“Adam Smith was a radical and revolutionary in his time — just as those of us who preach laissez faire are in our time.” — Milton Friedman
On Tuesday night, June 13, Adam Smith, the founder of modern economics and free-market capitalism, came under sharp attack in my debate with Gene Epstein, economics editor of Barron’s, at the Soho Forum in New York City (see www.thesohoforum.org). Most of the time, it’s the socialists and Marxists who criticize the Smith model of free enterprise, but this time it sadly came from a libertarian.
Mark Skousen debates Gene Epstein at the Soho Forum, with Naomi Brockwell (middle) as moderator.
I started off the debate demonstrating that Adam Smith, professor extraordinaire of the Scottish enlightenment, and his magnum opus book, “The Wealth of Nations,” had a dramatically positive impact around the world, especially in dismantling trade barriers between countries. The world has benefited tremendously from the gradual decline in tariffs and other trade restrictions.
The Intellectual Shot Heard Around the World in 1776
“The Wealth of Nations,” published in 1776, was the intellectual shot heard around the world. It was an economic declaration of independence, coming out just months before Thomas Jefferson’s declaration of political independence. Smith was the Newton of economics.
Now, of course, with the election of Donald Trump, free trade has come under fire, and free-trade agreements are being postponed or canceled. Given that trade represents 30% of the U.S. economy, and over 60% of most other countries’, this is a potential setback for Adam Smith’s “system of natural liberty.”
Adam Smith was More Than an Economist
But Smith’s contributions were much broader than just trade policy. He sought to show that free-market capitalism was beneficial to mankind. As Professor Jerry Muller has written, “Smith valued commercial society not only for the wealth it produced but also the character it fostered.” Smith rejected the false Marxist claim that capitalism makes people greedy and selfish, because, in fact, it bridles the passions, destroys religious and racial prejudices, and encourages citizens to be educated, industrious, self-disciplined and to defer gratification. Muller added, “The Wealth of Nations, like Smith’s Theory of Moral Sentiments (1759), was intended to make men better, not just better off.” Or as E. G. West often said, to make men “humane, not just human.”
Adam Smith’s big fat book changed the world for the better, and almost all economists and political thinkers ac–owledg–their debt to him. I quoted several in the debate, such as:
“Its [Wealth of Nations] publication date — 1776 — marks the dawn of freedom both political and economic… It paved the way for unprecedented achievements in laissez-faire capitalism.” — Ludwig von Mises
“Smith is the greatest of them all. He helped to create a great society.” — Friedrich Hayek
“The Wealth of Nations and the steam engine destroyed the old world and built a new one.” — Historian Arnold Toynbee
“Smith’s vision is surely the most important intellectual contribution that economic thought has made to the general understanding of social processes.” — Nobel Prize economist Kenneth Arrow
“Smith’s invisible hand model of competitive free enterprise is the crown jewel of the ‘Wealth of Nations’ and the most important substantive proposition in all of economics. Smith had one overwhelmingly important triumph: he put into the center of economics the systematic analysis of the behavior of individuals pursuing their self-interests under conditions of competition.” — Nobel Prize economist George Stigler
Mr. Epstein wants to deny Smith his just desserts, and thinks he should share honors with Richard Cantillon and other more consistent defenders of economic liberty. Granted, Cantillion, Turgot and other French pre-Adamites were solid thinkers, but they had little influence compared to Smith. As J.B. Say stated, “When we read this work [WN], we feel that previous to Smith there was no such thing as political economy.”
Adam Smith’s Sins: How Serious are They?
Mr. Epstein made a big deal about Adam Smith’s peccadilloes, including his attack on landlords, his failure to recognize that prices are determined by marginal supply and demand, and his crude labor theory of value. That theory, according to Mr. Epstein, has given aid and comfort to the enemies of liberty.
He is especially critical of Smith’s support of usury laws, which restrict the interest rate on loans. I countered that we should focus on Smith’s policies that were adopted by countries, and usury laws are not one of them. In fact, I noted that England abolished its own usury laws in 1854, while his policies of free trade, the gold standard and balanced budgets carried the day.
Is Adam Smith a Consistent Defender of Liberty?
I love this quote from Adam Smith: “Little else is required to carry a state to the highest degree of opulence from the lowest level of barbarism, but peace, easy taxes, and a tolerable administration of justice.”
Or this one:
“To prohibit a great people… from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind,” Smith wrote.
If these quotes don’t establish Adam Smith as a friend of liberty, nothing will.
My biggest complaint about the Adam Smith critics is that they tend to focus on the parenthetical statements by Smith, rather than his main thesis. It’s like people who look so close to Marilyn Monroe’s face that all they see is the blemishes, moles, scars, warts and the pock marks on her skin and not the beauty of her face and figure from a normal distance.
It’s like today’s critics of George Washington and Thomas Jefferson who ignore all the good they did and focus solely on the fact that they owned slaves.
Adam Smith deserves better. As economic historian Mark Blaug wrote, “Judging from the standards of analytical competence, Adam Smith is not the greatest of 18th century economists. But for astute insight into the nature of the economic process and for economic wisdom, Smith had no equal.”
The Hero in My Book, ‘The Making of Modern Economics’
I tell the full story of Adam Smith in my book, “The Making of Modern Economics,” now in its 3rd edition, published by Routledge. It offers the breakthrough story of the great economic thinkers, including Smith, Marx and Keynes. The Scottish philosopher, aided by his “system of natural liberty,“ is the hero in the book. The running plot involves economists who defend and advance the House that Smith Built (Austrians and Chicago school), and those who oppose it and try to tear it down (Marxists, socialists and Keynesians). It even has a good ending with the collapse of the Soviet socialist model in the early 1990s and the return of free-market capitalism in the developing world.
I’ve received many compliments on this new history such as:
“I have read Mark’s book three times. It’s fun to read on every page. I have recommended it to dozens of my friends.” — John Mackey, CEO, Whole Foods Market
“I champion Skousen’s new book to everyone. I keep it by my bedside and refer to it often. An absolutely ideal gift for college students.” — William F. Buckley, Jr., National Review
“All histories of economics are BS — before Skousen!” — Milton Friedman
My book costs $49.95 on Amazon, but you can get it for only $29.95 by calling directly Ensign Publishing at toll-free 1-866-254-2057. Postage is free if it’s mailed inside the United States. Add $15 to mail outside the United States.
FreedomFest is only five weeks away, and more than 1,100 people have already signed up — we expect to double that for a standing-room-only crowd. Be a part of it, including Steve Forbes’ 70th birthday celebration of his life and ideas.
I am very pleased to announce that Charles Koch has agreed to pay tribute to Steve Forbes at the Saturday night banquet, July 22, at FreedomFest. He and his brother David are together the wealthiest business people in the world, and in the top 10 in Newsmax’s 100 Most Influential Libertarians list. Click here to see the list. For security reasons, Mr. Koch cannot appear in person. It will be a video tribute to Mr. Forbes that include appearances by John Mackey, Larry Kudlow, Maria Bartiromo. Other celebrity speakers in attendance will be Rich Karlgaard (publisher of Forbes magazine), Ken Fisher (the longest-running columnist in Forbes and a billionaire money manager), George Gilder, Nicholas Vardy and Kim Githler, president of the MoneyShow. Be a part of this historic celebration that will include toasts/roasts, comedy, dinner, Anthem film festival awards, and the best dance band in the West, the Salamanders! Only at FreedomFest.
Note: The private meeting with William Shatner of Star Trek fame is over half sold. It includes a photograph with Mr. Shatner, plus an autographed copy of his latest book. It will sell out (limited to 100 attendees). Go to https://freedomfest.com/register-now/ to sign up.
P.S. “The Maxims of Wall Street” is now in its 5th edition. I sold a whole box at the Las Vegas MoneyShow last month. People can never get enough. I charge $20 for the first copy, and all additional copies are $10 each. Many subscribers have bought an entire box (32 copies) for $300. I pay postage for all books as long as they are mailed inside of the United States. To order your copies, call Harold at Ensign Publishing toll-free 1-866-254-2057, or go to www.miracleofamerica.com.