Monday, September 3, 2007

Adam Smith on Labor Day: On Currency, in His Grave, and in Our Minds


A few months ago, around the same time this blog really got rolling, I toured the Scottish nanotech industry (as I will recount in more detail very soon) and found time to visit the Edinburgh grave of Adam Smith while I was at it. Patricia Short, a senior editor at Chemical & Engineering News who was also on the junket (another one of those interesting people from the class of ’68 I keep meeting), told me that if I like Adam Smith I should be pleased to hear that his face now appears on British currency.

I was so delighted — saying that I’d love to have a piece of currency with Smith on it — that Patricia offered to mail me one, and so she has. But while I’m grateful, I’m a bit embarrassed to discover that Smith appears not on the two-pound note, as I thought she’d said, but on the twenty-pound note, so I definitely owe Patricia a favor and may now have to consider getting a tiny frame for the Smith note.

Today, when Americans are celebrating labor, seems like a good time to remember Smith fondly and to recall that his motivation was not, as the vicious, ignorant smears of the modern left would have it, to make the rich richer or the poor poorer but, quite the contrary, to liberate humanity from the poverty created by the ludicrous inefficiencies that anti-market laws inevitably create. To make a long theory short, every law that prevents a trade that property-owners would otherwise have made (to their mutual advantage, as judged by themselves rather than some third party or higher authority) or that forces people to make a trade they otherwise would not have (because they do not see it as advantageous to themselves) is, in essence, forcing humanity to do things the hard way — wasting time, wasting resources, wasting effort, wasting labor.

It is no kindness to humanity to pass laws that mandate, say, a perpetual monopoly on the hauling of goods for low-paid truckers if in the process the laws bankrupt a bourgeoning teleportation industry that might have eliminated the need for trucking once and for all and liberated human labor to be used for more efficient, productive, modern ends (no matter how much the initial layoffs in the trucking industry might disgruntle the truckers).

Even Smith, alas, was not a perfect free-marketeer, taking it for granted that some services were naturally governmental functions — but it’s important to note that these assumptions by Smith were not logical outgrowths of his economics theories but rather careless afterthoughts. He did not have the benefit of being able to draw upon two more centuries of free-market thought, such as the insights of founding “Austrian school” economist Eugen von Bohm-Bawerk, who has himself graced Austrian currency.

The Austrian school’s key insight was that the economic value of something is subjective (in the limited, individualistic, conventional sense of the word, not the sweeping perspectival/relativist sense). That is, while a symbol for “twenty pounds” or “five dollars” may appear on an object’s price tag as the intended selling price, there isn’t some cosmic — or even material — quantifiable, “correct” price for an object that indicates its real value (the way one might test something to find its real mass). I may value an object — say, a first-edition copy of the hundredth issue of Fantastic Four — at $5,000 simply because it has some great personal importance for me, while you hate comics and would value it at only $1 (or perhaps slightly less than whatever you thought you could get in trade for it — though you’re under no “rational obligation” to want to bother investigating its resale value and may even value it at $0 or even a negative value if you’d rather not have it placed in your hand, obliging you to find a trash receptacle for it).

The whole medieval, Catholic-church notion of a “just price” is economic nonsense. Or as Buckminster Fuller might have said (had he addressed the topic), value is a verb, not a noun (at least epistemologically speaking — some mind has to do the valuing). The long deductive road from this insight to the moral/rational necessity of embracing anarcho-capitalism will have to be left for another day, but for now I will just conclude by saying that the opposite assumption from that of the Austrians would be the belief — like that held by Karl Marx, most labor unions, and even (in some early passages of Wealth of Nations) poor confused Adam Smith himself — that an objective, universally-recognizable “amount of value” is somehow imbued in objects when they are produced. If that were the case, we’d have no need for individual purchases on the market to reveal (or in some sense create) the value of things and could just look at how much sweat and steam and electricity went into making them. That’s the labor theory of value.

But if the labor theory of value were true, it would follow that more value is created when seven hundred people struggle with tweezers for a year to build a computer than when five people do it in seconds flat on an assembly line. And every time a labor union or a regulation or a Marxist insists that humanity preserve current inefficient labor arrangements instead of discarding them in favor of newfound efficiencies, they are in effect making us all work with tweezers and slowing real progress. And that, in a nutshell, is why socialist economies don’t achieve futuristic lifestyles as quickly as capitalist economies do — and why every shackle placed by government on the operation of the free market is, in effect, keeping us closer to the caves and farther from the stars.

It was hard enough to get bad, anti-market laws repealed in Smith’s day, when we hadn’t yet developed a long, tragic tradition of leftists — and young, creative intellectuals in general — reflexively despising capitalism and cheering on the governmental leviathan as it regulates and taxes everything around it to immobility or death. Now, the most destructive force on Earth, government, has most of the intelligentsia acting as its eager (and morally self-congratulatory) apologists, the Adam Smiths are once more rare, and the poor all over the world suffer for the elite’s inability — and often fierce unwillingness — to understand economics. But when I look at my twenty-pound note, at least, I’m pleased and even a bit hopeful.

(Sidenote: Our pro-Islam debater this Wed. [8pm] at Lolita Bar, Stephen Schwartz, got his political start as a pro-labor left-wing activist before turning more neoconservative and converting to Islam, so it might be interesting to chat him up about his views on unions if there’s time left over after hearing about religion, immigration, and foreign policy.)


Gavin Kennedy said...

Hi Todd

Being more ‘Smithian’ than anarcho-capitalist, I can agree with much of your piece, but not others. For example, Smith’s so-called labour theory of value was confined, operationally, to ‘rude’ society (anrcho-poverty?). He did not have a labour theory of value for commercial society, or shepherding, or agriculture. That the contray view is widespread is because of the way he wrote about it in Wealth Of Nations, switching back and forth between ‘rude’ and commercial society without always distinguishing his shift in focus.

However, I am pleased that you enjoyed the £20 pound note. I have mine framed in my dining room. This year or next we expect to have Adam Smith’s statue laid in the High Street opposite where he worked in Edinburgh and just up from his house (before you reach his grave site). I am in the High Street, regularly, living in Edinburgh. Thanks for your visit.

Jacob T. Levy said...

Even Smith, alas, was not a perfect free-marketeer, taking it for granted that some services were naturally governmental functions รข€” but it’s important to note that these assumptions by Smith were not logical outgrowths of his economics theories but rather careless afterthoughts.

This isn’t what one would call “true.” Book V of WN is important and profound and well-thought-out, not careless. A few of his examples may not stand up to subsequent generations of free-market analysis, but his arguments about the categories remain careful Smithian arguments, not careless afterthoughts. The discussion of education in particular isn’t one that we can dismiss by pointing out the economics earlier in the work; it’s an argument in a different register.

Todd Seavey said...

One man’s philosophy is another man’s reckless musings.

Note — and I say this without objection — that Prof. Levy’s comment here combines professorial arrogance with the sort of Buffy-esque phrasing (in his first sentence) one might expect from someone who reads comic books when not reading political philosophy, as noted in my next blog entry, not that there’s anything wrong with that:

JD said...

“…Scottish nanotech industry…” They make sheep that small now?

Maria said...

in my view your comments on smith are mostly correct. yet, smith’s positions on government intervention are by no means careless afterthoughts. smith was a very careful scholar and worked on wn and its many revisions for years. those were his

thoughtful views, whether one likes them or not.

let me also add something about the price/value discussion. there is a right price, that is the market price. that price is not subjective. value on the other hand is indeed subjective. the easiest way to see the difference between price and value

is to think that value is how much one is _willing_ to give up to get something.

price is how much one _must_ give up to get something. and as a final comment, there is an extensive literature understanding the scholastic just price as a market price.

John said...

“Value is a verb” is a good insight. I just googled the quoted phrase to see if anyone else had thought to put it that way. But I disagree with your other conclusions.

I don’t think you can get an ought from an is: “The long deductive road from this insight to the moral/rational necessity of embracing anarcho-capitalism will have to be left for another day.” I don’t think that deducing a moral “ought” can possibly follow, also as a matter of deduction.

Next, the Austrian school is, at least from Hayek on, definitely subjectivist in the sweeping relativistic sense. Hayek eventually stopped writing about economics and started writing about psychology and social construction with what today we’d call a ‘post-modern’ perspective, and he spawned a school of Austrian philosophers who were expressly post-modern, starting with Don Lavoie.

Furthermore, I wouldn’t say that “value is a verb” accurately represents the thorough-going Austrian understanding. Rothbard for instance embarked on endless musings about whether or not land has value, proving that he didn’t see the question involved a category error to begin with. Instead he concluded that land has no value, whatever that means. But then why do people fight wars over oil?

Working from a similar error Jan Narveson whittles down the value debate to say, like Bastiat, that “economic value lies in service.” If that means anything, it could mean that identical services yield identical exchange values, but that’s clearly not the case. If I send two equally talented miners out to find gold, they spend the same amount of time working but one comes back with lots of gold and the other comes back with nothing, we could say the service was the same but the exchange value isn’t. Actually, I think what Narveson intends to say is that the “service” is the gold I get. But if that’s the case, why doesn’t it make more sense to say that the economic value lies in gold in this example? Anything the word “service” could mean is superfluous.

If we’re going to be essentialist on the value question, the closest we’ll come is “exchange value lies in opportunity cost.” That’s what Austrians usually mean by value. So what’s the opportunity cost of (for example) a plot of land that a speculator ropes off and sits on? Austrian adherents think that roping off a plot of land and declaring it private property creates value. And this conceptual assertion (impossibly) carries a moral rider: land speculation is good in and of itself.

But we’ll never really know if land speculation was for the better because there’s no real way to find out who would have come along otherwise and done something else with the land. Maybe someone else would have come along otherwise and started a business there that would someday serve millions of people? Or maybe a farmer would have worked there and then, years later, sold at the same time and at the same price as the speculator would have. We don’t know what the opportunity of granting a deed to the land speculator cost us. We can only guess by looking at “comparables”, which don’t take into account things like diminishing marginal utility and “value is a verb.”

Marginal note (if I could write in the margins): I’m not qualified to explain Marx’s labor theory of value really, but it’s definitely misrepresented above. On the fifth page (in my edition) of Capital Vol 1 (Section 1) Marx says, “It might seem that if the value of a commodity is determined by the quantity of labor expended to produce it, it would be more valuable the more unskillful and lazy the worker who produced it, because he would need more time to complete the article. However [that's not the case]…” Marx’s position is it’s the &#8..CONT..

John said...

..CONT..220;social average” of equal-quality “necessary labor” that determines “embodied” value. I’m not a Marxist apologist – my best guess is Marx was just inconsistent a lot – just thought it was worth clarifying.