Group 5: The Development of Exploitation: Capitalism
Adam Smith’s Approach to Classical Economics
Introduction:
Smith comprehended and analyzed the deepest levels of the developing industrial economy. By doing so he provided a solution to the problem of the organization and control of the economic system. Through numerous works and specifically through the Wealth of Nations he inquires into the significance for economic policy. His work has been used through the ages and continues to be critiqued and followed currently.
Smith’s Synoptic and Synthetic System:
Smith’s dual vision of a synoptic view intertwined with a synthetic way of thinking led to an extensive composition. What many times went under looked and lost significance was the moral philosophical approach Smith possessed. This encompassed four realms of thought and action: Natural theology, ethics, justice and jurisprudence, and expediency. By breaking down the moral, market, and legal orders into distinguishable interacting subprocesses of a larger whole it becomes clearer of their operation and explanation.
His view of the individual and their unique role in a greater society was a synthesis that led to many forces; including, self-love, self-interest, self-command, sympathy, benevolence, moral rules, and legal control. This individual thought and behavior represented that choices in society were both deliberate and non-deliberate. Society’s interaction with the individual and its role in exhibiting tendencies toward both harmony and conflict, with tension between them, clearly exemplified individual choice. It also exemplifies that no society is ever in a fully spontaneous harmony.
This deductive reasoning and factual inductive arguments lead to Smith’s essentially modern, underdeveloped, theory of society. His work emphasizes the importance of recognizing there are inevitable interactions, tensions, and problems which are the characteristics of working out the solutions to the problem of order. These attributes are the most important with his analysis of market and power in their relation to freedom and control. While doing this one must also regard his analysis of moral rules, law, and institutions generally to comprehend his political economic system for all of its value.
Interdependence and Tensions:
Adam Smith viewed the market as a regulatory system, itself an institution of social control. The invisible hand theory promotes itself to control individual conflicts and the excesses of competition. This led to a safeguard of the public goods through healthy competition. “The market above all is an institutional mechanism to compel men to pursue self-interest in social rather than antisocial ways.” He does understand the self-regulatory character of the market but emphasizes the importance and heavier insight falls on the regulation of self-interest by the market.
He clearly states that it is not in all cases self-interest is led by an invisible hand to promote public interest, but in many cases. The underlying message being that pursuit of self-interest does not always promote the interest of society, but frequently. This insight led Smith to believe the market, as a regulatory system is a new discovered institution of social control. His scheme preached voluntary exchange and its only place of action being under legal and moral rules as well as the market.
One of the most fundamental argument in which Smith presents is that institutions, including moral and legal rules, function as social control. This analysis leads to deeper insight on institutions governing distribution. This was led by his concern with the social gains and the costs of division of labor, concluding that institutions govern their distribution among classes. Hence, institutions are given the ability to govern whose liberty is to be achieved. It is the combination of morality and law in the market to regulate the detailed realities of freedom and of exposure to freedom.
His model is one of controlled freedom which takes place through socially established norms of conduct. This controlled freedom sets the personal foundation of his individual and moral economic theory. This elevates the individual to be the prime element in the economic system. He does not only operate within a moral and legal framework, but it is also a socialized or moralized individual. His model provides both self-interested behavior and the control of self-interest by moral and legal rules.
Social control is created through the operation of individual conscience and of social conscience as they interact together. The impartial spectator principle sets the moral rules and customs which serve as social bond, but the principle depends for its content on already internalized social control.
Smith’s aspect of social conditioning involves individuals preferences are endogenously determined with the economic system. They serve as the moralizing and socializing processes which help define self-interest, leading to the proper objects of vanity. Institutions help form the incentive and reward system of individuals. These institutions are not inevitable, but as subject to re-design and change, as the product of past choice and subject to revised choices.
The Smithian model “sets the individual as the prime element in the economic system, but the individual exists and acts only within the evolving moral, legal, and institutional framework as a socialized individual;” leading to both individual choice and social force. His complex vision of businessmen versus consumers emphasizes the critical role of the business class in regard to the organization and direction of production and thereby growth.
These points lead to the central topic of the evolution of legal and moral rules and institutions. “Moral and legal rules evolve through the principles of approbation and disapprobation operating through the impartial spectator principle, expressing a refined sympathy and moral sensibility, as part of the larger evolving system.”
Smith’s Input on Capitalism:
The theoretical elaboration of the ethical framework of classical capitalism as formulated by Adam Smith in the reaction to the dominant mercantilism of his day is difficult to compare to society today. Over time, the various dysfunctions of a capitalist economy became manifest and the utilitarian ethical basis on the system eroded. Contemporary capitalism, dominated as it is by large corporations, entrenched political interests and persistent social pathologies, and is lacking a resemblance to the system which Smith envisioned would serve the common individual.
Moreover, Smith did not write about ‘competition on capitalist markets’, nor did he deny ‘real consequences of capitalist development’, for the simple reason ‘capitalism’ was a 19th century, not a mid-18th century phenomenon. Smith wrote about market transactions, how they had evolved from the division of labor since pre-history, and how they fitted in with the conditions for social-harmony that he expounded at length in Moral Sentiments.
