ADAM Smith is to economics what W.G. Grace is to cricket. All economists, whatever their political views, venerate him as the father of their profession.
Even so the New Right have claimed him exclusively as their own, by implication casting all others as heretics. It’s a fate that would shock him. It’s unlikely he ever considered himself a conservative: indeed he was nearly expelled from Oxford for possessing David Home’s Treatise of Human Nature, then considered subversive - now a classic.
Eighteenth century Scotland was one of the intellectual centres of Europe and Smith, born in Kirkealdy in 1723, joined Home as a leader of its Enlightenment philosophers. Believers in the supreme power of logical reason, their aim was to follow Isaac Newton’s explanation of the physical world as a logical machine with a similarly cohesive and reasoned analysis of humanity.
Like many accomplished intellectuals, Smith had a capacity for total concentration which produced both remarkable clarity of thought and an uneasy relationship with the physical world. He once abruptly terminated an intense academic debate by falling into an unobserved tanning pit. Clearly the gipsies who decided he wasn’t cut out for outdoor life and brought him back after kidnapping him at the age of four knew what they were doing.
The reject gipsy’s reputation rests on his economic answer to the Newtonian system - The Wealth of Nations, published in 1776 after extensive travel in England and France. He’d developed a cynical view of the ruling classes of the time and an optimistic estimation of the potential of free enterprise.
The key to his system and his great gift to conservative economists is the ‘Invisible Hand’ - the assumption that a society of individuals making logical decisions in pursuit of economic self-interest will, as if guided by some unseen hand, produce an expanding, self-balancing economy.
All men sell their goods and labour as expensively as possible and buy as cheaply as possible. Goods are produced in response to demand, If supply is lacking it becomes profitable to expand production.
The price system is the self-regulator with the ‘market price’ the point at which supply equals demand. If governments interfere they will distort the self-correcting mechanism to disastrous effect, The search for greater profits leads automatically to greater efficiency’ - increasing both the volume of goods produced and the income of workers. This increases demand and restarts the growth cycle again.
The paradox that unbridled self-interest is for the benefit of all has a natural appeal for Conservatives with their belief in the imperfectibility of man.
Smith also attacked customs barriers for restricting the spread of the market and protecting the inefficient. He’d seen the idleness of Oxford professors, protected from the need to work by salaries, and contrasted this with the industriousness of their Scottish counterparts paid by results.
Freudians might prefer to blame these views on the fact that his father was a customs officer, Smith was above all a pragmatist in personal life and in his final years enjoyed a sinecure from Edinburgh customs!
The New Right assume that, if he were still alive today, Smith would be one of them, But that is as wide of the mark as the Kirkealdy taxi driver who once informed a startled James Callaghan that Adam Smith had’ founded the Labour Party.
WHILE Hayek has operated as a grey academic eminence. Milton Friedman has become a public figure known far beyond the academic world. His pungent Newsweek column and witty TV punditry have made him a media superstar.
A friend once said ‘I wish I could be as certain of anything as Milton is of everything. His incredible self-confidence may shade into sanity - as when he compared his book Free to Choose with Darwin’s Origin of the Species - but it makes him a formidable controversialist. It also leads him into intellectual exhibitionism. As the New York Times noted: ‘He delights in making dramatic statements which he rapidly admits are partially wrong while insisting on their basic truth.’ The son of poor Jewish immigrants, he lost his father at 15, worked his way through college and eventually became a Nobel Prize winning economist: the personification of the American dream which his writings celebrate.
His academic career has been largely identified with the University of Chicago, whose economics faculty has a long tradition of orthodox conservatism. His wife Rose plays Nancy to Milton’s Ronald, her convictions reinforcing his own instinctive conservatism. She also fills in his tax returns.
In Britain he’s popularly identified with monetarist theories but has a longer and more consistent record as an evangelist for economic individualism, His main manifesto is Capitalism and Freedom (1962); Free to Choose added little to this first work except royalties.
His basic premise is that government can never duplicate the variety and diversity of individual actions and therefore imposes standardised mediocrity. He credits the market with an almost limitless capacity for improving mankind’s lot, asserting, somewhat disingenuously, that it will eliminate racial discrimination: ‘A business man or entrepreneur who expresses preferences in his business activities that are not related to productive efficiency is at a disadvantage compared to those who do not.’
His attacks on welfare systems are summarised by the claim: ‘My parents came to America to work - and there’d have been none if we’d had minimum wages’ - in short legislation harms the people it’s meant to benefit.
Social security only benefits the professional classes, Friedman claims. They start work late (benefiting from state-subsidized education) and live longer after retirement (collecting more pension). And he has advocated bringing market forces into schools by introducing education vouchers - an idea his disciples in the British government found unworkable. His opposition to state planning did not, however, present the Eisenhower, administration nominating him as a planning adviser to India in the 1950s. His liberal adversary and rival John Kenneth Galbraith compared this to asking the Holy Father to counsel on the operation of a birth-control clinic. Galbraith got the job. As a theorist Friedman argues that economics can be an objective science with issues settled by quantifiable analysis. Opponents often point to his use of statistics to back his theories as evidence that you can prove anything with numbers. And his recent research on the British economy has been spectacularly demolished by Oxford economists David Hendrie and Neil Ericksson who’ve proved he manipulated statistics to support his contention that there is a stable relationship between the money supply and the amount of expenditure in the economy. A UK Treasury spokesman conceded that Friedman has been ‘blown out of the water’, omitting to add that the British government’s acceptance of Friedman-style monetarism had been similarly ‘blown’.
Countries like Chile which have applied Friedmanite proscriptions have paid for reduced inflation with devastating recession. Identification with Chile made him a hate figure with people shouting ‘Murderer’ at his Nobel Prize ceremony in 1977. Closer to the truth is Galbraith’s content that he is a fundamentally decent man who saw the Chileans as economic libertarians rather than the monopolistic gangsters they were.
FRIEDRICH VON HAYEK:
A journalist interviewing Professor Friedrich von Hayek was told: ‘You must sit on my right. I am deaf on my left.’ It’s an appropriate disability. Describing himself as a ‘radical anti-socialist’ he has become the contemporary intellectual guru of the New Right.
Ironically Hayek, who was born in Austria in 1899, is still influenced by the Fabian socialism of his youth. While rejecting socialism, this austere individualist, with his passion for solo mountaineering, found that the Fabian tactics of buttonholing the influential rather than campaigning to the masses suited his personality’.
Early experiences in Austria conditioned his views. Army service and his observations of Vienna rent controls developed his dislike of bureaucratic muddle and distrust of politicians.
His appointment in 1931 to the London School of Economics made him the first British economies professor from outside the UK and United States. His life’s work has been the rehabilitation of classic individualism. It’s been an unfashionable stance for most of his career. Only now’ is his development of a cohesive set of classical liberal ideas getting its reward.
Written at the University of Chicago in the 1950s. The Constitution of Liberty is what he considers to be his major work, It was however The Road to Serfdom (1944) that made him proclaimed both devil and prophet.
Like its contemporary Animal Farm the book was a political phenomenon in the United States. It came to brief prominence in the British General Election of 1945 when Clement Attlee accused Churchill of being influenced by ‘the academic view’s of an Austrian professor’ when Churchill suggested that Labour would need ‘a kind of Gestapo’ to enforce its policies.
Since moving to Germany in 1962 he’s concentrated his attack on the concept of social justice. He denies the existence of such a thing as ‘society’ - blaming its invention on Marx and Freud and attacking Freud for ‘shifting individual guilt onto the shoulders of society’.
If there’s no society there can be no such thing as social justice. State attempts to legislate justice are unjust because they give some individuals preferential treatment. And they are doomed to fail because no planner can have the total knowledge needed to plan successfully.
The state’s only role is to provide a framework of just laws allowing the individual to operate and a safety net of minimum standards for the most deprived. According to Hayek, letting in the planners opens the road to serfdom as they extend their influence further and further in the hunt for social justice.
After being discredited by the failure of European welfare states to become feudal states as he had predicted, his anti-unionism and warnings about inflation have made hint fashionable again. Inflation is his special bugbear. As a young civil servant he saw his salary rise in just a few months from 3,000 to a million kroner and watched wives waiting outside the office on payday to grab the money and spend it before it depreciated further. Mrs Thatcher, whom he greatly admires, shares his conviction that socialist planning combined with coercive union power inevitably produces inflation.
And Hayek’s renewed influence was rewarded in 1974 when he was awarded the Nobel Prize, shared, however (as a result of a classic committee decision) with the Swedish liberal, Gunner Myrdal.
Huw Richards works for the community action charity, Inter-Action, as well as being a freelance writer.