The passing scene – August 4, 2015

These are links to interesting articles I came across yesterday and today.  I may add links during the day.   The comment thread is available for general and off-topic comments.

If This Is Munich, We Must Be Germany by Doug Muder for The Weekly Sift.

In the Iran nuclear negotiations, it has been the United States that has done all the demanding and Iran that has done all the appeasing.

A Company Copes With Backlash Against the Raise that Roared by Patricia Cohen for the New York Times.

239 Years Ago, Adam Smith Predicted Fury of Seattle Business at CEO Who Pays Workers Well by Jon Schwartz for The Intercept.

Dan Price, the CEO of a small credit card processing firm called Gravity Payments, announced that he will raise the minimum  salary of his firm to $70,000 a year over a period of three years while reducing his own compensation.

Many of his peers and business customers are infuriated, illustrating what Adam Smith wrote in The Wealth of Nations in 1776: “Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labor above their actual rate.  To violate this combination is everywhere a most unpopular action …”

Coffee in crisis: The bitter end for our favorite drink? by David Robson for the BBC.

The world’s coffee crop is threatened by drought, flooding and plagues of pests, caused by climate change, and by the vulnerability of the Arabica variety of coffee to disease and to changes in climate.

Free enterprise vs. capitalism

Adam Smith

I define “free enterprise” as the “system of natural liberty” advocated by Adam Smith, in which people are free to pursue their own goals in their own way, “subject only to the law of justice.”

I define “capitalism” in the same way as Karl Marx, who coined the word — a system in which political and economic power is in the hands of owners of financial assets

By these definitions, free enterprise is not necessary to capitalism, nor vice versa.  What’s necessary for capitalism is institutions that allow great concentrations of wealth, such as limited liability corporations, lending at compound interest and the power of banks to create money.  Government-protected monopolies help, too.

In the same way, capitalism is not necessary to free enterprise.  The Phoenician traders in the ancient world, who traveled from the eastern Mediterranean to Britain to buy tin, were not capitalists in the way that J.P. Morgan or John D. Rockefeller were capitalists, but they certainly had the entrepreneurial spirit.

Karl Marx

Adam Smith, the great economist and philosopher, did not particularly admire capitalists.  He saw economic competition as a means to hold their power in check.

As for myself, I am not an opponent of either free enterprise nor capitalism, although I am a critic of both, especially the latter.  I think the working of the free market is a more effective way to coordinate economic activity than central planning, provided that it is, as Smith said, “subject to the law of justice” — unlike Milton Friedman and others, who thought a free market could be a substitute for the law of justice.

Likewise, I see a benefit to being able to create concentrations of wealth and use them to create new sources of wealth for the benefit of society.   American capitalists made it possible to create a U.S. steel industry, a computer industry and all the other industries.  Maybe this could have been done in some other way, but this is the way it happened. 

The problem is how to prevent mere possession of wealth from enabling its owners to monopolize the fruits of the economic system, which is what is happening now and which Marx thought was the inevitable result of capitalist ownership.

American exceptionalism: Capitalism as freedom

One of the things that is exceptional about the United States is that, unlike people in all other countries I know about, we Americans associate capitalism with freedom.

That is not to say Americans are the only people who think that way—Margaret Thatcher in 1980s Britain and Ludwig Erhard in postwar West Germany were as strong believers in capitalism as any American ever was.  But the United States is the only country in which such beliefs go unchallenged.

John Lauritz Larson’s THE MARKET REVOLUTION IN AMERICA: Liberty, Ambition and the Eclipse of the Common Good, which I read on the recommendation of my friend Craig Hanyan, attempts to explain why.

Most of the peoples of the world define capitalism as Karl Marx did—a system ruled by the holders of financial assets, in contrast to older systems ruled by landowning aristocrats and Oriental despots and a hoped-for future system ruled by workers.

Americans think of capitalism as Adam Smith’s “system of natural liberty,” in which each person is free to pursue their own interests in their own way, subject only to “the law of justice.”  I was brought up to believe in this and I still do, although my idea of the “law of justice” is broader than Adam Smith’s probably was.

Larson’s argument is that the United States between the Revolution and the Civil War was the world’s greatest example of Adam Smith’s ideas in practice.   The system of natural liberty didn’t apply to black people or to native Americans,  but white American citizens, especially those in the North, experienced a degree of freedom and rising prosperity that was a wonder of the world.

Adam Smith on financial incentives

What can be added to the happiness of a man who is in health, out of debt and has a clear conscience?

This quote is from Adam Smith’s The Theory of Moral Sentiments.

Adam Smith (1723-1790) is the founder of the modern discipline of economics.  Being an old retired guy with time on his hands, I once sat down and read The Wealth of Nations and The Theory of Moral Sentiments the whole way through.  As with most great classics, I found them different from how they had been described.

Although a strong advocate of the idea of a free market, Adam Smith was not a defender of corporations or the wealthy, nor was he an opponent of public works or a social safety net for the poor.  In his day, most corporations were government-sponsored monopolies that were chartered for a specific purpose.  Smith saw free enterprise and economic competition as a way to limit profit to a reasonable amount and force businesses to respond to what the public wanted.

I do not know what Adam Smith would think of the economic controversies of today, because our government, economy and society are so different from his.  But he most certainly was not a social Darwinist who looked on economic competition as a way of weeding out the unfit, nor did he think of maximizing wealth as a worthy goal.  Rather he saw the free market as an alternative to economic privilege and as a way strangers could establish relationships to their mutual benefit.

Click on Adam Smith’s Lost Legacy for a blog devoted to reinterpreting Adam Smith’s thought.

Click on Adam Smith’s Theory of Happiness for thoughts about Smith’s moral philosophy.

Adam Smith on happiness

What can be added to the happiness of a man who is in health, out of debt and has a clear conscience?

This quotation is from Adam Smith’s The Theory of Moral Sentiments.

Adam Smith (1723-1790) is the founder of the modern discipline of economics.  He was a strong advocate of free enterprise and business competition, but he was not a friend of corporations, which in his time were almost all government-sponsored monopolies, nor did he oppose public works or a social safety net for the poor.

Being an old, retired guy with time on his hands, I read Adam Smith’s The Wealth of Nations and The Theory of Moral Sentiments  several years ago.  As with most great classics, I found it different from what I had been told about it.   Adam Smith was not a social Darwinist, who believed in competition as a way of weeding out the unfit.   Rather he saw free enterprise as a way people could exchange things to their mutual benefit without interference of government on behalf of vested interests.

I hesitate to say how Adam Smith would judge current economic controversies, since today’s issues are so different from those of his time.  I don’t claim his ideas are the same as the ideas of self-described liberals such as myself, but I don’t think he aligns with self-described conservatives either.  He most certainly did not believe in maximizing wealth as a worthy purpose in life.

Click on Adam Smith’s Lost Legacy for a blog devoted to setting the record straight on Adam Smith.

Click on Adam Smith’s Theory of Happiness for more about Smith’s moral philosophy.

New articles links: Magna Carta, Adam Smith

Here are recent additions my Articles menu.  If you find my posts interesting, you probably will find these items equally interesting or more so.

Noam Chomsky and the endangered heritage of Magna Carta.  Hat tip to Jack Clontz.

This is the text of a lecture given by Noam Chomsky, the distinguished linguist and radical political activist in June at the University of St. Andrews in Scotland, as part of its observance of its 600th anniversary.  The Great Charter issued unwillingly by King John in 1215 is the basis for the tradition of rule of law in the English-speaking world.  Chomsky noted that it has two parts: the Charter of Liberties, to protect the individual from the arbitrary power of the crown, and the Charter of the Forest, to protect the commons from the rapacious landed aristocracy.  He traced the history of the expansion and contraction of the basic principles of Magna Carta and concluded that these principles are in eclipse today.

Barack, Mitt and Adam Smith. Hat tip to Bill Elwell.

Adam Gopnik in the New Yorker pointed out that Adam Smith, a classic defender of free enterprise and the founder of the modern discipline of economics, would not necessarily align with Mitt Romney or the Republican Party of today.  Smith was critical of corporations; he favored high wages, public works, public education and provision for the poor; and he believed in the moral sentiments that allow you to imagine yourself in somebody else’s place.  He did have more sympathy for enterprising merchants and manufacturers than for the landed aristocracy and chartered corporate monopolies. For him the free market was a means of limiting the power of businessmen and forcing them to serve the public interest.  It is a stretch, though, to say that Smith would have been more in sympathy with Barack Obama.  The issues of Smith’s day divided people along different lines than the issues of our day.

Mitt Romney’s Offshore Accounts, Tax Loopholes and Mysterious I.R.A.

Vanity Fair ran this article in its August issue.  Nicolas Shaxon describes legal and ethical grey areas in Mitt Romney’s sources of wealth and evasion of U.S. taxes, and shows his financial operations are still largely hidden from public view.

Obama May Not Even Be the Lesser Evil.

Andrew Levine in Counterpunch rebuts the argument that liberals should vote for Barack Obama, unsatisfactory as he is, because he is a lesser evil that Mitt Romney.  Both candidates serve the interests of what Franklin Roosevelt called the “economic royalists,” he said, but the great evil of the Obama administration is that President Obama has co-opted the liberal opposition.  Violations of basic human rights which would have outraged liberals under the Bush administration are accepted and even boasted about under Obama.

Academic Fraud: Does Anybody Care?

Diane Ravich, who writes for Education Week, tells public schools and private consultants boost student test scores through fraudulent methods.  Her article reminds me of what I read about the old Soviet Union.  Communist economic planners set high quotas which local managers could not realistically meet.  The result, which should have been predictable, was that some managers cheated, and some managers technically met their quotas in ways that were counter-productive for the overall economy.  I think the same dynamic is at work in the high-stakes testing in the federal No Child Left Behind and Race to the Top education programs.

Now They’re Even Outsourcing “Local” Journalism.

The hollowing out of the U.S. economy is not limited to manufacturing industry.  When I was a newspaper reporter, I used to console myself with the thought that I held a job that couldn’t be sent overseas.  That isn’t true of today’s reporters for local newspapers.