[OPE-L] Smith's socio-economic thought (a reply to Nicky)

From: Dogan Goecmen (Dogangoecmen@AOL.COM)
Date: Thu Nov 30 2006 - 04:52:38 EST

Hi Nicky, I have changed the heading of our discussion. I hope this is  okay.

What is your response to what you describe? Is it
really as value  neutral  as
you describe or there are some normative aspects in
this,  which we can use to
evaluate whether it is really rational how  these
entrepreuners accumulate
their  individual capitals? As a reply  to this
question Adam Smith does not look
at  what is necessary from  an individual
entrepreneur's point of view. Rather
he  prefers to  look at it from general interets of
sicety's point of view:
satisfaction  of the needs of people and progress.

Dogan you are right that Adam Smith begins with  the
question of what is socially desirable; however, he
rapidly concludes  that the pursuit of individual
interest leads *naturalistically* to a  socially
beneficial outcome so long as *social* institutions
don't  interfer with the invisible hand of the market.
In conjuring up an invisible  hand as a social metaphor
for the associative mechanism in a  disasssociated
community Smith effectively errects a protective  wall
around the concept of self-interest.  Post-Smith
economists no  longer weighed individual interest
against other social ends.  What is  rational for
individuals is also, miraculously, taken to be
rational for  societies. Indeed, the so-called
value-neutrality of mainstream economic  theory depends
upon the assumption.

Unfortunately, to challenge the  value-neutrality of
self-interest economics from Smith to the present  is
not enough because, as Jerry rightly points out,
modern neoclassical  and new classical theories have
their own critiques of irrationality  inbuilt.  Any
theory of imperfect competition (into which my  Nike
example fits perfectly), or divergence from
equilibrium solutions, is  by definition a theory of

Imo, Marx's enduring  contribution lies in his
alternative conception of the logic of capital  driven
by the value form (money) and, as a result of the
existence of this  *social* form, capital's unique
relation to wage labour.  There is  nothing 'ethical'
in this alternative conception of capitalist logic  as
Marx's investigation concerns what CJ Arthur has
called the 'spring' or  motive force behind capital's
reproduction (and not it's social desirability,  or
otherwise).  In explicating contradictions in the
development of  capital's logic Marx's goes far beyond
any critique of individualist  rationalism, imo.  But I
will have to leave it there.

Nicky, lets put what you say about Marx and  Neoclassic for the time being
aside and (bearing our question in mind)  concentrate on Smith, because there is
lots of clarification necessary as to how  interpret Smith's work. But let me
remind you that Marx is as much concerned  about the freedom of individuals
as anybody else in western social and political  thought.

You seem to accept the mainstream interpretation of Smith's work as  offered
by people like Milton Friedman and F. A. Hayek. But I think that this
approach fails to grasp the complexcity of Smith's teaching.

Just some methodological remainders: Smith was and is one of the greatest
historians of society and the state and as such he approached social formations
historically. The main question he poses in this connection is this: what is
more advanced and, if you like, better - feudalism or "commercial society"
(what we call capitalism today)? He definitely sees capitalism more advanced
than feudalism. He wrote the 'Wealth of Nations' long before the French
Revolution of 1789.  Therefore, everything he wrote he wrote also with  the aim to
highlight the advantages of capitalism compared to feudalism. He uses  his
famous "invisible hand" in this context. (He uses this metaphor only three  times
in his whole work: once in the Theory of Moral Sentiments to criticise  land
lords, once in his philosophical essay on Astronomy and once in Wealth of
Nations.) In Wealth of Nations when he uses this metaphor the main question he
has in mind is this: who do administer social wealth in feudalism and in
capitalism? In Feudalism it is adminstered by land lords, in capitalism, by
contrast, it is administered by manufacturers. Now according to Smith Landlords  make
up an idle class because they waste social wealth. They do not invest it.
Rather they consume and waste it for luxary. Manufacturers, by contrast, have to
 invest it because they are permanently under the pressure of competition. In
 this connection he uses the metaphor of invisible hand and says that
manufacturers are lead to contribute to the benefit of society. They do this not
consciously, this is not their aim at all, they pursue their own benefit, namely
 to make profit, but because they have to invest they necessarily contribute
to  the benefit of society.

Please note that he does not speak of individuals here. He speaks of

Now, the other aspect you refer to in this connection is the notion of free
trade. He explicitly says that free trade is impossible not because the state
interfers with the invisible hand of the market but because manufacturers
want  to defend and expand their monopolies and therefore put the state under
pressure  to do so. So, Smith says that the greatest enemies of free trade are
manufacturers whose interests are always against the general interets of
society. This leads him to the famous concept of the night-watch state. If the
state is strong that would put manufacturers in a much stronger position in
relation to society than they are anyway because of their economic  position.

In your email you refer to the concept of self-ineterst. Again, here I  think
some clarification is in order. In his work Smith uses the concept of
self-interest in various ways. One meaning may be called what we refer to as  'life
project'. The other meaning has indeed to do with economic interest. This
distinction is very important to understand what Smith teaches us.

As to the first meaning. Indeed, in this connection, that is, in the
connection that individuals pursue their life projects, social institutions  should
interfer as less as possible, because individuals know it better than  anybody
else what is in their own interests. Smith employs here a different  social
theory than commercial society. The foundation of social relations when  he
refers to the concept of life project is mutual sympathy, support, respect  and
recognition. In short, it is a social theory which envisages a society in  which
everybody is everyboy's neighbour, in which everybody sees everybody else  as
his/her second self.

As to the second meaning: However, as soon as economic interests come into
play there occurs what he calls corruption of moral sentiments, power relations
 and mutual negation. Market society according to Smith is, then, a morally
corupt and is therefore a irrational society.

Smith works then out all sorts of contradictions in commercial society that
need to be overcome to turn it into a rational or, if you like, into an
ethical  society. What are these contraditions?

First, structural problems arising from the technical and social division  of
labour; Smith and other Scottish philosophers employ in this connection the
concept of alienation that needs to be overcome in social relations; second,
the  dichotomy between use-value and value in exchange (paradox of values),
that  occurs in commercial exchange relations; third, the contradiction of
interests  between different social classes; fourth, the dichotomy that occurs in
the  relationship of the state and society.

This is the political programme that Smith puts before us if we want to
establish a rational or an ethical society based on the principle of sympathy.  To
understand what Smith means by ethical society one has to analyse the
mother-child relationship.

I think this indicates also as to how to assess in the case of Nike and
other companies.

I am sorry if it is too long. But this is the only way to reply to what you
say in one passage about Smith's socio-economic and political thought.

Best regards


This archive was generated by hypermail 2.1.5 : Sat Dec 02 2006 - 00:00:04 EST