Adam Smith Capitalism: The Best Form of Capitalism?

[Sword_Of_Geddon]

As your well aware there are many forms of Capitalism. You have the Darwinian "Survival of the Fittest" form of Capitalism championed by people such as Ayn Rand, what is called the Crony Capitalism/Corporatism often talked about in the news today, the "social capitalism" practiced in Europe, and then you have Adam Smith's take on Capitalism.

Adam Smith warned of Corporatism(though he did not use this term) as well as the form of economics championed by Ayn Rand in her books. His vision of capitalism was where there existed competition, and where the government stayed out of the market, expect when it became necessary to preserve fairness(the forerunner of the Anti-Trust laws in many countries). He also warned that "people of the same trade seldom meet together, but when they do it is usually a conspiracy against the public".

So with that in mind what are everyone's opinions? Did Adam Smith have it right? Should his version of capitalism be the standard all countries should follow?

 

[Crezth]

I think Adam Smith's discussion on trade and markets should be distinguished from any type of "capitalism" as we know it, mainly because free markets and capitalism - while often conflated - are quite different.

As such, Adam Smith isn't really a capitalist theorist as such, but the system and maxims he espoused are often touted by capitalists. They're also touted by people like Proudhon, so, you know, it's not exactly a direct equivalency.

 

[GoodSarmatian]

I think Adam Smith had it right.
Currently there's no system that follows his teachings more closely than "European social capitalism", but it's also faulty in many respects.
Competition is the best way to ensure an efficient allocation of resources, but 'Free' Markets aren't suitable because they enable Oligo/Monopolies and price fixing which quickly eliminates any kind of competition.
Furthermore, a society that wants to be and stay competitive needs a healthy and educated populace, something that purely market oriented healthcare and education systems can't ensure.

 

[Traitorfish]

Adam Smith's recommendations were developed in the context of a much earlier form of capitalism, and so can only really be understood in this context. They're not universal, applicable to any and all societies throughout history, and any attempts to apply them as such are basically fruitless. The economy doesn't have its present form because of some crafty tycoons or corrupt politicians, it has this form because that is- very broadly- the form which it has been compelled to adopt. If you have problems with it, then they have to be addressed within this in mind, with some comprehension of the forces which have pushed it to this point, and while that might pay some reference to Smith, it can't be done just by twisting his prescriptions to circumstances on which he made no comment.

 

[Tahuti]

Adam Smith also believed in the nowadays discredited labor theory of value. While he's certainly a genius and succesful economies have a lot to thank him for, that wasn't one of them.

Summed up, Smith's theories are pretty raw with a lot of rough edges and faults such as the aformentioned labor theory of value, no means or even predictions of crisis and little monetary theory. Eventually, economists such as Keynes and Friedman adressed these issues. As Traitorfish mentioned, the time-frame in which Smith's theories were formulated are nowadays just inapplicable.

 

[Cutlass]

Smith got a lot of things right. Particularly in specialization, benefits of trade, decentralized decision making, and the dangers of people corrupting the system for the benefit of the few. But from there it's more complicated, because the economy itself is much more complicated than anything Smith foresaw.

 

[Traitorfish]

Adam Smith also believed in the nowadays discredited labor theory of value. While he's certainly a genius and succesful economies have a lot to thank him for, that wasn't one of them.

Wouldn't "heterodox" be more accurate than "discredited"? While it's true that the traditional LTV schools- Ricardian, Marxian, etc.- are in their traditional forms unsatisfactory, that doesn't equate to the inarguable triumph of marginalism. That would involve some rigorous demonstration that the LTV was inconsistent with empirical evidence, and that marginalism was, which as far as I know hasn't been produced. (Kinda the opposite, in fact.)

Smith got a lot of things right. Particularly in specialization, benefits of trade, decentralized decision making, and the dangers of people corrupting the system for the benefit of the few. But from there it's more complicated, because the economy itself is much more complicated than anything Smith foresaw.

It's capitalism, not Christianity. You can't "corrupt" it, it just is.

 

[Cutlass]

It's capitalism, not Christianity. You can't "corrupt" it, it just is.

Not true. Any action to corrupt the government aside, you are corrupting the system by any number of other actions, and Smith warned of some of them. Such as the always and everywhere cooperation of employers.

 

[Traitorfish]

Not true. Any action to corrupt the government aside, you are corrupting the system by any number of other actions, and Smith warned of some of them. Such as the always and everywhere cooperation of employers.

My point is that "corruption" implies some purity that is being desecrated, some essential capitalism that is departed from in- of all things- pursuing private interest. That's basically nonsense.

 

[Cutlass]

My point is that "corruption" implies some purity that is being desecrated, some essential capitalism that is departed from in- of all things- pursuing private interest. That's basically nonsense.

That depends on what principle of markets you are looking at the "purity" of. If you are looking at the purity of pure self interest, then you can make that argument. I don't believe Smith would have. But if you are looking at the purity of "free markets", then the system can definitely be corrupted by private interests or public ones. The market is not free if the handful of producers agree to a secret price fixing arrangement, for example. The invisible hand of free markets gets lost to the hidden hand of planned markets.

 

[Traitorfish]

That depends on what principle of markets you are looking at the "purity" of. If you are looking at the purity of pure self interest, then you can make that argument. I don't believe Smith would have. But if you are looking at the purity of "free markets", then the system can definitely be corrupted by private interests or public ones. The market is not free if the handful of producers agree to a secret price fixing arrangement, for example. The invisible hand of free markets gets lost to the hidden hand of planned markets.

I'm not looking at any "principle", because that's not what "capitalism" actually is. It's an abstraction from concrete economic realities, not an Idea that exists beyond any human experience of that Idea.

 

[Crezth]

Adam Smith also believed in the nowadays discredited labor theory of value. While he's certainly a genius and succesful economies have a lot to thank him for, that wasn't one of them.

Wouldn't a belief in the labor theory of value put him directly at odds with capitalism in the sense that Marx conceived of it, or am I missing something here?

 

[NedimNapoleon]

Capitalism isn't good at all because it rests on the idea of exploitation. Socialism all the way.

 

[Sword_Of_Geddon]

There are a lot of differences between modern capitalism and what Adam Smith wrote of. You guys have that right.

I think generally speaking Smith spoke of an economic system that encouraged competition, and prevented monopolies or exploitation.

Smith believed in I guess what you could call a Living or Organic economy, where the interactions of goods and services as well as supply and demand acted as "an invisible hand". Smith warned that people who somehow found a way to take advantage of the system could be a danger to society.

Compare this to today's Capitalism. We have stock exchanges, which I think Smith would have objected to. The Stock Market encourages the sort of things Smith warned against.

 

[Cutlass]

I'm not looking at any "principle", because that's not what "capitalism" actually is. It's an abstraction from concrete economic realities, not an Idea that exists beyond any human experience of that Idea.

But Smith wasn't really writing about "capitalism" as such.But rather than just market economics as it was practiced at the time.

Wouldn't a belief in the labor theory of value put him directly at odds with capitalism in the sense that Marx conceived of it, or am I missing something here?

It was an evolving concept at the time. The Labor Theory of Value didn't really get discredited within economics until the 20th century.

 

[Crezth]

But Smith wasn't really writing about "capitalism" as such.But rather than just market economics as it was practiced at the time.

I agree with this statement.

It was an evolving concept at the time. The Labor Theory of Value didn't really get discredited within economics until the 20th century.

Learning opportunity! Why was it discredited and what was it "replaced" with?

 

[ParkCungHee]

I'm not looking at any "principle", because that's not what "capitalism" actually is. It's an abstraction from concrete economic realities, not an Idea that exists beyond any human experience of that Idea.

As a platonist, I take offense to this.
Of course capitalism exists as an ideal that predates human experience, and empirical evidence can't tell us anything about it. Like a chair, or a horse.
What's weird is there's a lot of people who are only platonists when capitalism is involved.

 

[Cutlass]

Learning opportunity! Why was it discredited and what was it "replaced" with?

The thing is, the Labor Theory of value doesn't really explain anything. Everything is made by labor. Fine. But nothing is made exclusively by labor. Or, to the extent that you can argue that it is, it is labor often multiple steps removed. And the common version of the Labor Theory doesn't capture it.

Certainly labor deserves a reward for its work. But does not the supplier of the tools, the supplies, the raw materials, the work location, the utilities, also not deserve a reward for their contributions? And what of the inventor, the designer, the creator, the organizer of the work? What do they deserve? What of those who put up the money needed to bring it all together and make it all function? What reward do those deserve?

And once you accept that all of the participants deserve some reward for their efforts and risks, then you run into the core problem of how to assign what to who? And the Labor Theory simply offers nothing to answer that question. Because if capital gets no return, capital will stay home and none of the rest will take place. And if the organizing management doesn't get something more than labor, then it has no incentive to take on those tasks. And if the creative people don't get good rewards, then there's no reason for them to have acquired those skills in the first place.

 

[Tahuti]

Learning opportunity! Why was it discredited and what was it "replaced" with?

It was replaced by marginalism (i.e. supply & demand). LTV also supposed some form supply (labor supplied) and demand (labor demanded) but it also involved working hours and stuff. Marginalism cut these out because it was less complicated but could explain everything LTV could as well.
However, in the labor market, there are some "if's" in the marginalist theory though these were adressed with Keynes' General Theory.

EDIT: I see Cutlass beat me to it.

 

[ParkCungHee]

Certainly labor deserves a reward for its work. But does not the supplier of the tools, the supplies, the raw materials, the work location, the utilities, also not deserve a reward for their contributions? And what of the inventor, the designer, the creator, the organizer of the work? What do they deserve? What of those who put up the money needed to bring it all together and make it all function? What reward do those deserve?

If this is the criticism of labor-value, I think you've convinced me that labor-value has the right idea.

the supplier of the tools

Tools are made via labor. Supplying the tools is exactly the same as supplying the labor that made the tools.

the supplies

The same.

the raw materials

Raw materials, to the extent that they need to be supplied, are supplied by labor.

the work location

Ah! The one thing labor can't provide...Because no one can provide it. The most they can do is obtain effective use of violence to secure the location, which is a form of labor.

the utilities

I'm not sure what you mean by Ultilities? You mean like, electricity? We of course, but that's just another commodity.

And what of the inventor, the designer, the creator, the organizer of the work

Those are all forms of labor.

What of those who put up the money needed to bring it all together and make it all function?

And money is again, like the tools, the embodiment of the labor they represent.

Basically, if the best criticism of Labor theory of value is that labor theory of value is more all-encompassing then it appears at first glace, color me unimpressed.