The Classical Liberal Political Tradition: Adam Smith v' Karl Marx

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The Classical Liberal Political TraditionAdam
Smith v. Karl Marx
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Part I What is political philosophy?

• Fundamentally, it is the attempt to answer one
  question What kind of government should we have?
• There are lots of choices
• Democracy, aristocracy, monarchy, constitutional
  republic.
• Classical liberal, socialist.
• What criteria are there by which to judge
  competing candidates?

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Here is one criterion expediency.

• Niccolò Machiavelli (1469-1527) beginning of
  modern political thought.
• The state as power and as means.
• Which state more effectively gets you what you
  want?

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A second criterion appropriateness.

• Thomas Hobbes (1588-1679) the social contract
  tradition.
• Humans are inherently competitive, distrustful,
  and vaingloriousand therefore violent.
• We should contract for peace by enacting an
  all-powerful leviathan to keep us in line.

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A third criterion legitimacy.

• John Locke (1632-1704) the principled case for
  classical liberalism.
• Freedom and equality.
• Natural rights to life, liberty, and property.
• No slavery!
• The American founding.

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A fourth criterion prosperity.

• Adam Smith (1723-90) the father of economics.
• The economic or consequentialist case for
  classical liberalism.
• Markets and trade lead to prosperity.

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Part II Classical Liberalism

• Pre-political individuality.
• Individuals priority over the state.
• Natural freedoms and natural rights.

• Private property.
• Consent.
• Limited government.
• Revolution.

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Smiths Inquiry into the Nature and Causes of the
Wealth of Nations (1776)

• Division of labor
• Increases dexterity by focusing attention.
• Saves time.
• Promotes invention of time- and labor-saving
  machines.
• Key The division of labor exploits local
  knowledge.

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Other central elements of WNuniversal
opulence.

• It is the great multiplication of the
  productions of all the different arts, in
  consequence of the division of labour, which
  occasions, in a well-governed society, that
  universal opulence which extends itself to the
  lowest ranks of the people.
• Specialization leads to surplus.
• Increasing goods decreasing prices.
• Everyone can afford more.
• Smith a general plenty diffuses itself through
  all the different ranks of the society.

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Trade mutual cooperation and benefit.

• In a civilized society man stands at all times
  in need of the co-operation and assistance of
  great multitudes, while his whole life is scarce
  sufficient to gain the friendship of a few
  persons.
• Man has almost constant occasion for the help
  of his brethren, and it is in vain for him to
  expect it from their benevolence only. He will be
  more likely to prevail if he can interest their
  self-love in his favour, and shew them that it is
  for their own advantage to do for him what he
  requires of them.
• 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.

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Markets the more, the better.

• Markets encourage every man to apply himself to
  a particular occupation, and to cultivate and
  bring to perfection whatever talent or genius he
  may possess.
• In markets, the most dissimilar geniuses are of
  use to one another the different produces of
  their respective talents being brought, as it
  were, into a common stock, where every man may
  purchase whatever part of the produce of other
  mens talents he has occasion for.
• Markets choices freedom diversity.

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Local knowledge and the invisible hand.

• As every individual, therefore, endeavours as
  much as he can to direct his industry that its
  produce may be of the greatest value every
  individual necessarily labours to render the
  annual revenue of the society as great as he
  can.
• . . . by directing his industry in such a
  manner as its produce may be of the greatest
  value, he intends only his own gain, and he is in
  this, as in many other cases, led by an invisible
  hand to promote an end which was no part of his
  intention.

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Part III Adam Smith v. Karl Marx

• In 1848, Karl Marx and Friedrich Engels published
  their Manifesto of the Communist Party.

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Here are Marx (1818-1883) and Engels (1820-1895)
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Marxs Predictions from the Manifesto

• 1. Adam Smithian-style political economy will
  concentrate power and property in the hands of a
  few and eventually create a society of only two
  classesthe propertied and the propertyless.
• 2. Under the ideologies of free trade and
  free competition, it will enslave the worker
  workers will have few or no rights or powers
  against employers.

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Marxs predictions (contd.)

• 3. Over time workers wages will steadily decline
  to subsistence levels, and their standard of
  living will hence also decline.
• 4. We will be better off if, instead of leaving
  matters to greed-driven and alienating market
  forces, the most advanced and resolute
  intellectuals wrest in a despotic fashion
  all capital from the bourgeoisie and
  centralise all instruments of production in the
  hands of the state.

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Smith makes the opposite prediction in each case

• 1. The obvious and simple system of liberty
  will enable more and more people to ascend out of
  poverty, creating a large and thriving middle
  class.
• 2. Free trade, free competition, and the
  abolition of special privileges (like
  state-enforced monopolies) allow increasing
  economic prosperity for everyone, including
  workers.

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Smiths predictions (contd.)

• 3. Over time, employer competition will lead to
  steadily increasing wages, benefits, and overall
  standards of living.
• 4. Because prosperity depends on people
  exploiting their local knowledge, decentralized
  or free markets will precipitate greater
  prosperity than centrally-planned economies will.

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So . . . Whos Right?Smith or Marx?

• Smith is.
• On every count.

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Take the case of America

• The middle class dominates American economics.
• Think Wal-Mart and Ford vs. Cartiers and Jaguar.
• Over the last two centuries, working conditions
  in America have steadily improved.
• These conditions are now at previously
  unimaginable levelsand dramatically better than
  that of most other countries today.

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Some evidence of improvement over time

• A 3-minute phone call from New York to San
  Francisco cost 90 hours of labor in 1915 in 1999
  it cost 1.5 minutes.
• Three hearty meals in 1919, 9.5 hours today, 1.6.

• Housing cost 7.8 hours of work psf in 1920
  today, 5.5and with much higher quality and
  better amenities (including indoor plumbing,
  central heating, etc.).
• In 1900 scissors, 67 baby carriage, 913
  bicycle, 2,222 telephone, 1,202.

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In America (contd.)

• Markets and competition have led to unprecedented
  economic growth, steadily falling prices, and
  substantially higher standards of living.
• Think of computer prices and indoor plumbing.
• Freud, soap, and civilization.
• Workers wages, benefits, and standards of living
  are arguably better here than anywhere else in
  the worldand certainly better than most places
  in the world.

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More generally

• Free-market-based economies have dwarfed
  centrally-planned economies in productive power.
• We now know, for example, that the impressive
  numbers produced during the Cold War by the
  Soviet Union were often pure fabrications or
  gross distortions.
• How many tanks were built does not equal economic
  prosperity, especially if theyre just sitting
  around rusting.
• Free economies have led to prosperity for
  everyoneincluding especially the poor, who are
  far better off in market-based economies than in
  centrally-planned economies.

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Consider

• In the early 1900s, only the super-rich had
  automobiles.
• Today, over 90 of American households have cars
  60 have two or more.
• America may soon be the first nation with more
  automobiles than people.
• The same holds true with most necessities,
  especially food, clothing, and shelter they have
  gotten cheaper, and their quality has increased.

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Another fact

• Americans today have more leisure time than any
  generation of Americans has ever had.
• One principal indicator of this Americans spend
  on average 35 hours per week just watching TV!
• And dont forget one of the main health problems
  facing the poorest part of Americas population
  today is not lack of food but . . .
• Obesity!

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Conclusion

• Markets and competition have enabled us to work
  far less for our necessities and yet afford far
  more.
• Thus our standard of living is far higher than
  that of previous generationsand getting better
  all the time.

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Now, an Objection

• Americas increasing prosperity seems correlated
  with increasing economic regulation by the
  government.
• Might it be, then, that the prosperity is due to
  government intervention in markets, rather than
  just to markets?

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Answer

• It would appear not.
• A wide array of evidence suggests that government
  control of markets is inversely correlated with
  economic prosperity the more regulation, the
  less prosperity and vice-versa.
• Evidence the freer the markets in a country, the
  more it protects private property, and the lower
  its trade barriers and taxes, the higher its
  overall prosperity.
• Thus classical liberalism prosperity.

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From the Economic Freedom Index 2003 (Gwartney,
Lawson, et. al.)

• Economists have studied the correlation between
  economic freedom and economic prosperity in 123
  countries worldwide over the course of several
  decades.
• Economic freedom approximating Smiths
  recommendations of protecting private property
  maintaining low taxes, tariffs, and duties and
  minimal interference in economic markets.
• There are striking, statistically significant
  correlations.

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The economic freedom rankings of selected
countries
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Economic freedom and monetary prosperity.

• The correlation between regulation and per-capita
  income.
• Notice the difference between the bottom and top
  quintiles is nearly a ten-fold factor.

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Economic freedom and growth.

• A striking correlation between government
  regulation and economic growth (as rate of GDP
  increase or decrease)

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Economic freedom and overall quality of life.

• The correlation between economic freedom and UNs
  Development Index, a combined measurement of
  life expectancy, adult literacy rates, school
  enrollment, and per-capita incomes.

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Quality of life, take two.

• This represents life expectancy as correlated
  with economic freedom.
• Note the difference between the top and bottom
  quintiles is a full twenty years.

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Quality of life, take three.

• Levels of child malnutrition (as of children
  underweight) measured against economic freedom.

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Quality of life, take four.

• This is economic freedom rated against access to
  health care.

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Food

• Economic freedom against cereal yield in
  kg/hectare (hectare 10,000 sq. m. 2.47
  acres).
• Implication freer countries tend to produce more
  food.

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Response to objection

• Economic freedom is not all or nothing it admits
  of degrees.
• The countries that fall along the spectrum of
  economic freedom track prosperity with a high
  degree of statistical significance.
• The more government economic regulation, the less
  prosperity and vice-versa.
• This holds true for a number of variables

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Economic freedom tracks positively with increases
in

• Money, both as per-capita income and real
  economic growth
• Life expectancy
• Infant survival
• Child nutrition
• Literacy

• Food production
• Health care
• Access to safe water
• Percentage of GDP dedicated to research and
  development
• Political stability

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Another Potential Problem Poverty. How do
markets affect the poor?

• According to a March 2001 study by the World
  Bank, which looked at data from 137 countries
• Private property rights, fiscal discipline,
  macro stability, and openness to trade increases
  the income of the poor to the same extent that it
  increases the income of other households in
  society (emphasis added).
• The report specifically adds that this is not a
  trickle-down process the benefits for rich and
  poor are created contemporaneously.

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Capitalism and poverty, take two.

• World Bank Smithian policies correlate with
  rising income among the poor more than do
  government social spending, formal democratic
  institutions, primary school enrollment rates,
  and agricultural productivity.

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Capitalism and poverty, take three.

• World Bank Reducing government consumption and
  stabilizing inflation are examples of policies
  that are super-pro-poor.
• They disproportionately benefit the poorest
  quintile in a country.
• That means that reducing government spending, not
  increasing it, helps the poor.

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Government consumption and poverty.

• The following graph represents the economic
  effects of various policies on the poor.
• Note that government spending negatively affects
  them.

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From the World Bank (2001)
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Capitalism and poverty, take four.

• The World Bank report continues
• Social spending as a share of total spending has
  a negative relationship to income share of the
  poor that is close to statistical significance
  (emphasis in the original).

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Evidence from the Economic Freedom Index supports
the same conclusion

• The first graph shows that the share of income
  going to the poorest 10 of the population is
  unrelated to economic freedom.
• The second graph shows that the poorest 10 earn
  much more in economically free countries.

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Capitalism and poverty, final take.

• Since 1965, the United States has spent 5.4
  trillion in its War on Poverty.
• 20,000 for every man, woman, and child.
• According to World Bank study, it has been no
  significant benefit to the poor.
• U.S. poverty statistics.
• A negative effect?
• 5.4 trillion that would have been in the private
  sector, stimulating economic growth that might
  have helped the poor?

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From the World Bank (2001)
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Smith v. Marx

• Both Smith and Marx have had great influence on
  the subsequent history of the world.
• Smiths influence has been almost universally
  beneficial, especially for the poor.
• In the U.S. both rich and poor are getting
  richer poor at faster rate (Dallas Federal
  Reserve, 1995).
• Marxs influence, however, has not been so
  beneficial . . .

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Part IV Marxs influence

• All the places where Marxian economic ideas have
  been implemented have suffered terrible
  consequences.
• They are all at or near the bottom of the
  economic freedom ranking, and they are all
  exceedingly poor.
• Consider the former USSR, Cambodia, Angola, North
  Korea, Cuba, Mongolia, or India.

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Actual Results Compare North Korea vs.
South Korea.
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Actual results, contd.

• Compare China vs. Hong Kong.
• Compare China vs. Taiwan.
• Compare Cuba vs. Little Havana (Miami).
• And that is not even considering the
  approximately one hundred million innocents
  killed during the twentieth century by their own
  governments in the name of Marxian ideals.

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Consider Lenin and Stalin.

• Lenin, 1917-24 4,017,000 dead.
• Stalin, 1929-53 42,672,000 dead.
• The Soviet slave-labor system under Lenin and
  Stalin killed almost 40 million people in about
  70 yearsmore than twice as many as killed by 400
  years of brutal African slave trade.

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Mao Tse-tung.

• 1927-76 37,828,000 dead.
• Higher? Not all records are open to the public
  yet.
• Some scholars suspect the final tally will have
  Mao surpassing Stalin.

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Pol Pot.

• 1968-87 2,397,000 dead.
• The most lethal murderer in the twentieth
  century
• 1975-79 killed 8 of his population annually.
• In under four years, his Khmer Rouge killed 31
  of all men, women, and children in Cambodia.
• The odds of surviving was only 2.2 to 1.

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The Cheong Ek mass grave in Cambodia, exhumed in
1980 the Killing Fields.
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Final Lesson

• The classical liberal tradition and Adam Smith
  have a great deal to offer prosperity and
  liberty.
• Indeed, its offerings may literally mean the
  difference between life and death.
• A Smithian society will not be perfectno society
  ever will bebut the evidence suggests that it is
  superior to any other known alternative.

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The twentieth century was a one-hundred-year
contest between Smith and Marx.
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Smith wins by a knock-out.