As if and Adam Smith

by G. Murphy Donovan (December 2015)
 

 “… every man must be supposed a knave.” – David Hume

            

Adam Smith (1723-90) is memorable for things he was not. He wasn’t an economist; he was a moral philosopher. He wasn’t a decadent capitalist; he was primarily an underpaid pedagogue. He was not a bon vivant either, as if such things were possible in Protestant Scotland. He was a discrete Edinburgh bachelor who lived happily with his mum. He was a Christian too, a choice that no doubt informed his Presbyterian world view. “Productivity” was one of his favorite words, a noun that might well be associated today with independence, clean living, and hard work.

In Smith’s day, only the French recognized a discipline called economics, and the French take on national wealth, then as now, had more to do with appetites, agriculture, and food comas than industry. No accident that the four day work week found Paris first. The French, however, were always on the cutting edge of social science. The menage a trois, soft cheese, and truffles all survived La Revolution. Appetite fusion is culture in la belle France; little tolerance for an arriviste, but weak in the knees for tasty amphibians, a mistress, the guillotine, mustachioed German corporals, and now ungrateful refugees.   

Adam Smith’s best friend and mentor was arguably David Hume (1711-76), another Scot who spent his life thinking about how we think. You could do worse than see Hume as the watts and Adam Smith as the lumens of Enlightenment philosophy. One provided the energy and the other supplied the light. David Hume was also the skeptic’s skeptic.

Hume spent a lifetime disputing the reality of fact, reason, and God. He lost his argument with God the month after the Declaration of Independence was signed in America. Adding insight to irony, Adam Smith’s Wealth of Nations was published a month earlier the on 4 July 1776.

Both men are significant today because they were revolutionaries, chaps who challenged the conventional wisdom of the time and laid part of the intellectual foundation for experiments like the United States. Hume and Smith were progressives long before the dystopic irredentism of Karl Marx appeared. Indeed, the 18th century was an era where, unlike today, progressive actually meant change or reform – not control, force, or redistribution.

Hume’s skepticism was often captured with economic clarity, “Reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey them.” In short, Hume thought of politics (and much called natural philosophy in those days) as the art of managing human emotions by manipulating facts and reason. In the end, he surmised that “Nothing is more surprising than the easiness with which the many are governed by the few.” For Hume, reason was best used to illuminate ignorance not truth.

Adam Smith’s most famous theory about national health and wealth was an heir of Hume’s lucidity. The Wealth of Nations is predicated on four human values: optimism, sociability, cooperation, and trust. Smith believed that such traits were innately human in nature’s most belligerent animal. The notion that men and women, and a host of other species, are social, nee tribal, animals by nature, or evolution, was nonetheless confirmed by Charles Darwin (1809-82) less than a generation later.

Those who still believe that a tribe cannot be simultaneously; social, disputatious, and violent have never been to the Bronx or owned chickens. Indeed, spinster hens are models of tranquil productivity and some other habits not fit for polite conversation. Still, a hen’s outputs might be measured in quiches and soufflés.

Philosophy is the daisy chain of human thought.

Benjamin Franklin is a homespun Yankee illustration. The American polymath captured Adam Smith’s “invisible hand” in an aphorism that used to grace early American coinage. Before “In God we Trust,” the Fugio cooper cent read “mind your business.” Franklin wasn’t talking to Dolley Madison. He was saying that to tend to the business of family, community, and enterprise was to assure the prosperity of the new American nation.

Smith’s paradigm about wealth had a similar clarity. He argued that industry not agriculture was future prosperity. Adam did not speculate about industrial agriculture, but the reality of agribusiness speaks for itself today. Could he; Smith would probably argue now that services will give manufacturing a run for the money. He also claimed that gold or money did not represent wealth. Wealth for Smith was making, not taking - or holding. Currency for Adam is merely a tool in a larger scheme. For Smith productivity and growth were the bottom lines, keys to prosperity and the wealth of nations.

His 18th Century metaphor for the process was a sweater. A better contemporary analogy for Americans might be the hamburger, that oxymoron of the lunch world.  

The burger has evolved from bread and meat to a colossus called the Whopper. In the American dialect, a whopper could be a sandwich, a fish, congressional testimony, or a plus-size shopping at Walmart. The invisible handymen who make the 7-900 calorie burger possible are cowboys, farmers, butchers, bakers, dairymen, and Teresa Heinz. Each contributes in their own way to double meat, double cheese, and all the fixings possible on a brioche. All parties, including middlemen, in the burger marketplace benefit when a Whopper is washed down with a Dr. Pepper.

The process is so satisfying; Jimmy Buffet claims that there will be cheeseburgers in paradise. From his lips to Saint Peter’s cafeteria we pray daily.

Let’s say a hefty wimpy costs $2.50. Production might cost a dollar, and retailing might add another buck, with 50 cents left as surplus. If profits are prudently invested in more ingredients, more burger joints, and more employees; the wealth of nations is assured, producers and consumers cooperating in the cycle of productivity. Growth is not a certainty, but if burgers and big gulps fade, maybe the next big thing is falafel and juice bars.

The essence of democratic capitalism is invention, change, and occasionally, revolution. Progress and productivity are wingmen.

The lubricant for economic and social machinery is cooperation and trust. Heinz doesn’t have to schmooze with cowboys to be assured that her ketchup and a potable steer will be well matched one day. Networks of cooperation and trust are guided by an invisible hand of good will that usually delivers the goods.

Adam Smith identified the individualism, optimism, and freedom required to make an economic engine run. Indeed, he championed an entrepreneurial model that eventually became America, then Canada.

A seasoned Yankee aphorism captures the wisdom of Smith’s social analysis, his productivity model, “A rising tide floats all boats.”

The threat of monoculture and tyranny in politics, agriculture, or industry was evident to Hume and Smith throughout. Tribes trend towards monopolies then and now. Smith’s solution was fair law that maintained a competitive market - and protected the consumer.

Law and the market are wary bedfellows still. Market inputs like taxes and imprudent regulation always menace inputs (labor) and outputs (GDP) alike. Herein lays the difference between the Smith and Marxist economic paradigms. With Smith the bet is on the optimism of freedom. With Marx, and contemporary socialism, the wager is on control, if not coercion - and now deficit largesse, plethoric redistribution to the unproductive.

The modern welfare state is not so much about fairness, or social justice, as it is about throwing a wet blanket on initiative and the energy of poverty. For many social democrats, dependency dollars do triple duty as wishful thinking, domestic pacifiers, and reelection insurance.

Marxism reached an apogee of incompetence when communism oxidized into totalitarianism. Then the Soviet exemplar imploded. And then George Kennan and Margaret Thatcher were canonized. Withal, a discredited Marx turns out to be one of the zombies of history. Socialist doppelgangers still haunt the nightmares and the legislatures of nation states.

If David Hume could audit social democracies today, he might conclude that the “free” world has confused “is’ with “ought.” Adam Smith, more polite, like Alicia Silverstone in Clueless, might just role his eyes and exclaim: “as if?”

Adam Smith is to economic theory what Shakespeare is to literature, universally celebrated but seldom read. The English language of yore is tough sledding for tweet, twaddle, and Facebook numb nuts. Indeed! The generation that navigated higher education with Cliff Notes now runs the schoolhouse.

Alas, a book about a book often provides the inspiration to examine the original source. The Wealth of Nations, a Readers Guide (Cambridge University Press, 2015), by Jerry Evensky is such a book. Let’s be clear, Evensky is not an economist, he is an economic historian, a distinction with a big difference.

Practitioners of the dismal science are more like proctologists, where a patient’s history is far more interesting than what a doctor might see in the exam room every day. Indeed, managing an economy in real time is a lot like watching hemorrhoids come and go. In the end, a historian has less incentive to cook the numbers or prescribe placebos.

Evensky provides a very readable tour of Smith’s ideas, chapter by chapter, for the scholar and layman alike. His timing for North Americans couldn’t be better. Canada just elected another Trudeau and a Clinton is trending again to the South. Ideology doesn’t much matter in Mexico. Most narco-banditos are oblivious to politicians as long as they can be bought. The next US presidential election could, nonetheless, represent a socio/economic bellwether.  

Hard to believe that the indignity of social dependency, control, and coercion still threatens the optimism and proven success of entrepreneurial capitalism. 

Among the errors of Marx, and socialist heirs, the most egregious is the redefinition of value-added and near universal demonization of outputs like growth, surplus, or profit. Indeed, “profit” is a noun you are unlikely to encounter on economic panels these days.

Withal, Evensky’s new book allows a confused and conflicted generation to touch base again with much that made America and Canada a success to begin with. Health, wealth, and happiness are indeed team sports. Evensky also sets Adam Smith in the moral milieu that always informs good history. The great questions facing mankind are ever moral not scientific. And finally, Professor Evensky reminds us that those who defend the Smithsonian paradigm are progressives in the best sense of that word. Democratic capitalism in its original and finest incarnation is about outsiders, change, reform, and progress – in word and deed.

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Professor Jerry Evensky is Agatha Gilman’s favorite uncle. Gilman is an earnest scholar herself, without whom GMD would never have met, no less read, the sage of Syracuse University.

 

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