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Adam Smith under Attack, Long Live Free Markets!

By thiggins

“Adam Smith was a radical and revolutionary in his time — just as those of us who preach laissez faire are in our time.” — Milton Friedman

On Tuesday night, June 13, Adam Smith, the founder of modern economics and free-market capitalism, came under sharp attack in my debate with Gene Epstein, economics editor of Barron’s, at the Soho Forum in New York City (see www.thesohoforum.org). Most of the time, it’s the socialists and Marxists who criticize the Smith model of free enterprise, but this time it sadly came from a libertarian.

Mark Skousen debates Gene Epstein at the Soho Forum, with Naomi Brockwell (middle) as moderator.

I started off the debate demonstrating that Adam Smith, professor extraordinaire of the Scottish enlightenment, and his magnum opus, “The Wealth of Nations,” had a dramatically positive impact around the world, especially in dismantling trade barriers between countries. The world has benefited tremendously from the gradual decline in tariffs and other trade restrictions.

The Intellectual Shot Heard Around the World in 1776

“The Wealth of Nations,” published in 1776, was the intellectual shot heard around the world. It was an economic declaration of independence, coming out just months before Thomas Jefferson’s declaration of political independence. Smith was the Newton of economics.

Now, of course, with the election of Donald Trump, free trade has come under fire, and free-trade agreements are being postponed or canceled. Given that trade represents 30% of the U.S. economy, and over 60% of most other countries’, this is a potential setback for Adam Smith’s “system of natural liberty.”

Adam Smith was More Than an Economist

But Smith’s contributions were much broader than just trade policy. He sought to show that free-market capitalism was beneficial to mankind. As Professor Jerry Muller has written, “Smith valued commercial society not only for the wealth it produced but also the character it fostered.” Smith rejected the false Marxist claim that capitalism makes people greedy and selfish, because, in fact, it bridles the passions, destroys religious and racial prejudices, and encourages citizens to be educated, industrious, self-disciplined and to defer gratification. Muller added, “The Wealth of Nations, like Smith’s Theory of Moral Sentiments (1759), was intended to make men better, not just better off.” Or as E. G. West often said, to make men “humane, not just human.”

Adam Smith’s big fat book changed the world for the better, and almost all economists and political thinkers ac–owledg–their debt to him. I quoted several in the debate, such as:

“Its [Wealth of Nations] publication date — 1776 — marks the dawn of freedom both political and economic… It paved the way for unprecedented achievements in laissez-faire capitalism.” — Ludwig von Mises

“Smith is the greatest of them all. He helped to create a great society.” — Friedrich Hayek

“The Wealth of Nations and the steam engine destroyed the old world and built a new one.” — Historian Arnold Toynbee

“Smith’s vision is surely the most important intellectual contribution that economic thought has made to the general understanding of social processes.” — Nobel Prize economist Kenneth Arrow

“Smith’s invisible hand model of competitive free enterprise is the crown jewel of the ‘Wealth of Nations’ and the most important substantive proposition in all of economics. Smith had one overwhelmingly important triumph: he put into the center of economics the systematic analysis of the behavior of individuals pursuing their self-interests under conditions of competition.” — Nobel Prize economist George Stigler

Mr. Epstein wants to deny Smith his just desserts, and thinks he should share honors with Richard Cantillon and other more consistent defenders of economic liberty. Granted, Cantillion, Turgot and other French pre-Adamites were solid thinkers, but they had little influence compared to Smith. As J.B. Say stated, “When we read this work [WN], we feel that previous to Smith there was no such thing as political economy.”

Adam Smith’s Sins: How Serious are They?

Mr. Epstein made a big deal about Adam Smith’s peccadilloes, including his attack on landlords, his failure to recognize that prices are determined by marginal supply and demand, and his crude labor theory of value. That theory, according to Mr. Epstein, has given aid and comfort to the enemies of liberty.

He is especially critical of Smith’s support of usury laws, which restrict the interest rate on loans. I countered that we should focus on Smith’s policies that were adopted by countries, and usury laws are not one of them. In fact, I noted that England abolished its own usury laws in 1854, while his policies of free trade, the gold standard and balanced budgets carried the day.

Is Adam Smith a Consistent Defender of Liberty?

I love this quote from Adam Smith: “Little else is required to carry a state to the highest degree of opulence from the lowest level of barbarism, but peace, easy taxes, and a tolerable administration of justice.”

Or this one:

“To prohibit a great people… from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind,” Smith wrote.

If these quotes don’t establish Adam Smith as a friend of liberty, nothing will.

My biggest complaint about the Adam Smith critics is that they tend to focus on the parenthetical statements by Smith, rather than his main thesis. It’s like people who look so close to Marilyn Monroe’s face that all they see is the blemishes, moles, scars, warts and the pock marks on her skin and not the beauty of her face and figure from a normal distance.

It’s like today’s critics of George Washington and Thomas Jefferson who ignore all the good they did and focus solely on the fact that they owned slaves.

Adam Smith deserves better. As economic historian Mark Blaug wrote, “Judging from the standards of analytical competence, Adam Smith is not the greatest of 18th century economists. But for astute insight into the nature of the economic process and for economic wisdom, Smith had no equal.”

The Hero in My Book, ‘The Making of Modern Economics’

I tell the full story of Adam Smith in my book, “The Making of Modern Economics,” now in its 3rd edition, published by Routledge. It offers the breakthrough story of the great economic thinkers, including Smith, Marx and Keynes. The Scottish philosopher, aided by his “system of natural liberty,“ is the hero in the book. The running plot involves economists who defend and advance the House that Smith Built (Austrians and Chicago school), and those who oppose it and try to tear it down (Marxists, socialists and Keynesians). It even has a good ending with the collapse of the Soviet socialist model in the early 1990s and the return of free-market capitalism in the developing world.

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You Blew It! Should We Label Opponents “Leftists” or “Rightists”?!

“He who controls the labels wins!” — Larry Abraham

I failed to convince the full crowd of libertarians at the Soho Forum; Gene Epstein’s stinging litany of criticisms of Adam Smith seemed to carry the day.

But one comment I made seemed to resonate with many in the audience. When Mr. Epstein called Harvard economist and Nobel Prize winner Amartya Sen a “left winger,” I objected to this form of character assassination. In today’s divided world, journalists and media are quick to label someone as a “leftist” or “right wing extremist” in an effort to demonize them and their position. It is especially prevalent on Fox News, MSNBC and on the front page of the New York Times.

I object to such political pigeon-holing and smear tactics. If we are truly individualists, why don’t we treat every person as an individual who has opinions that may differ from others.

Take Amartya Sen, for example. Sure, he may have views that are not libertarian, but then again, he has written extensively on the economics of famines, and has argued that there has never been a serious famine in a country — even an impoverished one — with a democratic government and a free press. That sounds pretty libertarian to me.

When someone is labeled, thinking stops and name-calling begins.

At FreedomFest, we encourage open dialogue without labels and treat everyone with dignity. Our debates are always formal and civil, so that the debaters avoid talking over each other or yelling. Two years ago, we had Paul Krugman come to FreedomFest to debate Steve Moore. He was impressed by how well he was treated by our audience.

Lin Yutang, the great Chinese philosopher for the 20th century, wrote in “The Importance of Living” how much he disliked the popular trend of sorting people into groups and classes. “We no longer think of a man as a man, but as a cog in a wheel, a member of a union or a class, a ‘capitalist’ to be denounced, or a ‘worker’ to be regarded as a comrade… We are no longer individuals, no longer men, but only classes.”

When you use “left” and “right,” it implies some kind of equality. But are they equal? In the political spectrum, Adam Smith might be labeled a “right winger,” while Karl Marx would be a “left winger.” Using the standard spectrum, both are viewed as extremes, and John Maynard Keynes, advocate of big government and the welfare state, appears in the “moderate” middle.

I prefer the “Totem Pole” approach in my book, “the Making of Modern Economics,” with Adam Smith at the top, Keynes in the middle, and Marx the low man on the totem pole. That ranking fits better with the Economic Freedom Index. Countries that have adopted a limited government approach have grown the fastest, followed by the welfare states, and the slowest growers have been the totalitarian regimes.

Ronald Reagan said it best in his famous 1964 address: “There is no left or right, only up or down.”

(Note: In the photo at the Soho Forum, you can see the Totem Pole of Economics next to me. Or see page 8 of my “Making of Modern Economics.”)

I encourage all speakers and journalists to eliminate the misguided labeling of “left” and “right.”

I also never refer to the enemies of liberty as “liberals” or “progressives.” I consider myself a liberal and a progressive… for liberty!


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