Cooking the Books: The Other Adam Smith

‘Socialist flat-earthers must wake up to reality,’ ran the headline in an article in the Times (11 June) by ex-Tory MP Matthew Parris, ‘Capitalism has conclusively won the day but Conservatives need to get over their reluctance to defend private profit.’ According to him, ‘free-market economics’ has been proved right compared with ‘socialist economics’ just as Darwin’s theory of evolution has when compared with creationism; so ‘socialist economics’ should be treated in the same way as creationism.

‘This century’s intellectual consensus should show Marxism the door. Whether strictly defined as public ownership of the means of production, distribution and exchange, or more loosely as state direction of the “commanding heights” of the economy, socialism must be counted as definitively discredited.’

He’s talking about state-run capitalism of course, not genuine socialism. As a way of running capitalism it could be said to have failed (certainly failed to improve workers’ lives), though not to the extent that Parris suggests. The state is involved so much today in the running of capitalism, via taxes, subsidies, regulations, laws and economic policies, that to call the modern capitalist economy a ‘free-market’ is a misnomer. It’s a state-regulated production for profit market economy.

Basic to any form of capitalism is the pursuit of profit. This is what drives the economy, whether it is the private profit of private capitalist firms or the surplus of state-owned industries. Where, as in most countries currently, most industry is owned and operated by private enterprises, governments have to recognise that these enterprises have to be allowed to pursue profits. All governments have to be ‘business-friendly’ to avoid provoking an economic slowdown.  As Parris put it,

‘You cannot have free-market economics without the profit motive. You cannot have the profit motive without letting the pursuit of private profit weave itself intimately into the fabric of ordinary citizens’ lives.’

He wants Adam Smith to be taught in schools in the same way Darwin is ‘as a scientist whose analysis is now the consensus amongst most thinking people.’ Smith certainly tried to analyse in a scientific way the market economy that operated in his day and he did correctly conclude that, under it, ‘it is only for the sake of profit that any man employs a capital in the support of industry’ and that:

‘The consideration of his own private profit is the sole motive which determines the owner of any capital to employ it either in agriculture, in manufactures, or in some particular branch of the wholesale or retail trade.’

There is no harm in teaching this scientifically-established fact in schools, irrespective of whether or not this is considered the best way to organise the production and distribution of wealth (which it isn’t but it’s what we’ve got). There are other things in Smith. He outlined a labour theory of value (Marx got the idea from him) and suggested that it was labour that added value to materials in the course of production and that this was the source of profits as well as wages. As he put it:

‘The value which the workmen add to the materials … resolves itself … into two parts, of which the one pays their wages, the other the profits of their employer …. He could have no interest to employ them unless he expected from the sale of their work something more than what was sufficient to replace his stock to him.’

Labour as the source of profits! This may explain the reluctance that Parris noted of supporters of capitalism to defend private profit as this would have to involve defending the exploitation of labour.