If Smith Lived Today

1998. A comment to Jonathan Schlefer’s article in the Atlantic Unbound.

Jonathan Schlefer asks in the Atlantic if our globalization is just a new mercantilism. That is a good question but we need a slightly unorthodox view to get the most out of it.

Mercantilism was not a restricted economy for everyone. On the contrary it was a very free economy for states to collect duties, for trade guilds to regulate handicrafts and for trading companies to trade with faraway countries. When mercantilist economy grew the traders must have felt their freedom to widen. Their aim was to conquer the world for their freedom.

The trouble with this freedom was the unequal structures of the institutions in question. The state was the state of the aristocracy and civil servants and it used its freedom for the benefit of them. The guilds used their freedom to keep up the guild hierarchy and the companies used their freedom to strengthen their privileges and to destroy the freedom of the colonies. The conclusion was that the economic freedom of a working man was very limited and got more limited while the freedom of the capital owners widened.

That is where I see Adam Smith react: The mercantilist economy widens the gap between the rich and the poor too wide to benefit the nation. There is no need to coerce the working man under the will of civil servants, the aristocracy or trading companies. He works best for the benefit of society when he is free to intend only his own security, only his own gain. He is in this led by an invisible hand to promote an end which is no part of his intention.

What is the message?

There are many differences between the mercantilist time and today. There are no privileges for the aristocracy any more. The civil servants are chosen by the people to work for the people. And there are no trading companies to rule the trade with colonies.

But there is one similarity worth a notion. The gap between the rich and the poor is widening again and it can be seen as a juxtaposition of the working man and the corporate man. Corporations and stockholders are taking over the economy everywhere and the working man is losing his share. How is this possible? Shouldn’t the increasing freedom of trade work for the common good? It should but it doesn’t. The reason is the same as in the mercantilist economy. The structure of the corporation is not neutral: the corporation has certain privileges compared to a single working man or a family. They are taxed by different principles and their debts are handled in a different way. When such a system widens its freedom, the freedom of the working man diminishes.

If Smith lived today he would probably speak of the personalization of corporations. Not only to improve the living of the poor but to match the equilibrium theory and to reduce the risk of a great depression.

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