Adam Smith – myth and reality
By Gwydion M. Williams
The replacement of Thatcher by Major indicates that enough members of the Tory Party remember how to be proper conservatives.
From a Tory point of view Adam Smith and the New Right provided useful half-truths, not a complete ideology for life.
Thatcher never realised this. Major probably does.
The New Right is not fond of talking about the actual history of capitalism. It prefers to begin with the ideas of Adam Smith in the late 18th century, and then skip over the next 150 years and more, until we come to the relative peace and prosperity of the Western system since World War Two. The mixed economy can then be dismissed as an absurd deviation from the basic truths of Adam Smith, which Thatcher, Reagan and the rest of the New Right have now ‘wisely’ restored. As little as possible is said about what happened between Adam Smith and the post-war era. A few good bits are held up for our admiration, the rest is more or less ignored.
I have not seen anyone come right out and say that capitalism was brilliantly invented by Adam Smith in the 1770s, improperly applied for a long time afterwards, and only properly implemented in the 1980s. Such a notion lies behind some of the arguments of the New Right, but only some of them. Other New Right notions require capitalism to be an eternal truth, something always inherent in human nature. Clarity would not suit their purposes at all.
In The Wealth of Nations, Adam Smith has some comments on the natural selfishness of capitalists, and their habit of conspiring against the general good whenever they think they can get away with it. These are sometimes taken as evidence that he was not really in favour of capitalism. The exact opposite is true.
Conservative paternalism hopes and expects that the rich will do their duty to the less fortunate. It does not admire those who follow a purely selfish capitalist interest, though it has no easy way of dealing with them. Conservative paternalists are apologists for capitalism, not enthusiasts for it. They assume that while capitalism may generate a lot of wealth, the long-term survival of society requires that the rich and powerful will sometimes act generously and unselfishly.
Adam Smith assumes the opposite. The rich need not and indeed should not do anything except follow their own direct self-interest. The ‘invisible hand’ of the market will guide their selfish actions in ways that will benefit the whole society.
Adam Smith’s view was that:
“A revolution of the greatest importance to the public happiness was in this manner brought about by two different orders of people (the nobility and the merchants), who had not the least intention to serve the public.”
This is not at all how British society actually developed or became prosperous. There had been a widespread feeling of social responsibility among the ruling class, combined with a willingness to accept some innovations. It is normal for a ruling class to feel some sense of responsibility – if not the society they rule will either disintegrate or overthrow them. But the willingness to innovate was an unusual feature – indeed almost unique. The Chinese scholar gentry had had a level of civilisation at least as high as 18th century England for more than a thousand years. And they were very successful in preventing or suppressing disruptive innovations. Anything that would change the traditional and established Chinese way of life was simply not allowed. Even in the late 19th century, when European strength put Chinese culture under great strain, their solution to a railway built illegally on Chinese territory was first to buy it from the people who had built it, and then cure the social disruption it was causing by closing it down.
Capitalism did not develop in China, for the same reason that weeds do not develop in a well-cultivated garden. Continuous action was taken to stop it happening. And it was because of a measure of irresponsibility on the part of the British ruling class that it was allowed to develop in Britain. First the Agricultural Revolution destroyed the way of life of huge numbers of small farmers and agricultural labourers. Then the Industrial Revolution destroyed handicrafts and traditional industries.
What was happening was a controlled experiment. The ruling class decided to permit such things, even though the final outcome was unknown and unknowable. Individual entrepreneurs were often greedy and irresponsible. But there was always a general understanding among the ruling class that things must not go too far. It was like allowing weeds to grow in a garden, in the hope of producing a mix of beautiful wild flowers, and all the time keeping the paths clear and cutting back or uprooting anything really obnoxious.
No society has ever worked in the way that Adam Smith envisaged, nor ever will. Smith assumed that the British gentry and industrialists of his day were following narrow, personal and purely selfish interests. Given that the society of his day was growing ever more wealthy, it followed that men should be allowed and even encouraged to just look after themselves. He assumed that capitalists were selfish and greedy, and that their selfishness and greed would miraculously be directed by the ‘invisible hand’ of the market in order to make everyone prosperous.
In reality, the gentry as a class were looking after the interests of the gentry as a class. People might have different views on how this general class interest might be served, but no one doubted that it should be served. At times, this interest might be served by allowing more free play to market forces. At other times it might be served by restricting them. People had to be both good souls and greedy atoms, and to ignore the contradictions between the two sets of feelings.
It was of course true that ministers in the days of Adam Smith helped themselves to large slices of the public purse, as well as creating do-nothing jobs for their friends and relations. But this was tolerable – almost all of the gentry and nobility had come up that way. Very few were old deep-rooted landowners, although all of them played at being such. And being upstarts, they did not think that they had a natural right to rule, or that they would never be challenged. They were smart enough to know that the rest of the society had also to be looked after, in proportion to its capacity for making trouble. Industrialists were both useful and potentially dangerous – therefore they were fitted in, allowed to use their wealth to buy positions as gentry or even nobility. A broad middle class wanted a larger share of political power – parliament was eventually reformed to give them this. And so on.
It was the 19th century Tories who first allowed Trade Unions to operate legally. It was the Tories who introduced the 10 hour bill and other factory legislation. They did this because they could see that market forces were squeezing the working class too hard. Quite apart from any humanitarian feelings, they could work out – quite as clearly as Karl Marx could – that this large and growing class was going to overturn the existing order if its interests were not in some measure looked after. They noticed the small but growing bands of radicals, socialists and communists, and they feared them. Therefore they took steps to limit the danger.
In pre-revolutionary France, individuals did tend to follow their personal and selfish interests, come what may. Aristocrats liked being privileged persons, ignored those enlightened members of their class who told them that they should be a little less greedy for the sake of the general good. They banded together, only in so far as they recognised that each had the same selfish interests, and could thus be expected to want the same things. They were in real life what Adam Smith supposed to exist in Britain. And the results were naturally quite different from anything Smith wanted or admired. Many of the French aristocrats had accepted Voltaire’s view that they had no inherent right to their privileges. But since it’s fun to be privileged, they each individually decided to keep what they knew they had no particular right to. The Marquis de Sade was merely an extreme example of this trend – and not all that extreme, by the standards of the French aristocracy.
What Adam Smith believed to exist in Britain did partially exist in France. And of course it led to chaos and bloodshed. Louis XV let things run towards ruin, confident that the system would last longer than he would. (And he was right – he died in his bed, and it was his successor who was executed.) The old deep-rooted aristocracy of France resisted the rise of the bourgeoisie. The feudal constitution of France gave them the power to stop anything happening, so they did stop anything happening. They made it impossible for France to develop peacefully. This led inevitably to revolution and a break-down of political continuity. This set the pattern for a whole series of violent revolutions and counter-revolutions lasting for most of the 19th century, and colouring French politics even into the 20th century, with one last revolutionary fling in 1968.
The ignoble and stupid French nobility resisted the rise of the bourgeoisie, and the bourgeoisie in turn resisted the rise of the working class. The English gentry were flexible enough to accommodate both. And they did it so subtly that someone like Adam Smith could miss what was being done. The gentry established security of property, opened up the rest of the world to British trade, conquered large colonial territories, fostered science and the arts through the various royal societies, royal academies and the like. And Adam Smith treated all this as part of the natural order of things.
“Through Smith’s eyes, it is possible to marvel afresh at this fabulously powerful mechanism and to relish, as he did, the paradox of private gain yielding social good.”
Thus spoke The Economist, the journal for the thinking bourgeois. (July 14th 1990.) But The Economist makes no attempt to practice what it preaches. ‘Private gain yielding social good’ is a nice bit of ideology, but is not allowed to get in the way of actual decision-making. When greedy selfish yuppies brought about the  stock market crash, The Economist did not stand on its ideology and say that the ‘invisible hand’ of the market must be left to sort the matter out. The ‘invisible hand’ would almost certainly have throttled capitalism, brought about a world slump. Had the principles of Adam Smith been strictly applied, people might today be erecting statues of Leonid Brezhnev in Western Europe, rather than demolishing statues of Lenin in Eastern Europe.
New Right ideology is shallow. It has credibility, only because the left forgot its own past and ran itself into a dead end in the 1970s. Thatcher was mostly lucky, not clever. When her luck ran out she had no strategy except more of the same. But enough of the Tory Party were able to see what was happening.
After Thatcher’s resignation, one old Tory quoted Edmund Burke, talking about Marie Antoinette and the age of chivalry being dead. I don’t suppose that either he or Thatcher knew much about the actual situation Burke was dealing with. At a trivial level, one might mention that that lady had a private life very different from that of Mrs Thatcher. More seriously, Burke waxes lyrical about Marie Antoinette, because he couldn’t talk about the French Revolution without saying something about her, and no other subject would have been compatible with his general line. She was precisely the sort of selfish greedy aristocrat who had blocked moderate reform and made the revolution inevitable. She didn’t actually make the famous remark ‘let them eat cake’. But it has remained associated with her because it did neatly sum up her view of her social responsibilities.
In Reflections on the Revolution in France, Burke spoke about chivalry being dead and the age of the calculator succeeding it, because it was the only way he could discuss Marie Antoinette without harming his own cause. He undoubtedly knew that the destructive cynicism of French and other European aristocrats had done a great deal to bring about what he was protesting against. Marie Antoinette was as guilty as anyone, and had used her position as Queen of France to prevent the sort of consensus between aristocracy, gentry and bourgeoisie that existed in Britain. But Burke’s concern was not to pass judgment, but to warn people in Britain against the pure and very unstable bourgeois rule that then existed in France.
Burke was a member of the 18th century Whig party, but he was a founder of later conservative traditions, that moderated and adjusted the rising bourgeoisie. Pure bourgeois rule would have proved as short-lived as Marx expected it to be. A dogmatic imposition of Adam Smith economics would be bound to produce mass misery and popular revolution. But moderating forces have always existed. Mrs Thatcher was no more capable of recognising the need for them than Marie Antoinette was. Thankfully, British politics has gentler ways of getting rid of leaders whose ideas are proving harmful to society.
Over the last few years, Kinnock has been remoulding the Labour party to be a moderating conservative force once the electorate had had enough of Thatcher. This was not an impossible goal, though it was a rather unworthy one for a leader of the Labour Party. But now the Tories seem to have done the same job themselves.
Private Eye has an imaginary Tory spokesman saying of Kinnock:
“The voters will see this as cheap cynical opportunism of the type we in this party do much better.”
And indeed, that is exactly how a lot of voters will undoubtedly see it. Unless the Tories are visibly floundering, Labour can only hope to win by offering some sort of positive idealism. And it will have to be real idealism, not a PR man’s impression of positive idealism.
Major was Thatcher’s choice as her successor. Yet he is in many ways the least Thatcherite of the three candidates. He has never expressed overt opposition to her policies, but even before becoming leader he was quietly undermining them. He got Britain into the EMS, and his ‘hard ECU’ plan may prove a real route to full currency union, especially with Thatcher gone. He had
promised to do something about poverty, and he probably will. A lot of wealth has flowed from the poor to the rich under Thatcher. He only has to allow a little of it to flow back, to bring about a marked improvement.
Just how much or how little Major does depends on what sort of opposition Labour can provide. What could happen is a few years of quiet conservatism under him, and then another round of Thatcherite changes, possibly also still under Major.
Societies never remain the same for very long. Labour in the 1960s and 1970s had a clear brief to change things on a socialist basis. The Bullock Commission’s plan for Workers Control provided a great opportunity – and almost the whole of the left united with the Labour right to block it. Thatcherism was the result, a radicalism of the right based on a limited revival of pure Adam Smith style capitalism. By the late 1980s, people had had enough change for the time being, and the bizarre possibility existed of Labour taking over the moderating and conserving role that had traditionally belonged to the Tories. At the eleventh hour, that possibility vanished.
Labour now must take back its natural role as the radical party – but not by a revival of Bennery or the whole slew of policies that were originally floated by the Communist Party for the benefit of soft-hearted fellow-travellers. Mind you, disarmament does now make a great deal of sense, with the Warsaw Pact no longer a coherent military body. Workers Control and other forms of Industrial Democracy exist ready-made, and needs only to be put back on the agenda. Kinnock was of course one of those who helped block it in the 1970s, but it is still open to him to revive it in the 1990s. And of course there is the whole matter of Full Employment, which Hugh Roberts dealt with in L&TUR No. 20.
This article appeared in January 1991, in Issue 21 of Labour and Trade Union Review, now Labour Affairs. You can find more from the era at https://labouraffairsmagazine.com/very-old-issues-images/.