I said that we in Britain are end-products of capitalism and the free market. So should we worry? We should, if we have any sense, because we are actually no more than the most recent end-product. The process shows no signs of stopping or finding its own level. It may not in the long run even be compatible with human survival.

If we are fool enough to carry on with free markets, and if this can be done without killing off the planet, then it is certain that the world of the 22nd century will be quite different from anything that we today would think acceptable. It might not even take that long: history these days moves a great deal faster.

“You can’t buck the market”. Right-wingers have taken up this remark by Mrs Thatcher to be an undeniable truth. In reality, most societies for most of human history have very much bucked the market. By doing this they limited their chances of accumulating wealth, but also preserved their own distinct cultural and social values. 18th century Britain was very much the exception in letting rip the unpredictable forces of unfettered commodity production. In a short time this process had turned Britain into a much richer society, but also a society with some very new and alien cultural and social values.

When dealing with market forces, it is question of “buck or be bucked”. Control your own destiny, or surrender everything to the accumulation of wealth.

Thatcher’s remark should in any case have been “We can’t buck the market”. The difference is not a matter of pedantry: it exposes the very heart of New Right misunderstanding of the capitalist system that they try to operate. Thatcher’s notion of free markets has always included the supposition that market forces could simply be switched off where they didn’t suit her purposes. The laws of supply and demand were seen as absolute truths most of the time, but not all of the time. At a minor level, market demands for illicit drugs or hard-core pornography could supposedly be suppressed by state action, at the very same time as all traditional social restraints were being destroyed elsewhere. More significantly, she was determined to preserve British distinctiveness at a social and political level, while abolishing it in the sphere of economics. The national economic plan and national wage agreements and the British Broadcasting Company and nationalised industries like British Rail and British Gas and British Airways are all being tossed into the melting-pot of free- flowing multi-national capitalism.

When people are eagerly promoting social forces that are bound to destroy them, and are wilfully blind to this fact, what else can you call it but nihilism: the pursuit of nothingness?

 

Adam Smith builds his theory on the Division of Labour. But look carefully at what he’s saying, and you find he’s building upon sands. Every human society had practised some sort of division of labour. It is in no way specific to capitalism or free markets. And what was happening in Smith’s time was not really a division of labour. Rather, it was a double process of fragmentation and combination.

The Wealth of Nations opens with the statement:

“The greatest improvement in the productive powers of labour, and the greatest part of the skill, dexterity, and judgment with which it is any where directed or applied, seems to have been the effects of the division of labour.”

After a paragraph of general remarks about workmen and workhouses, he gives his most famous example, the manufacture of pins. He does not claim to be the first to observe it. But on the other hand, he says nothing specific about what earlier thinkers had had to say on the matter. Sir William Petty is generally credited with being the first modem writer to understand and describe the division of labour. He did this almost a century before Smith, in his Political Arithmetic. Petty was also the first person to conceive of modem industrial society, to see that it was possible and indeed likely that a nation as large as Britain might become predominantly urban.

Unlike Smith, Petty treats the division of labour as a fairly minor matter, part of a general pattern of development Smith says nothing about Petty in The Wealth of Nations, even though most people recognise him as one of the most notable writers on economic matters before Smith. In his published writings, Smith does not seem to have referred to Petty at all, apart for an obsequious reference in a letter to Lord Shelburne, one of Petty’s uninteresting aristocratic descendants. (Correspondence, Letter No. 30). Smith hardly ever refers back to earlier writers on political economy, so that his own work seems much more original and brilliant than it actually is.

The Wealth of Nations also sounds much more plausible, thanks to Smith’s style. You get very few indications that there are other sensible opinions besides those Smith presents you with. And the subject is generally treated as if all was darkness before Adam Smith appeared. Quite who first wrote about the division of labour in pin manufacture, I don’t know. Smith gives no indication. What he does say is:

“To take an example, therefore, from a very trifling manufacture; hut one in which the division of labour has been very often taken notice of, the trade of the pin-maker, a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce perhaps, with his utmost industry, make one pin a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades.”

With pedantic enthusiasm, Smith describes how the manufacture of a pin has been fragmented into a series of essentially mindless semi-skilled tasks:

“One man draws out the wire, another straightens it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them …”

This system brings massive gains in productivity, to use the modern terminology. Smith considers the case of ten men working together in a pin ‘manufactory’:

“Each persons, therefore, making a tenth part of fourth-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin a day.”

This presupposes a fairly wealthy society with a well-developed network for the distribution of goods. Only such a society could make it possible for several groups of ten or more persons to devote their lives exclusively to the production of pins. Smith does not ask if it is in fact an improvement for men to have their whole lives taken up with manufacturing one part of a pin. Nor does he mention women and children, though they too were probably part of the workforce. This lack of concern for the de-skilling of work etc. is a constant throughout The Wealth of Nations.

Smith also never considers the possibility that changing the basic work of a society might change the whole of the society in unpredictable ways. This was what was actually happening, but Smith has not the least inkling of it. He was one of those people who assume that the society they grow up in is the only natural way to live, a norm that the rest of the world will be eager to adjust to as soon as they see the light. The economic take-off of 18th century Britain was very much what Francis Bacon had imagined in A New Atlantis, and which the Royal Society had promoted in a thousand different ways. The take-off was occurring after many decades of government intervention designed to produce just such a development, and it had no real precedent in human history. But for Smith:

“This division of labour from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another” … (I. ii. 1)

When ten men work on the different stages of pin-making, they do not normally sell the part-finished pin fragments to one another. Occasionally they may be co-workers in a cooperative. Much more commonly they are employees, labourers controlled by a minor capitalist. This was the norm for manufacturing in late 18th century Britain, but it is not the only possibility. Highly complex divisions of labour can be found in such social formations as a mediaeval monastery, an army regiment or a ship at sea. The unit as a whole may or may not trade, but the division of labour within the unit is normally fixed without regard to any cash exchange.

Whole societies can be run on such a basis. In ancient Egypt, the Pharaoh taxed the farmers and used the proceeds to maintain scribes, craftsmen, priests, soldiers etc. Similar systems existed in other early civilisations, with actual trade playing a marginal role. On the basis of a modernised version of this very old system, the USSR was able to industrialise, defeat the hitherto invincible armies of the Third Reich, build atomic weapons, put the first satellite into orbit and launch the first man into space (as well as the first woman). The disintegration of the USSR began when Khrushchev decided to ‘improve’ the system by combining market forces with state ownership. The ‘improved’ system was an unhealthy hybrid that went into a long slow decline before collapsing just recently.

Smith simply does not talk about social systems which have the division of labour without market forces. Most of the world was still run on such a basis when he was writing, but he refuses to take note of the fact. He goes straight from brute beasts to market traders, without acknowledging that other options also exist. He might have argued for the merit of market systems, but he prefers simply to ignore the fact that complex and sophisticated societies could exist on a non-market basis. In this way he gains simplicity, readability and plausibility, at the expense of intellectual honesty. Everything seems to follow logically from first principles:

“In almost every other race of animals each individual, when it is grown up to maturity, is intirely [ sic] independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them it is for their own advantage to do for him what he requires of them …”

Smith is quite correct to see humans as just another race of animals, anticipating not only Charles Darwin but even Erasmus Darwin. Smith’s work is inherently evolutionary and non-Christian, though he did believe in God. Smith’s close friend James Hutton, pioneering geologist, is a good candidate for the honour of the first scientific evolutionist. But most recent writers on Smith seem to have no clear idea of who Hutton was, and have no interest at all in his ideas. He is mentioned in passing as one of two executors of Smith’s will. (The other was the Ulsterman Joseph Black, who greatly advanced our understanding of heat, and also found the time to give some helpful advice to an obscure young engineer named James Watt. But that’s another story.)

To return to the main theme. While Smith can readily compare humans to other races of animals, he is wrong about the details, and wrong in fairly obvious ways. Most creatures form some sort of social association in the wild. Birds flock, wolves are found in packs, horses and cattle form herds. Ants, bees and termites create very complex societies, and are famous for their social cooperation.

Here and elsewhere, Smith shows himself to be a clever propagandist. The more so since his work reads as a dry academic tome, sounding very scholarly and impartial until you notice the huge number of short cuts and evasions used to get the ‘right’ answer.

“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 …”

Real life is more complex. Most actual social relationships have a mix of benevolence and mutual self-interest. In particular, business people always strive to develop some sort of friendship to go along with hoped-for mutual advantage. In Smith’s time, most people would have had some sort of friendly social relationship with their butcher, brewer baker candlestick-maker etc. Only in a modem supermarket has all social connection been stripped away. And even supermarkets spend quite a lot of money trying to give themselves a more human face.

A social system in which everyone single-mindedly looked after their own self-interest would be a nightmare world. A nightmare that is an entirely logical and self-consistent outcome of Adam Smith economics. Two hundred years of capitalism have not yet stripped us of the notion that we are actually members of a society, with a duty of at least minimum benevolence towards each other. Adam Smith himself would flip-flop between the two views, praising benevolence in his other major work, The Theory of Moral Sentiments. But this work, though much admired in the 18th and 19th centuries, has remained a dead letter. Only The Wealth of Nations played a major part in reshaping the world.

Smith was a conservative nihilist. He was all in favour of a complete overturn of the forms of production, and of stripping the poor of various customary rights, most especially the right to live their lives as their parents had lived them. Yet he also managed to convince himself that there would be no social cost to all this overturning. People who had been humble and knew their place were supposed to go on being humble even after that place was taken away from them.

Events ever since have been showing just how wrong he was.

 

 

This article appeared in March 1993, in Issue 34 of Labour and Trade Union Review, now Labour Affairs.  You can find more from the era at https://labouraffairsmagazine.com/very-old-issues-images/ and https://labouraffairsmagazine.com/very-old-issues-images/m-articles-by-topic/.