This is part two of a three-part series on American history and the phenomenon of “fake news.” Read part one here.
John Adams’s fear that aristocracy would destroy the nascent United States democratic republic was not well understood by his contemporaries. Recent generations haven’t understood his fear either. Failure to comprehend his political warning has been compounded by misconceptions about the ideas of Adam Smith, the “father of capitalism.”
For at least 150 years, Smith has been portrayed as an advocate of laissez-faire capitalism: the idea that governments should not interfere in the workings of the free market and instead let the “invisible hand” of capitalism guide us to greater prosperity. But most Smith scholars in recent decades have understood that any connection of Smith with laissez-faire is a gross fabrication. He never used the term, even though he was very familiar with the economists who propagated it. On a visit to France he met and conversed with the Physiocrats, an 18th-century group of economists who stressed agriculture as the source of wealth (and thought manufacturing produced no wealth). He respected their work but disagreed with their approach. Because he disagreed with them, he did not use their term in his classic An Inquiry into the Nature and Causes of the Wealth of Nations (1776).
Some might argue that, while he did not use the term laissez-faire, he meant laissez-faire when he wrote about the Invisible Hand. If everything were mysteriously guided to work out in the end, one would not need government to regulate the market. This careless misreading of Wealth of Nations transmogrified Smith’s just and equal market into the amoral free market economy. It is careless because it completely ignores Smith’s writing style; he was a meticulous craftsman, revising and revising until he had exactly the right words.
In addition, many scholars see the Invisible Hand as an insignificant metaphor. Gavin Kennedy writes that Smith’s single use of the Invisible Hand in Wealth of Nations “had absolutely nothing to do with ‘markets,’ ‘supply and demand,’ the ‘price system,’ ‘equilibrium,’ ‘perfect competition’ …” (“Adam Smith: Some Popular Uses and Abuses” in Ryan Patrick Hanley, ed. Adam Smith: His Life Thought, and Legacy. Princeton: Princeton University Press, 2016, pp. 466-467). Kennedy also points out that Smith’s single use of the metaphor in his first book, Theory of Moral Sentiments, dealt with landlord-serf relations; in other words, it had nothing to do with the market. In contrast, Smith used the words “justice” and “equality” dozens of times in Wealth of Nations; obviously, those concepts were important to him. He often combined justice, liberty, and equality; thus, anyone who advocates for laissez-faire is omitting two-thirds of Smith’s formula for wealthy nations.
Smith became famous in his time as a moral philosopher, based on Theory of Moral Sentiments, which he always considered to be his better book. But misreading Wealth of Nations led many to conclude that he had changed his mind after writing Theory (published in 1759); by 1776 he had supposedly become an advocate of rugged, amoral individualism. This conclusion requires ignoring his consistency; in both books he emphasized sociability and justice. It also ignores Smith’s well-known, but never completed, plan to write a systematic body of work integrating human knowledge. Moreover, he extensively revised Theory at the end of his life, strengthening its ethical emphasis. This 6th edition was published in 1790, fourteen years after Wealth.
The harm done by the myth of laissez-faire is reinforced by a second misunderstanding of Wealth of Nations. Many people understand that Wealth was a critique of the mercantilist trading system in the 18th century. Smith’s free trade advocacy was indeed directed at the same monopolistic trade practices that led to our own War for Independence. But what is often forgotten is Smith’s harsh critique of another aspect of mercantilism: the inordinate influence of businessmen in politics, which produced monopolies and corrupted government.
He observed the machinations of businessmen and understood that moral exhortation was not enough. Thus, he did not advocate laissez-faire, a free market; he knew that government would have to play a large role in protecting the weak against the strong. He included a surprisingly long list of roles for government in Wealth of Nations.
One other element supporting aristocratic dominance must be mentioned. Smith had a deep understanding of social psychology; he knew that humans have a passion for distinction, a desire to be better than others. He also understood the tendency of the poor and middling classes to admire and emulate the wealthy.
Scholars know that Smith did not advocate laissez-faire, but this has not percolated into public consciousness. Laissez-faire ideas, reinforced by the desire to emulate the wealthy, have been dominant in the United States since 1980. At the same time, the always disproportionate influence of the wealthy at all levels of government has increased, so that the United States today is both an economic and political aristocracy.
Capitalism as practiced in much of the world today is savage capitalism, not the moderated capitalism Adam Smith advocated; it is enabled by aristocracy, which is precisely the type of government that both Smith and John Adams abhorred. Make sure to read part three of this series for suggestions on how Adams and Smith would address our current situation.
John Hill is Professor Emeritus of Politics and History at Curry College and author of Adam Smith’s Equality and the Pursuit of Happiness.