Exclusive to OpEdNews:
OpEdNews Op Eds

Warped interpretation of Adam Smith’s phrase, the “invisible hand,” undermines economic justice

By (about the author)     Permalink       (Page 2 of 4 pages)
Related Topic(s): ; ; ; ; ; ; ; , Add Tags Add to My Group(s)

View Ratings | Rate It


- Advertisement -
However, let us consider some of Adam Smith 's arguments that contradict the modern message of conservative laissez-faire capitalism.

1. Adam Smith was pro-labor
Adam Smith discusses the relationship between workers and owners, or labor and masters, respectively, stating "It is not, however, difficult to foresee which of the two parties must ...have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, while it prohibits those of the workmen. " This statement describes the legal environment which has dominated US labor history, where the courts repeatedly sided against labor both in the enactment of workplace protection and through the issuance of injunctions to break strikes.

The U.S. labor movement struggled for over a century to obtain the right to collectively bargain. Smith anticipates the vigor with which the masters would oppose the workers, noting that in labor disputes, the masters "never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen. "

Smith tells us that it is, in fact, the masters who enjoy a favorable bias in the public arena. "We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. " Smith explains the goal of such "combinations, " and their frequency: "Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate. " [emphasis added] But sometimes, the masters determine that even the actual prevailing wage is too high, meaning, "Masters too sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy, till the moment of execution, and when the workmen yield, as they sometimes do, without resistance, though severely felt by them, they are never heard of by other people, " issuing another reminder that the hardships inflicted by masters on workers seldom receive public attention.

Smith notes that workmen sometimes "combine of their own accord to raise the price of their labour. " While the reasons for forming such combinations may vary, "whether their combinations be offensive or defensive, they are always abundantly heard of. " Smith 's description of the overall situation is one where any real or perceived imposition on the masters is abundantly publicized, whereas the hardships imposed by the masters on the workers receives little attention. While it is true that the workmen "have always recourse to the loudest clamour, and sometimes to the most shocking violence and outrage, " Smith explains, "They are desperate, and act with the folly and extravagance of desperate men, who must either starve, or frighten their masters into an immediate compliance with their demands. " In spite of such antagonism, however, "The workmen, accordingly, very seldom derive any advantage from the violence of those tumultuous combinations, which ...generally end in nothing, but the punishment or ruin of the ring-leaders. "

Smith also comments on what he thinks a fair wage might be: "It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged. " Such a statement dispenses with current notions that workers only deserve what the "free market " (or "invisible hand ") happens to provide.

2. Adam Smith distrusted and denounced the capitalist class
Adam Smith describes the relations of the three fundamental groups in the economy, the proprietors of land, those whose wages support them, and third, the owners of stock, who employ the workers and thus control the economy due to their ownership. Smith observes that the interests of the owners do not always match the interests of workers, or even society. The reason is:

" ...the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this third order, therefore ...is always in some respects different from, and even opposite to, that of the public ...to narrow the competition, is always the interest of the dealers ...but to narrow the competition ...can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it. " [emphasis added]

- Advertisement -

Smith also describes a major impediment to the genuine free trade that he advocates: the lobbyist. Public opinion is against the establishment of complete free trade, but "What is much more unconquerable " is the "private interest of many individuals. " The monopoly of manufactures was "like an overgrown standing army " which have "become formidable to the government, and upon many occasions intimidate the legislature. "

3. Adam Smith argued against corporate privilege
Smith believed that the primary purpose of the corporation was to secure special privileges. "The policy of Europe occasions a very important inequality ...by restraining the competition in some employments to a smaller number than might otherwise be disposed to enter into them. The exclusive privileges of corporations are the principal means it makes use of for this purpose. " "[An] increase of competition would reduce the profits of the masters as well as the wages of the workmen. The trades, the crafts, the mysteries, would all be losers. But the public would be a gainer, the work of all artificers coming in this way much cheaper to market. "

Smith noted that corporations inhibit competition, which would otherwise lower costs through the reduction of wages and profits. In this manner, both the workers and the owners of the corporations have a stake in maintaining the system. Such interplay of interests explains the willingness of organized labor, in the auto industry, for example, to band together with their corporate employers in the early 1980 's to support the bailout of Chrysler with taxpayer money, putting Japanese vehicles of higher quality at a disadvantage.

In the book The Emperor 's Nightingale, Robert Monks analyzes Wealth of Nations and argues that Smith voiced four basic concerns about the corporation, then called a joint-stock company. These were the tendencies to seek unlimited life, unlimited size, unlimited power, and unlimited license.
- Advertisement -

Monk 's first point is that Smith saw that corporations tended to seek unlimited life, and argued that their charters be terminated upon completion of whatever task they originally had set out to accomplish. "A temporary monopoly of this kind may be vindicated upon the same principles upon which a like monopoly of a new machine is granted to its inventor, and that of a new book to its author. But upon the expiration of the term, the monopoly ought certainly to [terminate] ...and the trade to be laid open to all the subjects of the state. "

Smith then explains the effects of permanent monopoly: "By a perpetual monopoly, all the other subjects of the state are taxed very absurdly in two different ways; first, by the high price of goods ...and, secondly, by their total exclusion from a branch of business ... "

Secondly, Monks argues that Smith objected to the corporation 's tendency to increase in size seemingly without bound. "Such companies ...commonly draw to themselves much greater stocks than any private copartnery can boast. The trading stock of the South Sea Company, at one time, amounted to upwards of thirty-three million eight hundred thousand pounds. The dividend capital of the Bank of England amounts at present, to ten millions [sic] seven hundred and eighty thousand pounds. " Capital of such size makes it easy for managers to neglect its management. "

Next Page  1  |  2  |  3  |  4


The author studies history, economics, and politics.

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon

Go To Commenting

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact Author Contact Editor View Authors' Articles
- Advertisement -

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Warped interpretation of Adam Smith’s phrase, the “invisible hand,” undermines economic justice

The Truth about Appeasement


The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
No comments