A Gem Amidst the Dross

It is a positive sign that not every commentator on current affairs in the current corporate finance crisis purveys the inaccurate nonsense that a source of the problem lies in anything written by Adam Smith, the man born in Kirkcaldy in 1723.

Eli Cox, Chair, department of Marketing at McCombs School of Business, writes in McCombs Today (‘News from the McCombs School of Business’) HERE (30 September).

“Cox: Creed of Greed Not Supported by Adam Smith

“Ordinary Americans have a deepening mistrust of free-market capitalism as our nation has gone from Enron, WorldCom, Adelphia and Tyco to Bear Sterns, Freddie Mac, Fannie May and Lehman Brothers. Sadly, this mistrust is justified because too many corporate executives have adopted the creed of greed. This creed is based on the false view that Adam Smith believed that that personal greed generates the public virtue of economic growth. In fact, Smith would have been revolted by this misrepresentation of his views, as he actually wrote the following:

“Justice [the human virtue of not harming others]…is the main pillar that supports the whole building. If justice is removed, the great fabric of human society which seems to have been under the darling care of Nature must in a moment crumble into atoms….Men, though naturally sympathetic, feel so little for others with whom they have no particular connection in comparison to what they feel for themselves. The misery of one who is merely their fellow creature is of so little importance to them in comparison to even a small convenience of their own. They have it so much in their power to hurt him and may have so many temptations to do so that if the principle of justice did not stand up within them in his defense and overawe them into a respect for his innocence, they would like wild beasts be ready to fly upon him at all times. Under such circumstances a man would enter an assembly of others as he enters a den of lions.”

Smith is most famous for The Wealth of Nations (1776) but he discussed the ethical foundations for a free-market system in his first book, Theory of Moral Sentiments (1759). The quote found above is drawn from The Wealth of Nations states that unbridled greed destroys a free market system.

The pernicious view that “economic man” is selfish and rational and that Smith’s invisible hand will clean up the mess has been perpetuated by the Chicago School of Economics. Milton Friedman (Nobel Price 1976) argued that corporate managers should be economic men who should maximize profits without engaging in socialist activities like caring for workers or the environment. What he failed to recognize is that corporate managers may and often do try to maximize their own wealth at the expense of stockholders as well as customer.”

Comment
How true! At last a sign that some of the vast faculty of economists, trained in the academic world that has long been dominated by Chicago since the early 50s and by those who went onto teaching across the Western World’s universities, colleges, and school, have not lost their critical faculties – they show signs of actually reading what Adam Smith wrote and not what their tutors told them.

[I have long expressed the view to students over 35 years teaching that the patron saint of students was Saint Thomas – ‘don’t trust what you are told by tutors – read it for yourself!]

I commend Professor Eli Cox for his gem of truth amidst the current dross that passes as acceptable in the plethora of published pieces during these last two weeks.

He is right to assert that the myths of the majority fed on Chicago’s misappropriation of Adam Smith’s legacy contributes to the popular groundswell of distrust of markets and in consequence strengthens the corporate statists in favour of even bigger government.

Friedman, and the many others, who linked free markets to their myths about invisible hands, laissez faire and the elision of self interest into greed, severely damage the constant struggle for clean markets, open and transparent competition, and tolerable levels of public goods in place of big government in too close an alliance with big corporate interests.

Markets, operating under a regime of justice (and the prosecution of corporate criminals), are part of the solution; they are not the problem.