The Left Mis-Uses Adam Smith to Their Own Purposes
By Greg Blankenship, Illinois Policy Institute
Posted in Our Columns on November 19, 2007 with 0 comments.
tags: Economics History
SPRINGFIELD, IL?He may be the father of modern economics, or perhaps the father of social science but to call Adam Smith the father of capitalism ? as one close colleague puts it ? is like calling Sir Isaac Newton the father of gravity. Newton didn?t invent gravity; he just figured it out. Ditto for Smith.
I say this in reference to the adoption of Adam Smith by the American left in recent years in an attempt to suggest that Adam Smith would be a proponent of their policies. The reference alone of Adam Smith being the father or inventor of capitalism gives away the lie.
Capitalism was a term coined by Karl Marx to demean liberty and free markets. By labeling free markets as an ideology ? rather than an empirical observation (the methodology of the Anglo-Scottish Enlightenment) into what was occurring in Smith?s world ? it was hoped that the reality that Smith uncovered could be overthrown and replaced with a new vision of what the world ought to be like in the minds of the people who, of course, would run it.
Taken from its roots in the French Revolution, the leftist view of the world is that they can somehow remake man in their own image. Smith and colleagues rejected that notion and instead argued that the individual could slowly but steadily improve upon himself in life if he was given the freedom to do so. In the end the French Revolution, like Communism had little to offer but death. The child of the Anglo-Scottish Enlightenment is the United States Constitution.
While Marxist ideology eventually led to the pre-mature death of a billion or more people while billions more have suffered through it, the remnants of collectivism still live on in the U.S. It?s places untouched by the policies of the socialists where the ideology still retains some romance (think FDR); it?s in places where it was imposed such as Poland and the Baltics where no one but pensioners who are dependent upon it want anything to do with it.
With no intellectual moorings to speak of anymore people like Max Lerner, Alan Krueger (an economist famous for championing the minimum wage), and Robert Reich, President Clinton?s Labor Secretary have written introductions to various editions of The Wealth of Nations in recent decades. In those introductions they have noted that Smith was a champion of progressive taxation and public education. That is to say (nod, nod, wink, wink) your hero, (capitalist pig) was really one of us.
The tactic hasn?t been lost on fellow travelers of the local sort, either. Recently on this very site Ralph Martire wrote:
?In fact, the bottom 60 percent of income earners in Illinois all pay more than 10 percent of their total annual income in taxes, more than double the 4.6 percent tax burden of the wealthiest one percent.
That?s not only unfair, it also contravenes sound, capitalist tax policy, as conceived by the father of capitalism, Adam Smith. Smith contended tax burden ought to be progressive in a capitalist economy?i.e. impose a greater burden on the affluent than everyone else, because under capitalism the affluent will always receive a disproportionately greater share of economic growth.?
While Martire is correct that Smith was for progressive taxes, he is being disingenuous at best in applying progressivity to income taxes. This is because Adam Smith rejected income taxes as, ?absurd and destructive:?
If direct taxes upon the wages of labour have not always occasioned a proportinable rise in those wages, it is because they have generally occasioned a considerable fall in the demand for labour. The declension of industry, the decrease of employment for the poor, the diminution of the annual produce of the land and labour of the country, have generally been the effects of such taxes. In consequence of them, however, the price of labour must always be higher than it otherwise would have been in the actual state of the demand: and this enhancement of price, together with the profit of those who advance it, must always be finally paid by the landlords and consumers.?
? ?Absurd and destructive as such taxes are, however, they take place in many countries.?
As he continues in Book V Article III, Taxes on Wages, Smith cites taxes on wages (income) in France and Bohemia as examples of the income tax?s destructiveness. In Bohemia, in fact, he discusses what we could describe as a progressive tax system that is Martire?s raison d?etre for Illinois:
?In Bohemia, in consequence of the alteration in the system of finances which was begun in 1748, a very heavy tax is imposed upon the industry of artificers. They are divided into four classes. The highest class pay a hundred florins a year; which at two-and-twenty-pency halfpenny a florin amounts to 9l. 7s. 6d. The second class are taxed at seventy; the third at fifty; and the fourth, comprehending artificers in villages, and the lowest class of those in towns at twenty-five florins.?
Adam Smith?s idea of progressivity was that people who purchase luxury items such as a carriage should pay more in taxes for that purchase than a dirt farmer buying a wagon. Necessities of life should be taxed less than luxury items. Smith also believed that property was better source of taxation and than taxing capital, stock or production. Again, this is totally at odds with Ralph Martire?s vision of tax reform.
Martire?s chief complaint is that Illinois? tax system is behind the times and that we need to tax things like income and services at higher amounts because we no longer live in an industrial economy. But while more of the economy is services based today, manufacturing hasn?t stopped in the US.
In fact, as I?ve written in other places, we produce more than we ever have. We just don?t produce in Illinois because we?ve artificially hiked the cost of labor through taxes and regulation. That has created incentives to move out of high tax-high cost economic activities into low tax ? low cost economic activities. Martire?s argument comes down to, ?Well, we?ve squeezed all we can out of manufacturing economy so now we need to move on to the next victim.? I don?t think that?s the right approach. Neither would Smith.
The real lesson of Adam Smith isn?t in his maxims on taxation or his discussion on public education. The real lesson is Smith?s commitment to natural liberty and that government wasn?t the solution, it was the problem:
?Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.?
?Great nations are never impoverished by private though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenues, is in most countries employed in maintaining unproductive hands. Such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, and in times of war acquire nothing which can compensate the expense of maintaining them, even while the war lasts. Such people, as they themselves produce nothing, are all maintained by the produce of other men?s labour.?
Somehow, Mr. Martire and the intellectual left in America manage to overlook this in their discussions of Adam Smith. I wonder why.
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