Philosopher views

ADAM SMITH DID NOT DEFEND OR FOUND CAPITALISM

1. ADAM SMITH’S IDEAS ARE THE ANTITHESIS OF CAPITALISM

David Korten, board chair of the Positive Futures Network, YES! A JOURNAL OF POSITIVE FUTURES, Spring 1999, http://www.yesmagazine.org/9economics/kortendave.html, Accessed May 1, 2001.

Smith wrote about place based economies comprised of small, locally owned enterprises that function within a community supported ethical culture to engage people in producing for the needs of the community and its members. The economy Smith envisioned is nearly the mirror opposite of our existing global economy, which is best described by the term capitalism. The term capitalism was coined by European philosophers of the mid 1800s to describe an economic regime in which the benefits of productive assets are monopolized by the few to the exclusion of the many who through their labor make those assets productive. The relationship of capitalism to a market economy is that of a cancer to a healthy body. Much as the cancer kills its host and itself by expropriating and consuming the host's energy, the institutions of capitalism are expropriating and consuming the living energies of people, communities, and the planet. And like a cancer, the institutions of capitalism lack the foresight to anticipate and avoid the inevitable deathly outcome. We have a collective cancer, and our survival depends on depriving it of its power by restructuring our economic rules and institutions to end absentee ownership, rights without accountability, corporate welfare, and financial speculation.

David Korten, board chair of the Positive Futures Network, president of the People Centered Development Forum, THE POST CORPORATE WORLD, 1999, p. 38-9.

The theory of the market economy traces back to the Scottish economist Adam Smith (1723-1790) and the publication of Inquiry into the Nature and Causes of the Wealth of Nations in 1776. Considered by many to be the most influential economics book ever written, it articulates the powerful and wonderfully democratic ideal of a self organizing economy that creates an equitable and socially optimal allocation of a society's productive resources through the interaction of small buyers and sellers making decisions based on their individual needs and interests. Market theory, as articulated by Smith and those who subsequently elaborated on his ideas, developed into an elegant and coherent intellectual construction grounded in carefully articulated assumptions regarding the conditions under which such self organizing processes would indeed lead to socially optimal outcomes. For example, Buyers and sellers must be too small to influence the market price. Complete information must be available to all participants and there can be no trade secrets. Sellers must bear the full cost of the products they sell and pass them on in the sale price. Investment capital must remain within national borders and trade between countries must be balanced. Savings must be invested in the creation of productive capital. There is, however, a critical problem, as international financier George Soros has observed: "Economic theory is an axiomatic system: as long as the basic assumptions hold, the conclusions follow. But when we examine the assumptions closely, we find that they do not apply to the real world." Herein lies the catch: the conditions of what we currently call a capitalist economy directly contradict the assumptions of market theory in every instance.
3. SMITH WOULD REGARD CAPITALISM AS PATHOLOGICAL

Noam Chomsky, professor of linguistics at MIT, MELLON LECTURE, LOYOLA UNIVERSITY OF CHICAGO, October 19, 1994, http://www.zmag.org/chomsky/talks/9410_education.html, accessed May 10, 2001.

It's quite remarkable to trace the evolution of values from a pre capitalist thinker like Adam Smith, with his stress on sympathy and the goal of perfect equality and the basic human right to creative work, to contrast that and move on to the present to those who laud the new spirit of the age, sometimes rather shamelessly invoking Adam Smith's name. For example, Nobel Prize winning economist James Buchanan, who writes that "what each person seeks in an ideal situation is mastery over a world of slaves." That's what you seek, in case you hadn't noticed. Something that an Adam Smith would have regarded as simply pathological.

ADAM SMITH HAD MANY CONDITIONS FOR JUST MARKETS

1. ADAM SMITH ONLY DEFENDED LOCAL MARKETS, NOT INTERNATIONAL

David Korten, board chair of the Positive Futures Network, president of the People Centered Development Forum, WHEN CORPORATIONS RULE THE WORLD, 1995, p. 122.

A third condition basic to the market theories of Adam Smith, but rarely noted by corporate libertarians is that capital is locally or nationally rooted and its owners are directly involved in its management. Adam Smith made quite explicit in The Wealth of Nations his assumption that capital would be rooted in place in the locality where its owner lived. He made it clear that this condition is critical to enabling the invisible hand of the market to translate the pursuit of self-interest into optimal public benefit.

David Korten, board chair of the Positive Futures Network, president of the People Centered Development Forum, WHEN CORPORATIONS RULE THE WORLD, 1995, p. 122.

Indeed, the following is the only sentence in the entire text in he made reference to the invisible hand. “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.” The circumstance that Adam Smith believed induced the individual to invest locally, was the inability to supervise his capital when employed far from his home. In the current age of instant communications by phone, fax, and computer, and twenty-four hour air travel to anywhere in the world that circumstance no longer endures. However, the advantage to the community and the larger society of productive investment being locally owned remains. Local investment is more likely to remain in place and is more easily held to local standards.
3. SMITH FAVORED WORKER-OWNED ENTERPRISES

David Korten, board chair of the Positive Futures Network, president of the People Centered Development Forum, WHEN CORPORATIONS RULE THE WORLD, 1995, p. 122.

Smith was also quite explicit that optimal market efficiency depends on the owners of capital being directly involved in its management-the owner managed enterprise. One could also argue that implicitly he favored worker owned enterprises, as in his ideal small firm owner, manager, and worker were one and the same person. Thus Smith's vision of an efficient market was one comprised of small, owner managed enterprises located in the communities in which the owners reside, share in the community's values, and have a personal stake in its future. It is a market that bears little in common with a globalized economy dominated by massive corporations without local or national allegiance managed by transient professionals who are removed from real owners by layers of investment institutions and holding companies.
4. SMITH HAD A HOLISTIC PERSPECTIVE THAT INCORPORATED POWER AND CLASS

David Korten, board chair of the Positive Futures Network, president of the People Centered Development Forum, WHEN CORPORATIONS RULE THE WORLD, 1995, p. 122.

Economist Neva Goodwin, who heads the Global Development and Environment Institute at Tufts University suggests that the neoclassical school of economics, with which many of most vocal proponents of corporate libertarianism are identified, may be roughly characterized as the political economy of Adam Smith minus the political analysis of Karl Marx. “The classical political economy of Adam Smith was a much broader, more humane subject than the economics that is taught in universities today. . . . For at least a century it has been virtually taboo to talk about economic power in the capitalist context; that was a communist (Marxist) idea. The concept of class was similarly banned from discussion.” Adam Smith was as acutely aware of issues of power and class as he was of the dynamics of competitive markets. However, the neoclassical economists and the neomarxist economists bifurcated his holistic perspective on the political economy, one taking those portions of the analysis that favored the owners of property and the other those that favored those who sell their labor. Thus, the neoclassical economists left out Smith's considerations of the destructive role of power and class. And the neomarxists left out the beneficial functions of the market. Both advanced social experiments embodying a partial vision of society on a massive scale and with disastrous consequence.