In Smith's time, corporations often received charters to establish garrisons and forts in the British Empire. They also often were granted the right to negotiate peace settlements or declare war. "The joint stock companies which have had the one right, have constantly exercised the other, and have frequently had it expressly conferred upon them." Of this bestowal of war-making ability, he writes "How unjustly, how capriciously, how cruelly they have commonly exercised it, is too well known from recent experience," an experience the world all too often forgets.
Monk's fourth point, which he calls the quest for "unlimited license," encompasses the other three, but includes the lack of accountability so often found in the corporation. Monks quotes Smith, "The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own"Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company."
Smith saw other hazards besides error or waste inherent in the separation of ownership and management. Speaking of the investors and proprietors of the East India Company, referring to them at one point as unaccountable "sovereigns" over the people of India, Smith wrote "No other sovereigns ever were, or, from the nature of things, ever could be, so perfectly indifferent about the happiness or misery of their subjects, the improvement or waste of their dominions, the glory or disgrace of their administration, as, from irresistible moral causes, the greater part of the proprietors of such a mercantile company are, and necessarily must be."
4. Adam Smith argued for investment at the local or domestic level
Perhaps the most often misquoted of Smith's statements is the ubiquitous "invisible hand." Arguably Smith's most famous phrase, it should be examined in context. The full paragraph is as follows:
"But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."[emphasis added]
In other words, by preferring to employ capital domestically, traders benefit the society more than they know or intend. This theme of giving precedence to domestic deployment (investment) of capital flies in the face of business and financial globalization as currently practiced under the rubric of "free trade." For example, Nicolas Kristoff and David Sanger described how President Clinton adopted and aggressively pushed the policy of free-flowing international capital that preceded, and likely caused, the East Asia financial crisis of 1997-1998.
5. Adam Smith advocated taxing the rich
Smith advocated taxing the rich to support the poor by the use of a tollway tax: "When the toll upon carriages of luxury, upon coaches, postchaises, &c. is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts and wagons, &c. the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor""
6. Adam Smith observed that state power could be used to protect human rights
"The law, so far as it gives some weak protection to the slave against the violence of his master, is likely to be better executed in a colony where the government is in a great measure arbitrary, than in one where it is altogether free. In every country where the unfortunate law of slavery is established, the magistrate, when he protects the slave, intermeddles in some measure in the management of the private property of the master; and, in a free country"he dare not do this but with the greatest caution and circumspection"But in a country"where it is usual for the magistrate to intermeddle even in the management of the private property of individuals"it is much easier for him to give some protection to the slave; and common humanity naturally disposes him to do so." Smith concludes, "That the condition of a slave is better under an arbitrary than under a free government, is, I believe, supported by the history of all ages and nations."
7. Adam Smith looked to government-supported education to mitigate the effects of the division of labor
While Adam Smith expounded upon the virtues of the division of labor early in the book, he simultaneously abhorred the effects of the division of labor, upon which capitalism is founded, and recommended government sponsored education to compensate for its deleterious effects. Smith eloquently describes the effects of the division of labor upon the largest portion of society, the labourers, whose work becomes "confined to a few very simple operations, frequently to one or two." Unfortunately, people derive their understanding of the world from their everyday experience, which is largely their daily work. This means that:
"The man whose whole life is spent in performing a few simple operations"generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life"renders him incapable of exerting his strength with vigour and perseverance, in any other employment than that to which he has been bred"in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it." [emphasis added]
A comprehensive interpretation of Wealth of Nations
Many who might agree with Smith as he criticized capitalists and corporations may be hesitant to accept his defense of free trade. However, it is important to understand that trade and capitalism are not synonymous. Trade, ingenuity, and the entrepreneurial spirit existed for millennia before capitalism. What Smith criticized was not economic activity, prosperity, or initiative, but the effects of concentrations of power and wealth. He argued that such concentrations actually hurt society, because those who accumulated such power re-engineered society for their own benefit. While Smith acknowledged that government policies may be counterproductive, wasteful, or even stupid, Smith claimed that it was private power that acted in a truly malicious fashion. Nevertheless, over time the material wealth of society still advanced due to the efforts of most to improve their own condition.
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