Adam Smith, Wealth of Nations, as told by PJ O'Rourke
Scott Kirwin
First off, I am a complete sucker for anything written by PJ O'Rourke. "Holidays in Hell" remains one of the best books I've ever read, period. If I was marooned on a desert island and had to bring two books with me, it would definitely be the second book I chose (the first being 100 Ways to Escape Off a Desert Island).
I'm also a reluctant fan of the free market. I'm hesitant about it because if I found something that worked better, I'd champion it. Unfortunately no system does, and while I continue to have difficulties with it, I still believe that it's the best system around.
Adam Smith's Wealth of Nations is pretty much the bible of free market capitalism. So, when I found that PJ O'Rourke had set about reading and commenting on Smith's tome, I immediately bought it. Two tastes that taste great together: PJ O'Rourke and Free Markets. Yummy!
And the book does not disappoint. I'm reading the last chapter and am seriously bummed that the book is coming to an end.
What I find truly enlightening about the book is that Smith pretty much "got" most of the problems we have in capitalism. He understood that workers tend to avoid work and managers try to use the company to their own ends at the expense of the shareholders. He also shows that in essence, every free economic exchange creates benefits on both sides. For example, I value the double-cheeseburger that I ate for lunch more than the $1.06 it cost me, while McDonalds values the cash more than the burger. It's a win-win motivated by selfishness on the part of both myself and McDonalds. Of course I should add in the cost of the burger to my health, and to the nagging I would get from the Wife - but she doesn't read my writing...
This seems like common sense, but according to O'Rourke, Smith was big on common sense. He didn't care too much for complex philosophies although he was friends with David Hume, a philosopher of the Enlightenment. He was a moral man who wrote Theory of Moral Sentiments in which he lays out why people are attracted to nuts and flakes more so than steady, ethical types. Watch an hour of Vh1 to see why the Surreal Life is peopled by a porn star and screwed up B-list celebrities instead of your Aunt Martha and Uncle Bob whose idea of a party involves pinochle and chips with salsa.
This is one of Atlantic Monthly Press's "Books That Changed the World" series, in which a modern writer looks at one of the Classics. Up next: Darwin's Origin of Species in March. I hate to admit this, but while I love the ideas conveyed by the Classics, the language often puts me to sleep. Through PJ O'Rourke, Adam Smith's ideas about trade became alive and relevant to me today - which is exactly what the Classics are supposed to do.
For some reason to me the Theory of Moral Sentiments always reminds me of Gulliver's Travels which I just recently re-read. I think Smith is underrated not just as an economic theorist but as a political and societal one as well. His writings on law and policing are great in my opinion.
He was a good psychologist before they were in vogue.
The concept of the megacorporation spanning multiple states and nations with hundreds of thousands or millions of stockholders was utterly alien to Adam Smith's landscape, and he would likely have been repelled by the idea.
I like PJ O'Rourke about as much as you, Scott, but I think this may be one of his blind spots. It appears to be a blind spot that most free marketeers suffer from these days (and I count myself among those who used to have this blindness).
Spot on point.
I almost want to ask O'Rourke what his opinion is vs what is Smith's.
That is one of the questions that may drive me to buy the original work and discover it for myself.
So what is the point of observing this simple fact of life? The point is that a whole lot of "libertarian" or "conservative" rhetoric imposes an utterly false dichotomy in this area, as if any criticism of corporate behavior equals a socialist mindset, an assault on the entrepreneur and the businessman, and an attempt at using the state to impose collectivism. Bollox! Corporations, especially large publicly traded ones, ARE a statist, collectivist imposition upon the free market. You had to be incredibly blind not to see that reality.
Can we do away with the concept? No, I don't think we can at this point. It would be like trying to go back to the gold standard, or attempting to abolish Social Security. It's not going to happen. Nevertheless if we're going to have a clear-eyed look at public policy, it starts with acknowledging simple truths--and one of them is that the publicly traded, absentee-owner megacorporation is not an expression of Adam Smith's idea of the free market. It simply is not. It's not Ayn Rand's either, for that matter. It's a statist imposition on the market. One we can't do away with, but please let us do away with the ridiculously Manichean worldview of "socialism bad, corporations good."
The advantage of creative destruction, in all of its guises, is that it doesn't require understanding. It only requires the ability to reject after the fact. You may have noticed that human beings are not good at understanding, but rejecting after the fact? We're all over that.
Large corporations are more resistant to going bust then small ones. Let me give you an example: If you agree with the Truth About Cars guys, GM hasn't made a good car in my lifetime - but will sputter on for at least a few more years. If the (locally owned &run) bagel shop down the street from me hadn't made good coffee or bagels for 25 years, it would probably have been out of business about 24 years ago.
I mean, that's one of the big advantages of large corporations right? They're diversified and have the resources to survive lots of things that smaller businesses don't. Not in the longer term of course, if you look at the really big corporations of 50 years ago many are gone or much reduced.
But in the short to medium term they are able to survive more punishment for bad decisions then smaller businesses.
I'd agree with the Truth About Cars guys. I have never bought a Ford, Chrysler, GM car and don't plan to. It has to do with seeing my parents burned by the Big Three during the 1970s, such as buying cars that fell apart completely by 50k miles.
The "Big 3" never understood that they didn't just have to build cars "almost" as good as Honda, Toyota and Nissan (all of which have operations in the USA I might mention). They needed to make cars better than them.
They never managed to do that. Never.
One of my favorite Adam Smith quotes: People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.
This is undoubtedly true, but this is not always a bad thing from a benefit-to-the-public perspective. A large corporation has the resources to make a long-term investment in a product or service that may not be profitable for a number of years. There are numerous examples of this.
In a (hypothetical) market in which there are no political barriers, a large corporation will have natural advantages (and some disadvantages), but these advantages will not involve the use of the force of law. That is the distinction: whether the force of law is used as an advantage in the market.
Should the "Big 3" have gone out of business or broken up? Probably... I just think that this example helps me make my point, since these companies used the force of law to benefit themselves and prolong their existence.
Here's another example: Ever here anyone complain about the high ratio of CEO pay to the lowest paid worker? It wasn't as high in the 80s when takeovers were common. Laws were put in place that made it more difficult to take over a company. Now, under-performing management has less to fear and their jobs are more secure: undeserved raises for everyone!
I certainly agree that there are lots of benefits of large corporations. I was just addressing how they affect creative destruction - in that they sometimes slow it down, because some businesses that 'should' go bankrupt take a long time to do so.
Regulated barriers to entry, and limitations on takeovers are obviously have an enormous influence as well.
I see your point. I still think Dean is focusing on a secondary issue, but I will re-read and think about his comments in the light of your argument.
Including, by the way, any reformers inside the organization who threaten those who control the organization. And since those who control the organization rarely hold more than a very small stake in the ownership, accountability is usually lost.
Look, it's not about cloak and dagger stuff, or even mustache-twirling villains. It's just how this whole state-created, state-sustained illusion operates.
What utterly infuriates many libertarians and other market ideologues is I refuse to let them get away with the swindle of claiming that these state-created, state-sustained homunculi (look it up) are somehow a natural expression of the free market. They are not. Get over it.
Laws against usury are not a natural expression of this absolutist context of the free market. Does that mean these laws should not have any legitimacy? Or, maybe we should use a different standard to judge usury laws and coporations other than their innateness to a Platonic conception of the free market.
When two people enter into a contract, unless it's enormously detailed, any ambiguities get filled in by the legal system. The corporate form is really just an elaborate contract, plus limited liability. Oh sure, there are lots of rules - especially for publicly traded corporations - but those rules are just part of the legal 'overhead' that society imposes*.
I suppose in a pure free market system you would be free to enter into any contract you wanted (even one to create a joint ownership enterprise), but could not limited liability without the agreement of everyone you might wrong. Is that what you're getting at?
*Mal, these regulations are an excellent example of what you're talking about. Compliance costs with the Sarbenes-Oxley act are enormous for small publicly traded companies, but don't grow that much for much larger ones. In effect, it imposes a tax on being a smallish publicly traded company - which makes it harder for them to get capital and grow to compete with larger ones.
Many things exist without state intervention. Marriages existed long before the state. The idea of property--at least in primitive form--existed before the state. The idea of parents and siblings existed before the state.
Corporations did not. Indeed, corporations did not exist at all until the state defined the idea. It started a few hundred years ago in Europe, got kicked into high gear by the British and the Dutch, and got particularly popular with US state and federal government policy wonks in the late 19th and in the 20th centuries. That's all the modern corporation is.
Government itself existed for thousands of years before anyone knew what the fuck a "corporation" was. Which ought to tell you something. Indeed, prior to their popularity, most people would have viewed the whole proposal of a "corporation"--a business owned by thousands of people, with a small clique effectively controlling it but evading most responsibility for it--as an obvious form of fraud.
The very existence of corporations is an exercise in state power, and an imposition upon the free market. You want to know what I'm "getting at?" That's all I'm getting at. In fact your questioning seems bizarre to me:
Dean: 2+2=4
MichaelB: I'm confused.
Dean: Abraham Lincoln was assassinated in 1865.
Michael: I don't understand. What are you getting at, Dean?
What I'm stating is simply factually correct, and it should astonish you that simply stating this fact confuses you or anyone else.
The idea that these corporations are somehow a natural expression of human economic freedom is a joke. They are no such thing. They may be useful in a lot of ways, they may bring many benefit, but a natural and organic free market phenomenon? Give me a fracking break.
You did see that I started off by mostly agreeing with you, no? And then asking a couple questions about a corporation and what exactly makes it special, as compared to a contractual arrangement that looks much the same? And how you define free market?
After all, knowing what someone is saying is helpful if you're going to have a discussion, isn't it?
I do appreciate your making very clear a bunch of things that I did not disagree with or even mention though. That was very helpful. Especially that 2+2=4, I had been puzzling over that one for a while.
You made a shark jump there.
"Creation of the state" has all the proper intonations to cause us to jump back and respond, "yessss, the evilssssss sssstatsis."
And I don't like fish.
It is a product of The People. The People have decided that they want to recognize the legal structure of a business called a corporation, in the same way they recognize the legal structure of a marriage, a business license, a title office, a driver's license, or a car registration.
In every one of my examples you could restate it to have those sinister tones of the Evil-Entity-the-State who-controls-our-thoughts-and-stifles-our-freedoms, instead of our Republican self-government controlled by We, The People, who have established laws and a uniform code of contracts.
What's you're saying is that boilerplate contracts and civil law are evil. Why? How is a corporate business structure any different from the land deed, filed in a title office, that declares that you and x number of other people own a piece of property with X,Y coordinates on a survey map?
Property ownership is an artificial construct of the evil state!!!
Do you see how that sounds?
Of course we all lose our tempers now and then. Dean freely admits to being imperfect in this regard, which is why regulars to this establishment will generally be cut more slack than people who we don't know very well.
Still: behave like an adult, or go find somewhere else to play. Thanks.