Adam Smith on justice

Smith’s commitment to “equity” for the working class was behind the vehemence of his opposition to mercantilist (“business economics”) arguments for policies that would protect or promote the profits of producers and intermediaries. Smith saw such pro-business arguments—which arguably persist as the core of neoliberalism (Harvey 2007)—whether for direct subsidies or competition-restricting regulations, as an intellectually bankrupt and often morally corrupt rhetorical veil for what were actually “taxes” upon the poor (what we now call “rents”). Such taxes are unjust and outrageous because they violate fair play both in the deceptive rhetoric by which they are advanced and by harming the interests of one group in society (generally, the poor and voiceless) to further the interests of another (unsurprisingly, the rich and politically connected). Smith explicitly moralised the point,

To hurt in any degree the interest of any one order of citizens, for no other purpose but to promote that of some other, is evidently contrary to that justice and equality of treatment which the sovereign owes to all the different orders of his subjects (WN IV.viii.30).

Justice was thus central to Smith’s critique of the crony capitalism of his time, and to his alternative proposal of a “system of natural liberty” characterised both by a level playing field (the responsibility of political institutions) and a commitment to “fair play” (the moral responsibility of economic actors). The quotation above is often taken to indicate Smith’s rejection of the interests of the poor by ruling out the kind of redistributive policies found in a modern welfare state as akin to a referee changing the results of a game to favour one “team” over another. Yet that misses Smith’s commitment to procedural fairness, which introduces a concern that the rules of the game—the institutional arrangements that decide who should get what share of the gains of economic activity—should themselves be fair. If a country’s economy creates great wealth but the share going to the workers versus the owners of capital is kept artificially low by unfair institutions—such as restrictions on workers’ ability to bargain (WN I.viii.13)—that is a gross injustice which keeps the country less prosperous than it ought to be. Smith thus appears a more radical critic of the structural origins of economic inequality than many today on the political left. In Smith’s time no less than in our own, a political commitment to a free society and a free economy does not imply that we should simply accept our existing socio-economic institutional arrangements (cf Grusky 2012). On the contrary, it implies rigorous scrutiny and reform.

But Smith’s moral condemnation of mercantilism has further relevance to today’s business-economics dominated policy discussions. According to Smith’s diagnosis, the mercantilist system’s great success was in nationalising the corporation model of towns in the feudal system, leading to great efficiency gains as the size of the market increased. But in doing so it had also nationalised the “underling” ethics of monopolist tradesmen and manufacturers, who preferred to lobby collectively for self-serving rights and privileges at the political level than to compete on equal terms with others in the market. The “impertinent jealousy of merchants and manufacturers” when coupled to political influence allowed the hijacking of the state’s power and authority to promote the interests of a well-connected few in the name of the national interest, such as the extractive economic policies that Smith considered had driven the American colonies to revolt. But this was due not only to straightforward interest group capture but also the ideological capture of the state by the particular—skewed—perspective of merchants and manufacturers. That fostered an invidious political ideology: a zero-sum view of trade as competition rather than cooperation, in which the prosperity of other nations is seen as national defeat. This remains with us today, deeply lodged in the “common-sense” understanding of our politicians, many of their advisers, and self-appointed media pundits. In Smith’s day, UK plc competed against France ltd; now we are all supposed to fear the rise of China Inc.

It should be obvious by now that Smith was no cold heartless utilitarian who put his faith in a ghostly Invisible Hand. But he was a professor of rhetoric as well as moral philosophy, and he was acutely aware of who the likely readers of the Wealth of Nations would be. So he supplemented his arguments for the moral priority (even sacredness) of justice with hard-nosed utilitarian arguments about its instrumental role in social order and economic development. For example, when people gain equality before the law and thus security from the predations of the powerful, they have the security they need to make the investments that increase productivity.

from
Thomas R. Wells, “Recovering Adam Smith’s ethical economics”, real-world economics review, issue no. 68, 21 August 2014, pp. 90-97, http://www.paecon.net/PAEReview/issue68/Wells68.pdf