Monday, 5 May 2014

Adam Smith Got It Wrong

While Karl Marx is thought of as the father of Communism, his counterpart would be Adam Smith and his 'Wealth of Nations' book that decreed that the motivating force of economic growth was selfishness.
The Smith analogy was that: 'It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest' which means that the Butcher is not selling you meat because he enjoys or wants to sell you meat, he is only doing it to make money and this desire to make money benefited everyone as he spent this money hiring people and buying other things from people selling items and the money went around and everyone got a slice.
While Marx's slogan was that Communism would produce enough goods and services so that everyone's needs can be satisfied, Smith's was being selfish and greedy is the key to satisfying everyone but as we now know, Smith underestimated the self-regulating powers of mankind when it came to selfishness.
'How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him' wrote Smith but while his idea of selfishness running the economy has been taken up with gusto, his idea that considering the fortune of others would act as a brake on just how selfish we would be was wildly wrong.
As we have suffered recession after recession for as long as i can remember, the time between them has been less and it seems that finally the recession of 2008 may well have been the final straw as countries go bankrupt and  the global crisis rumbles on six years later. 
This last recession was caused by selfishness in the financial sector, an area unconstrained by any of the moral sentiments Smith expected to stop it from happening. The mantra of 'greed is good' has not only brought down most of the World but has badly damaged Smith's own idea of how an economy should work.  
While the regular people are losing their jobs and their homes, the same people whose sheer greed led directly to where we find ourselves today continue to rake in huge pay packages and bonuses.
Governments know what caused the crash, know that Smith's idea of an economy based on selfishness has failed but continue to try and re-build their economies by telling business people to go on being selfish and greedy.
There will have to be a point when someone important points out that Adam Smith was wrong and greed is not good, it's downright bad for the overwhelming majority of us.


Anonymous said...

i think you are misinterpreting Smith, but I read the book in 1975 and don’t remember the context so maybe you are right.

anyway, the USA has spent trillions in my life time making sure that being "poor" in America is a better life style than that of 85% of the world. Europe’s failure is the envy of about 6.5 billion people.

Failed? Failed? Nah. The USSR failed. Cuba is a failure. North Korea is a failure while South Korea is a success (the biggest difference is government and economic approach, not the border). Venezuela is a failure. China was a failure until they unbridled “selfishness”.

Smith was right.

Lucy said...

USSR wasn't an advocate of Smith, nor Cuba or North Korea, Venezuela or China so not sure why you mention them unless you are comparing the success or failure of Karl Marx inspired nations to the success or failure to Adam Smith inspired countries. If you are i would ask you to point to where in the post i mentioned one was better than the other, and none of your 'it was implied' stuff which is just another version of your usual 'what you mean is...'.

Keep Life Simple said...

Pointing out the weaknesses of a system without considering the strengths is bogus. Making a system sound inadequate without considering it in regard to the alternatives is also bogus.