The Fallibility of a Word

“Mark” at Larvatus Prodeo writes HERE of “Rebranding Capitalism” to which I posted a comment:

The word ‘capitalism’ was first used in English by William Makepeace Thackeray in 1854 in his novel, The Newcomes, chapter XLIII.

He was talking about the business, mainly financial, affairs of some of his characters. He also used the word “capitalist” several times, though this word was first used in English in the 1790s (in French, capitaliste, was used earlier in the 1760s – I am writing from memory just here).

The word ‘capitalism’ was not used by Adam Smith (he died in 1790), nor by Ricardo (1817), Malthus, Mill (1849), nor, interestingly, by Marx.

Adam Smith referred to his ‘4th Age of Man’ as commerce, the earlier three being “1st, the Age of Hunters; 2dly, the Age of Shepherds; 3dly, the Age of Agriculture” (A. Smith, Lectures on Jurisprudence, p 14, [1762-63] 1978).

Myths and Reality

A Mr Jacob R. Freudenthal of New York writes to the Financial Times HERE

“The iron fist forcing though healthcare reform”

“I am not an economist, but I had always thought that capitalism was supposed to be based oncompetition and freedom of consumer choice. When a politically influential interest group is able to harness the power of the state in order to expand its stranglehold over an industry that is so essential to the health and wellbeing of the entire population, Adam Smith’s invisible hand looks more like an iron fist.”

Comment
A typical ‘popular’ take on the metaphor of the invisible hand used by Adam Smith and by scores of others from classical times, particularly in the 17th-18th centuries, but also right up to modern times (even in a “Tarzan” novel).

I have seen a variation of the “Iron Fist” version in the form of “a middle finger” (I understand this is an allusion to a vulgar “street” sign given out by some incompletely-educated people today).

In this case, it’s about a row over a Health bill going through the US Senate, of which I have no views (I only comment on political issues in the country where I vote – Scotland).

I can comment on the remark about “capitalism was supposed to be based on competition and freedom of consumer choice”. This is a remarkable statement from Mr Jacob R. Freudenthal. On one abstract level he is right, but not in the sense that this view corresponds to any (to my knowledge) modern state-capitalist societies in the 20th-21st centuries. It could even be argued that no such ‘capitalist’ society has ever existed.

Adam Smith wrote a devastating critique of mercantile political economy and it’s state-commercial integration almost from the 16th century onwards.

Think of 18th-century legislation to regulate society, making it less competitive in practice – Statute of Apprentices; Settlement Acts; Navigation Acts; Corporate and Guilds Acts; Protection and Prohibitions; Primogeniture and Entails laws; Chartered Monopolies and Tariff policies.

Smith’s critique was not against all state legislation or even in favour of minimal legislation (another myth dince the 19th century); it was against legislators and those who influenced them who passed laws that perverted the effects of competition.

The point is that much of what was eventually repealed was replaced by new forms of anti-competitive measures. The USA is hardly a bastion of free trade, as can be said of most others. The ultimate case is that of agriculture, a standing disgrace that rich countries discriminate against some poor countries potential exports.

In all of this, of course, the metaphor (and myth) of “an invisible hand” is a diversion. It has no relevance to the issue of health supply. That’s down to politics, finance, and the electoral system.

Art Carden on Why Capitalism is Unpopular

Art Carden writes in The Market Oracle (HERE):

His article, “Why Is Capitalism So Unpopular?” [abridged drastically below – follow the link] is a tour de force, an imaginative explanation that fits the question with a literate, convincing, and an honest answer. Read the sample and then follow the link.

“Henry Hazlitt once said that good ideas have to be relearned every generation. Among the intellectuals of our time, capitalism is wildly unpopular. This in spite of the fact that it is the only social system that has permitted prosperity and flourishing.

I think there may be a more straightforward explanation that plays a role in their dismissal of capitalism. To a "man of system," to borrow Adam Smith's terminology, capitalism just isn't that exciting. Participants in the market economy are wholly beholden to consumer wants. The academics envision a grand world, where Great Men fight Great Wars, periodically inventing Great Things or developing Great Ideas. Instead, the market provides us with incremental processes, which expend enormous piles of resources, in a quest to make better Triscuits. It is hardly the stuff of high drama, to say nothing of Great History.

The idea that great statesmen are not needed — to say nothing about being wanted — can no doubt be galling to many who decry capitalism for its excesses. For the people who derive their self-worth from being paternalistic, this is a sorry state of affairs indeed.

According to the do-gooders whom Adam Smith called "men of system," the average person is like a piece on a chessboard, to be arranged at the whim of a supervirtuous planner. The planner, who ignores the fact that each of the pieces has (as Smith put it) its own "principles of motion," does his best to orchestrate a game according to his own rules. Dissenters are not tolerated.

Yet people are not chess pieces, to be moved around at will. They are living, breathing, acting, thinking, rational beings with rights and dignity. Respect for their humanity rules out interventions by do-gooders, no matter what their intentions. The result of denying people their fundamental freedoms can be terrible, as the horrors of humanity's 20th-century experiments with collectivism have shown.

Comment
There is much more in Art Carden’s article. I strongly recommend that you read it in full.

Market economies work better than their alternatives and better, in my view than so-called “free markets” where businesses are aided by friends (and, alas, sometimes by clients) in public office. Shutting down state departments of trade and industry, and all lobbying organizations, followed by barring all lobbyists, would be a start towards freer markets.

Of course there is an essential role for government where necessary; defence, justice, public works and public institutions, education and health funding (not always by public provision, but always by voucher schemes), necessary regulation aligned with justice and the separation of powers, and the promotion and defence of personal liberty.

Art Carden’s article deserves the Lost Legacy September Prize, with bar and oak leaf clusters. I for one am truly impressed.

Was 'Capitalism' Designed by Adam Smith?

In a debate, so far conducted as an exchange of comments, I have made a longer comment than the system allows, so I have brought it a a post below:

I refer to my post and subsequent comments 'Beyond the Facts' with Antony North, below'

'This was not how capitalism was meant to be, originally devised by Adam Smith as a philosophy to go alongside thrift.'

My problem with this sentence is the part: “how capitalism was meant to be”.

Societies are not ‘meant to be’ (if so, who by? How does the ‘meant to be’ work?, etc.).

Societies are not ‘designed’ by any one person. All attempts at utopias fail; good intentions account for nothing; nobody
‘designed’ any previous society.

Gatherers engaged in certain behaviours which they inherited from their primate ancestors (the common ancestor of both hominines (hominids) and chimpanzees). They developed regional behavioural differences. The pre-history of primates and hominines show variations (east and west African chimpanzees, bonobo’s, and the lineage of hominines went through at least 18 different species before the human species emerged, 400,000 years ago). Homo sapiens also varied in their adaptabilities to local conditions.

Gatherers, opportunistically, also hunted small-sized animals (as do chimpanzees), later going after scavenged carcasses and, eventually hunted bigger game, assisted by primitive technologies – worked stones and wooden shaped weapons.

No individual designed these changes – those that worked assisted survival; those never tried left those who never tried at the inherited level of subsistence (for most hominid species, they had long histories, counted in hundreds of thousands of years before their extinctions).

Shepherding was picked up by minorities of local tribes, as was farming. The majority of gatherer-hunters/scavengers remained as they were as humans for most of the 400,000 year span lived by humans so far. As John Locke put it: 'in the beginning al the world was America’ (in reaction to the discovery by higher technology tribes of lower technology tribes still living as did our forebears in the forest). Even today, there are some isolated tribes still living off their surroundings as the whole world once lived.

The division of labour was not designed by anybody; it happened as individuals found it worked for them. Professor Frances Hutchison opined in his posthumous work, A System of Moral Philosophy (1755), that the leader divided up the tribe into separate jobs, which was solely from his imagination. Where did the leader get the idea from? Or was it discovered independently scores of thousands of times over and again across human societies?

Hence, I come back to the question of who invented capitalism, a question that must also explain how and why it took different forms across the globe among those human societies that had moved from pastoral subsistence to ‘towns and countryside’ and had survived and functioned in many different forms across Europe and Asia, from the Atlantic to China, with many examples of some societies collapsing (Mediterranean) or stagnating (India and China) and not sustaining (or reviving) into commercial societies, as happened in late-Medieval western Europe from the 15th century.

The rise of commercial civil societies in the 18th century is explained historically and how and why they went on into distinctive forms of capitalism from mid-19th century onwards.

Crediting an individual when there were many individuals thinking and contributing their ideas, is the folly of such assertions. Just because some key thinkers (Pufendorf, Chydenius, Quesnay, Cantillon, Turgot, List, Hamilton are less well known today is not a good reason to hand such a role to Adam Smith, who did not live long enough to codify how British capitalism (which evolved differently from Scandinavian, French, German, and US capitalism) evolved. Moreover, as much of his legacy had been heavily distorted, and confused with others (Mandeville, the Physiocrats, Ferdinand Lasalle, Marx, etc., - see my Adam Smith’s Lost Legacy, 2005: Palgrave-Macmillan) it is not difficult to rebut the idea that he ‘designed’ capitalism.

You ask: ‘Is it correct to say Smith devised his concepts within an ethic of thrift? I think so’.

I answer that it is a extreme generalization. ‘Thrift’ as you postulate is in Smith’s philosophy expressed as ‘frugality’, as opposed to ‘prodigality’.

Thackeray and others, (say, Trollope) noted the extravagant living of the upper-orders and saw the corruptions of the finance capital, which was the essence of late-19th century ‘capitalism’. Corruption was already evident in the South Sea Bubble, the East India Company, etc., in Smith’s time, in a relatively smaller–scale commercial society, and was more than evident in the decline of Rome. Adam Smith observed; he did not predict nor proscribe.

Capitalism evolved whatever Adam Smith or anybody else thought about the society they lived in. It has ever been thus; human nature is unchanging.

Dreaming Can Be Dangerous

Joe Campbell writes an intelligent Blog, 2parse (HERE):

He has hit on something quite important. He has come up against a discontinuity in one of histories certainties: Adam Smith’s ideas, as taught by academia, are quite wrong. There is a lot missing in the modern image of Adam Smith and what he was about.

Smith did not speak of capitalism because the word was not yet invented in English; in 1854 William Thackeray used the word, capitalism, for the first time in English in his novel, The Newcomes (Oxford English Dictionary).

Joe offers his “modest proposal for the day:

“Tear down our capitalist system and replace it with a free market.”

“The two terms are usually used synonymously – and I’m sure I am guilty of this myself. But after a long night of fevered dreams about politics and policy … I woke up realizing there is an important difference between the two ideas. (Perhaps as my unconscious mind dredged up some forgotten piece of writing from years ago.)

“The free market is a commonsensical idea – as it is based on the values of competition, individual opportunity, and liberty. Adam Smith (from what I know of him) was only a proponent of this system – which he called “the system of natural liberty” – rather than a proponent of “capitalism” – a term he never actually used. Smith – arguing for this system – argued against government being used to prop up industries or to direct them. What he did not argue for though was “capitalism” as it has been understood for the past century. In many ways, the idea of capitalism evolved to defend our system from Marxist ideas – so it evolved to preserve the status quo rather than to describe an ideal system.

“… Our economic system though was created in an ad-hoc manner – and the ideology which grew up to defend it lacked any clear ideals. So, this ideology was defined then by what it opposed rather than a positive protection of certain principles. Capitalism then means less government interference, less centralized control of the means of production, less regulation. What this capitalism has created though is a rather unfree market – in which a small number of individuals own most of the capital – in which competition is thwarted by monopolistic practices, by bigger and bigger mega-corporations, by regulations proposed by the mega-corporations to keep out competitors, by bailouts.

Our capitalist system is based on valuing capital over labor, of separating mangement and labor from ownership, of limiting the liability of individuals for their actions in corporate environments, of externalizing as much cost as possible to the public commons, of profit over all things. It is hard to see what most of these principles contribute to the creation of a free market. Indeed, many of them undermine it – creating a closed market, profitable only for a princely few who have the capital.”

Comment
Much of Joe’s thinking is well motivated but he is confused because he advocates root and branch transformation in a long-established socio-economic system, and that isn’t going to happen.

The sheer impracticality of it is breathtaking.

What do several billion people do while the transformation is agreed, let alone undertaken, should the very remote possibility of securing agreement happens?

What will those who believe they may lose from the transformation do about what they see as a bleak prospect? Would the political system remain neutral? Who has got the deepest pockets?

For these reasons I think a reminder of Adam Smith’s philosophical stance – do nothing but observe everything – is in order. Start with the stability of the society and propose practical changes that will slowly and gradually take affect without de-stabilising justice and society’s good order. Try to change your corner of the world oveer time but not the whole world in one go.

Also, avoid sleeping on rich food or strong drink, and don’t take seriously anything you remember about ‘a long night of fevered dreams’, no matter who she or he is.

Adam Smith and Capitalism

Paul Martin writes 'It isn't capitalism, it's greed' for Revolution Radio HERE:

“What we have is a bunch of greedy people who we, the people, have elected to office. Keep in mind that Adam Smith who created the capitalist system (just as Karl Marx created the socialist and communist systems that redistribute wealth) said that capitalism was a profit-motivated form of economics. He made it very clear that when greed became the driving factor behind an economy, it was not capitalism at work. It was greed.”

Comment
Much as I admire the life’s work of Adam Smith, to describe him as the person ‘who created the capitalist system’ is, well, breathtaking in its sheer ignorance, much as a teenager, or younger, looks in awe at favourite celebrities.

Smith observed and described, with more than a few conceptual flourishes of great merit, but he in no way at all ‘created the capitalist system’.

Indeed, he never knew anything of ‘capitalism’, a word invented in English for the first time in 1854 (Smith died in 1790).

Philosophers do not ‘invent’ systems and nobody invented ‘capitalism’ or the ‘commercial society’ which Smith described, and which had been around since long before he was born in 1723.

It follows that Smith did not make ‘it very clear that when greed became the driving factor behind an economy, it was not capitalism at work. It was greed’.

Of the two men mentioned, Adam Smith and Karl Marx, it may surprise some readers to realise that Adam Smith was far more condemnatory of ‘merchants and manufactures’ for their monopolising behaviours, out-right scheming against the public interest, and their corruption of the legislature, than Karl Marx was of 19th-century capitalists.