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Adam Smith's Dead Hand

Adam Smith was an 18th century Scottish economist who pretty much wrote the book on laissez faire capitalism. laissez faire capitalism, for those of you who haven't been beaten over the head with the subject, is the kind of capitalism that some people on Wall Street dream about, but which has never actually existed: a market free from any form of restriction - or help -- whatsoever from any government or regulatory agency

Adam Smith was a firm believer in the virtues of laissez faire capitalism. He is often quoted and referred to by economists and monetary gurus. Adam Smith was in his day, and often since, criticized for having no sense of feeling for the violent swings and displacements that could be caused should capitalism be allowed to run along its merry untethered way. People would suffer unemployment. The cost of goods or seed grain might fluctuate wildly. People might play speculation games in the market that would create havoc in an otherwise stable system. Crashes in the market would leave people devastated. Now there are those who will tell you that such bubbles and dashes of market vagaries wouldn't happen in a truly pure and unfettered market economy.

Surprisingly, the often misquoted Adam Smith was not among them. Adam Smith believed that there should be limitations on what corporations should and shouldn't be allowed to get away with. He thought that the English South Sea Bubble scandal of 1711 was an outrage and exactly the kind of thing the public should be protected from. During it's run of power, members of parliament took bribes, and members of the corporation got rich, and members of the public got bilked while the worthless stock rose from 128 pounds to 1700 pounds and plummeted back down to 128 pounds again in a single year, purely from speculation urged on by the South Sea Company. The South Sea Company was one of the first corporations ever founded and one of the earliest examples of manic greed speculation. The company was supposed to have been preparing to trade with the new world, when in fact the treaty rights it held with Spain only allowed for one or two cargo loads per year. The company had grand schemes, but really nothing to do with itself. So the worth of the company existed on paper and in the hype of it's owners, trading and reissuing new stock, much like Enron today.

Smith also believed that monopolies were the death of the free market, and that the government should do whatever it could to step in and break up monopolies when they formed to insure just competition for the worth of labor. But even more than government regulation, which he believed should be kept to a minimum, Adam Smith was a deep believer in something he called "the unseen hand" - a magical force that would somehow curtail man's baser nature and insure mostly just dealings for most people most of the time.

Adam Smith, however, was relying on something that we don't have the benefit of counting on today. Adam Smith was relying on the influence of Jesus of Nazareth to mitigate the impulses of those acting on his "market forces". During Adam Smith's day there were conversations that took place outside the market. Many took place in public meeting houses, but most took place in churches. And in churches there were other values than profit motivation thrown into the mix of the culture of capitalism. The lending of money with an interest rate charge was considered a sin of usury until the 1600s by the Catholic Church, and certainly frowned upon by most Christians for a long time thereafter. The care of the sick and the poor was so foundational to the Christian Church that the early Christians lived entirely communally. Christian reformers in the new world were trying very hard to get back to the ethics of those original Christians and even amongst the Calvinists some room for charity existed. The buying and selling of slaves was eventually ended on religious grounds. And, in so far as the United States was a Christian nation, the unseen values of Jesus of Nazareth, antithetical to the values of laissez faire capitalism, kept the worst impulses of pure market greed in check.

With the invention of the corporation, however, the western world began to concoct a neat way to separate business from conscience. A corporation has all the legal rights of a person - or as many rights as a business would want - it can buy and sell property, draft and execute contracts, even support political candidates. What a corporation cannot do is get hung, or shot, or spend consecutive life sentences in jail - and neither can its officers. In fact, in most cases, its officers are not even personally financially responsible for the actions of a corporation. So now we have a member of our community which is, in no significant way, responsible to the community. (Ironically, the first recorded corporations were formed in England for the purposes of protecting church property from the crown from one generation to the next.)

With the invention of the corporation, a wedge was driven between our consciences and our mercantile actions. In his book "Desire for Everlasting Hills", Thomas Cahill credits Jesus with introducing compassion as a concept into the western world. As Christianity grew, for example, Roman games declined, gradually being reviled as blood sports. Care of the sick, the elderly, and the poor became something to be attempted, if not always successfully managed, and there was a gradually increasing sense of basic principal proposed of ethical treatment among and between people. The vagaries of history notwithstanding, this played a significant part in curbing human injustice. I mean, how much worse might things have been without this mitigating factor?

Yet as the marketplace of ideas came to be dominated more and more by the market place, and shared less and less by the pulpit and the town hall, there is less of a mitigating voice to create the conscientiousness upon which the "unseen hand" relys on.

If we have no training in what is right and decent, then why shouldn't the executive at Enron milk their company for millions of dollars while bankrupting their investors and pensioners? The executives being brought up to public scrutiny, if not trial, are all but one claiming they did nothing wrong. All but Cliff Baxter, who committed suicide after dumping his Enron stock and pocketing the 35million dollar proceeds. Hardly a beacon of civic virtue.

Adam Smith was a moralist and a professor of logic at Glasgow who maintained that our primary ability to judge right and wrong came from our ability to sympathize with people. While there is much merit to his observation, the bulk of most religious teachings is aimed at getting us to increase the number of people we are capable of feeling sympathy for. If we have no training in thinking about the well being of others, if there is no ethical vocabulary beyond the vocabulary of laissez faire capitalism, then where does the "unseen hand" come from?

I would suggest that the success of laissez faire capitalism depends upon some thing that counter acts it's inherent weaknesses. There is, for example, a direct cause and effect relationship between the deregulation of the American energy industry and the collapse of Enron. Deregulation made it possible for Enron to trade power in California and hike the rates that consumers were paying to feather the nests of its shareholders, spuring lawsuits that it then evaded through political machinations which included campaign donations and simple Washington DC influence peddling. Deregulation made it possible for waves of speculation and cross trading to hike the value of the stock past its real value. And without some kind of watch dog to reign in it's baser instincts, Enron killed the goose that laid it's golden egg.

Ah, but there are still angels in our better nature, some would say. Peter Drucker is credited with being the father of the modern corporation. During the 1950's, he literally wrote the book on management and it is from his models that almost all business books since are taken. He was gifted, complex man, who genuinely believed that the actualisation of a human being was to be found in the work place and that it was a manager's job to provide that opportunity for his employee. Peter Drucker invented structural efficiency, worker responsibility, and management development models -- most of the things that have increased modern productivity so far above our predecessors. And an unprecedented devotion to the workplace, I might add. He was also a deeply committed Christian.

Like Adam Smith before him, he expected that the managers would make the well being of their employees as high a priority as their productivity. They did not. Largely, they took the keys to motivating people and turned them into slogans that worked until their employees became cynical about them as there was no real "mission" to the mission statements, and no caring that extended beyond the shareholders net increases.

Abraham Maslow was a deeply dedicated psychiatrist, and a contemporary of Drucker's. He spent his life studying what he called the "great" man, looking for the factors that made a human being happy, content, sel-expressive and "self actualised". Maslow found that there were certain key things that people needed, more or less in order, to "be all that you can be" in society. Safety. Food. Shelter. Security in the knowledge that you will have food, shelter and safety in the future. Love. Education. Work. And then Self Actualisation flowed naturally as fruit from a tree. Maslow said that Drucker's model was too idealistic because it presumed a level of responsibility that the average American had not been trained to take for themselves and each other. Again, we have one great mind counting on the presence of an "unseen hand" to guide human beings to do the right thing, and another actively advocating the we create a society in which those key building blocks - like food, shelter, security and education - are provided so that a person can have the hope of contributing to a just society.

In contemporary times we have all but abandoned traditional religion, but a new thing is popping up in its place. Seeking a revival of spirituality, Americans are worshiping in temples that tell them that "they are god" and going to seminars that are descendants of Warner Erhart's EST programs, that teach them that they are the originators of their own realities. They like to learn of works like "Man's Search for Meaning" by Victor Frankl, a concentration camp victim who found he could transcend his experience during his torture sessions by freeing his mind. Victor Frankl was surviving a terrible ordeal by mental resistance. Somehow I don't think our modern "get fixed quick" schemes are what he had in mind.

Offering "paradigm shift" as a solution to the very real problems faced by people coming to them in need, these programs essentially tell their client-customers that there is nothing wrong with them that a little "attitude adjustment" won't cure.

Now the unseen hand is their own. And as a result, the onus of social responsibility is placed so far onto the individual that we have no remaining village commons. Because, with this thinking, there is no political issue, no economic issue, no circumstance of fundamental need that can't be transcended by a little "right thinking".

In Smith, Drucker, and Erhart, each in their generational turn, there is an optimism that "things will turn out for the best" without intervention. But if there is correction of any kind, there must be some corrective mechanism. I remember a time in my life when I refused to take action against someone who had committed a crime against me, because I was taught that I should "leave punishment in the hands of god."

"And whose hands do you think god uses," my friend replied, " when he repairs the world?"

And so Adam Smith's corrective mechanism is dead and gone - and we are hurtling faster and faster towards the most free market form of capitalism we can possibly get.

It's a very popular, this attitude adjustment theory. And it makes people feel good. It makes them feel like anything is possible, while they run up their credit card debt and file bankruptcy. It makes them feel like nothing is their fault, while they consume far more than their fair share of the world's resources. It makes them change their attitude when they are treated unjustly on the job and take responsibility for their own lives instead of going on strike or filing suit. It helps them realize that there is an infinite possibility for wealth in the world and that sweatshops are really just upward mobility opportunities. It helps them sleep at night while species die out by the thousands and the holes grow in our ozone layer.

It helps them wait for something to change and feel more well adjusted about it.

But perhaps we do not need the strategies that Victor Frankl used to survive unspeakable horror when there was no action he could take to change his circumstances.

Perhaps there are things about which we should feel uncomfortable. Perhaps the prickles of our conscience and the yearnings of our spirits should not be silenced by a paradigm shift.

Or, if we are responsible for our own reality, and we are, as the "every man", to be the new unseen hand - perhaps some action is in order...

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