The purpose of this post is to answer the question of what were Adam Smith’s views on Socialism. Some people believe Adam Smith was a socialist. What would Smith think of the world today and the state-run economies? Is it all that bad?
The wonderful world of Adam Smith was not so wonderful. There was slavery, rigid class systems, super wealthy that would make Warren Buffet seem upper middle class and poverty. The real question is why was the book Wealth of Nations written? He wrote the book because he was a moral philosopher. He wanted to explain not only why certain countries have wealth, but why there is poverty and hinted at ways to end hardship for humanity. He wanted the world around helped. He was an enlightenment philosopher.
The key point people do not understand about Adam Smith’s capitalism is, it is not a zero-sum game. That is, just because someone makes a lot of money does not mean you lose. It usually means you win. Economics is a positive sum game. I hope people in government are enlightened and understand this or the general poverty of the nation will increase.
Taxes and Socialism
What determines the level of socialism in a country? It is the tax levied by the government. Taxes are the defining characteristic of socialism. Government debt is nothing more than a deferred tax. Therefore, large deficits and debt is a tax. The level which a government taxes people on productive work is the level in which a country exist on the spectrum of freedom or socialism.
Adam Smith wrote:
Absurd and destructive as such taxes are, however, they take place in many countries.
This is so clear I think there is no dispute that Adam Smith, not a Socialist. He believed taxes were both ridiculous and draining for a country. He said this in unambiguous terms.
The next time a revisionist historian asks what how does Adam Smith and Socialism fit together, show them the above quote.
Smith also wrote:
There is no art which one government sooner learns of another, than that of draining money from the pockets of the people.
What does this mean to you?
Adam Smith on socialism and its effect on unemployment
In the wealth of nations you will find this quote:
It (profit) is the compensation, and, usually, it is no more than a very moderate compensation for the risk and trouble of employing the stock. The employer must have this compensation, otherwise he cannot, consistently with his own interest, continue the employment.
Smith felt that if government interfere with the market you will have higher levels of unemployment. This exists in the more socialist countries of Europe where the natural full employment rate is 10% compared to 5 % in the USA (when the market is allowed to adjust, unlike the last three years).
Socialism is the new feudalism
Adam Smith wrote:
In the disorderly state of Europe, during the prevalence of the feudal government, the sovereign was obliged to content himself with taxing those who were too weak to refuse to pay taxes.
If you replace a few words and read this quote:
…the social government, was obliged to content himself with taxing those citizens that could not afford good accountants.
It does not change the meaning of the sentence but rather uses a more modern language. The capitalist frees the worker from the feudalism of the government by providing earnings based on freedom and choice. Modern media tries to portray the capitalist as the villain, but the reality is socialism is the new feudalism.
Economists after Adam Smith were more direct about Socialism
- Hayek argued that with market distortions from a socialist economy the market could not accurately convey information about prices. Therefore, people could not make rational or ideal decisions. Further, government redistribution of capital would result in greater poverty and inefficiency.
- Misses argued socialism would not work in the long-run because people make economic choices on non-price rationing
- I am an American living in a post-communist country and an arch-chair economist. Based on personal experience and observation there is no way socialism works. It is something that I have seen with my own eyes. If you have any doubts I invite you to live in Eastern Europe for a while.
- Adam Smith was a thinker that comes around only once every one hundred years. although Adam Smith did not mention socialism by name is stance was clear.
Although I am personally a fan of Adam Smith as I studied economics and believe the classics have more wisdom than media which plays on emotions, I am not a pure libertarian or Ann Ryan selfish or greedy capitalist. I like Smith believe in enlighten self-interest for reduction of poverty and suffering in the world. I think Smith acknowledged the role of government to keep order and structure so a market economy could function.