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

From: Martin Kragh (Martin.Kragh@HHS.SE)
Date: Thu Nov 30 2006 - 05:22:36 EST

Hi Dogan!
I'm just curious, exactly where can we find concepts of alienation in Scottish thought? You wrote:
"Smith and other Scottish philosophers employ in this connection the concept of alienation that needs to be overcome in social relations;"
I also agree with your interpretation of Smith, which is very close I believe to the original texts. However, one should always remember the important distinction between history of economic ideas, and history of economic thought, as Schumpeter pointed out. Many aspects of the Smithian intellectual heritage are not obvious if one knows only the ideas.
Many kind regards,


Från: OPE-L [mailto:OPE-L@SUS.CSUCHICO.EDU] För Dogan Goecmen
Skickat: den 30 november 2006 10:53
Ämne: [OPE-L] Smith's socio-economic thought (a reply to Nicky)

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 manufacturers. 
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

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