McMurtry on the Mis-Appropriation of Adam Smith by Globalists

Reproduced from:

John McMurtry 5

  McMurtry on the Mis-Appropriation of Adam Smith by Globalists

In 1998, the Guelph philosopher John McMurtry published his Unequal Freedoms: The Global Market as an Ethical System, a clearly-written book in which he critiques the dominant ideology of the powerful in our time: global free-market advocacy. This book is strongly recommended to all who’d like to know what’s up. I’ve selected here a few observations directly relevant to the reading you’ve done: from 46-8, then 132-3.

The doctrine of the “free market” has its classical moral-theological foundations in John Locke‘s Second Treatise of Government, published over three centuries ago, in 1690, the year after the English Revolution deposing King James II. Locke’s work opposed the divine right of kings with the absolute right of private property, which Locke believed was conferred by God. Locke’s epochal argument conceived of the laws of property as inviolable and as sanctified and protected by “He who has given mankind the world in common.”

Locke’s declaration of the God-given right of private property was then developed into the fully fledged market theory in the founding classic of the faith, a monumental treatise by Adam Smith…. Smith was a scientific deist and professor of logic and moral philosophy at the University of Glasgow. He published his great work in 1776, the year of the American Revolution. His treatise is, with Locke’s work as its property-theory ground, the theoretical foundation upon which the scholastic and popular edifice of the entire free market theory rests. The discussion had two central ideas: first, the advantages of production and exchange free of royal charter and government interference; and second, the revolutionary idea that the self-interested pursuit of profit promotes the social good. These are two of the three great pillars of the market doctrine’s general system of value and justification. The other, or first, principle is the “sacred and inviolable right of private property” advanced by Locke and later appropriated as a basic premise by Smith and all his successors. Smith’s classic formulation of the first principles of the “free market” as a dynamic system have continued as the received doctrine for over two hundred years to the present ideology of the “global economy”, although with radical changes in meaning which have been overlooked by “neo-classical” and current advocates of the theory.

Those profound deviations from Smith’s theory include four themes:

1. the “marginalist revolution,” which grounds market value in “utility” or buyers’ willingness to pay, a subjectivization of value that replaced Smith’s, Ricardo’s, and Marx’s “labour theory of value,” which understood the value of a good in terms of the human labour required to produce it;

2. “econometrics” and other formalist devices, which increasingly substitute mathematical symbols and equations for observed facts and social relations in economic analysis;

3. the “monetarist economics” made famous by Milton Friedman, whose regulating social objective is to preserve the value of owned money in place of Smith’s overriding emphasis on “funds destined for the employment of productive labour“; and,

4. “political economy” becoming depoliticized as a subject category by the claim of value-free economics, which falsely claims to have removed all political or value judgement from its analysis.

None of these theory-cleansing operations on market doctrine, which, in effect, remove its human content, results in direct disavowal of Smith’s fundamental principles of the market as a value system. Smith’s first principles are, together, the enduring framework of an underlying theory of ultimate, universal, and axiomatic value that persists through all the theory’s formalized abstractions of methodology and application. Professional economists since Smith have, however, strangely declared or assumed their “value neutrality,” despite their grounding in the principles of Smith’s and Locke’s openly moral philosophy. This is one of the interesting mysteries of the doctrine, although it has, as we shall see, a quite mundane explanation. If you pretend to be strictly neutral and scientific, others are more likely to accept your value assertions as objective laws.

In practice, though, professional economists merely assume Smith’s moral principles as givens and work from them as regulating premises of all their analyses. For example, the positions of a “value-free” or positivist economics still presuppose as given and self-evident the value system of private property rights, the pursuit of self-interest and profit, and the monetized production and exchange of needed goods as the foundational, regulating norms of their analyses. Indeed, no mainstream economist ever rejects, criticizes, or in any way questions these general principles of decision, conduct, or social distribution. To contest any of these value absolutes is taboo….

To this day, “the invisible hand” is the foundational idea of economic theory in general….

Smith’s concept of acquisitive self-seeking in capital investment is limited in at least three ways in which the current market doctrine of self-maximization is not.

First, he is referring to self-interested investment of money-capital only, not of other types of self-maximizing behaviour, such as seeking “a larger share” of what’s already there.

Second, he is referring to self-interested investment in domestic production, not to “flight capital” investment in foreign countries.

Third, he is referring to capital investment in the long-term employment of productive labour, not speculation in land, currencies, bonds, or any other investment or capital expenditure that “diminishes the funds destined for the employment of productive labour.”

Smith’s original principle of the pursuit of self-interest to promote the public interest has been so stripped of its limiting conditions as to now imply the opposite. The principle of self-serving for money accumulation in all conditions, with no constraining obligation to one’s own society or to use-value production, has become the overriding, abstract imperative of market doctrine. The promotion of the public interest, on the other hand, has become a token mantra with no demonstrated connection to money self-maximization.

In his different historical context, Smith could not conceive of such deformations. In the 1990’s, over fifty times more dollars in stockmarket trade turnover are devoted to currency speculation than to the real economy’s production of use-values (that is, goods and services). Only a very small fraction of the volume of investment in the current global marketplace can still be justified by Smith’s criterion of “the real wealth and revenue of a country — the value of its annual produce.”

Second, even profit-seeking investment in real wealth can now conveniently and securely flow to the other side of the world in a nano-second by computer via satellite. It does not remain at home to increase domestic wealth, but moves to wherever it can maximize money-returns, to lower-cost conditions of wages, worker safety, environmental protection, or taxes. Thus Smith’s expectation that capital investment would stay in the society where it was earned no longer holds. Smith assumed that the inconvenience, the inaccessibility to surveillance, the lack of long-distance communications, the insecurities of a foreign society, and the loyalty to one’s own country would together discourage the flight of capital from its home society as long as returns were “ordinary or not a great deal less than the ordinary profits of stock.” Smith’s assumed conditions for the pursuit of profit no longer apply.

Third, Smith’s principle of self-interested profit-seeking by “capital investment in productive enterprises” is much more limited than the principle of pure self- or profit-maximization as such. For one can self-interestedly seek a money profit in one’s investment without seeking to maximize it.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.