Adam Smith: Left, Right, Other, or All of the Above?

What follows is a lightly edited transcript of a structured conversation between Daniel B. Klein and Branko Milanovic regarding the political outlook and ideology of the great Scottish philosopher Adam Smith. The conversation occurred on May 5, 2024.

Jason Briggeman: Hey, I'm Jason Briggeman, an associate editor for Liberal Currents. I'm happy today to be introducing a conversation between two very serious scholars, intellectual entrepreneurs, and economists: Branko Milanovic and Dan Klein. Both professors have written extensively about the great Scottish philosopher Adam Smith, and today they are going to converse on the subject “Adam Smith: Left, Right, Other, or All of the Above?” Each will be speaking for ten minutes, and then each will speak for seven minutes, and then we'll have some general conversation to conclude. Professor Klein either won or lost the coin toss, but he was selected by a nickel to go first. And so, Professor Klein.

Dan Klein: Thanks very much, Jason, and thank you, Branko, for doing this. I've got a PowerPoint with more slides than I’m going to treat, because it comes from a fuller presentation. I'm going to be quite brief.

There is a debate about what to make of Smith and some of our modern conceptions of political outlook and ideology. And there's certainly been a big move to emphasize Smith as kind of a left-oriented thinker. I want to push back on that. Sam Fleischacker represents it perhaps more eminently than any others. He's a super scholar, and a very nice guy; I've enjoyed interacting with him on several occasions. And he's got statements like this one [that appears on the screen] which are quite strong, strongly worded, in that vein.

I think that the left Smithians are overplaying their hand, and I want to explain how I think so.

Let me say that there were earlier intimations of left Smithianism going all the way back to these early nineteenth-century guys [shown on slide] like William Thompson. And then some into the twentieth century. Spencer Pack was significant in ramping up to the more modern, and has continued to be active. Emma Rothschild is eminent in this area, Samuel Fleischacker, and then numerous others. Some names I’ll flash on the screen at least. Here are some quotes from Fleischacker, which again make pretty strong statements, and he espouses a sort of left Smithian outlook and talks about what it might mean today, and talks about different kinds of reforms. Dennis Rasmussen had emphasized some of these things, claiming that Smith may have endorsed today redistribution, social welfare measures, living wages, and so on. He says he [Smith] advocated compulsory and state-supported education. Iain McLean has a book that's outspokenly left Smithian in these fashions, saying that Smith was an egalitarian and left-wing philosopher. Gordon Brown suggested that rather than Smith today being associated with the right-of-center Adam Smith Institute, which I think is what Smith ought to be associated with, might more likely be at home with the left-of-center John Smith Institute. Eli Ginzberg is significant going back a ways in some of this.

What do I mean when I say that people are treating him as kind of a left-oriented person? And what do I think of “left”?

I think that left political outlooks generally spell the governmentalization of social affairs, even if that's not exactly how it's expressed. I know that's not true on every single issue, but it's the general tendency of what left has meant since left really became part of the political vocabulary, left and right, since about 1900, starting in France a little bit earlier than that. I know Smith was not a Murray Rothbard libertarian. I don't really think people have ever much claimed that he was, in the sense of being a strict minimal-statist kind of guy. Rothbard attacked Smith on those grounds as well as other grounds. I want to highlight this nice piece by David Friedman, where he goes over a number of the particular textual issues and does a nice job. And he's one of numerous or several critics of the new left Smithianism, and these are some other names [shown on slide], and so I'm with this group.

Now this is my main slide, and it covers four general criticisms [of left Smithianism].

First, there's an inappropriate standard for saying that Smith was left. For example, that he sustained the supremacy of the good of the whole or ‘the holiness of the whole’—That's true, but it's a non sequitur to say that that makes him left-wing. And similarly, that he was egalitarian, at least in the sense of everyone counting equally and equality before the law; that individuals are not atoms; that markets depend on moral preconditions; that he did not advocate greed; that he was not a laissez-faire dogmatist; that he knew that a shilling rather meant more to a poor person than it does to a rich person; that he was not in his politics destinational and utopian, but rather directional and pragmatic—All true. But I don't think any of that is grounds for claiming him for the left.

Second, the left Smithians don't give due weight to the strong classical-liberal spine of Smith's whole outlook and corpus. There's so much in Smith which makes it clear that he is emphasizing that as central, and that his main lesson is to allow every man to pursue his own interest his own way, upon the liberal plan of equality, liberty, and justice, as he put it. And it's clear that he's got a very skeptical view of government. Not only does he think that free markets are bountiful and grow, and the division of labor extends itself, and people grow richer, sort of a rising-tide-raises-all-boats general economic outlook, and not only does he criticize all of these things that hamstring that process, on many occasions, and sometimes quite emphatically, but also he's just got a very skeptical view of government, and how well it can do things and how honest and functional it actually is. The left Smithians bring up a few pieces of text, as though that counterbalances this whole main spine of Smith’s whole work, including his whole analysis of commutative justice, and the role that that idea plays as a social grammar, not only in life among neighbors, but then also as a precept or benchmark for political affairs. So that's a general problem that I see in left Smithianism.

[Third:] Sometimes they acknowledge that Smith favored liberalizing markets and so forth, but then they invoke a kind of ‘Well, yeah, but that was then, this is now’-ism, as I call it, where they're saying, ‘Look, that was the order of the day in Smith's day. But Smith's broad ethical sensibilities are constant, and if we carry those through time, in our day it's a whole different ballgame, and he would be in favor of all the sorts of policies that left-oriented people today accept or endorse.’ And I think that's false. First of all, claiming again that those broad ethical sensibilities make him left-wing, that goes back to the first point, I don't think that does make him left-wing by itself. And then, to say that the way those sensibilities should cash out today is so different than how they cashed out in 1776, I just don't see the argument for that. I don't think that economic processes are so fundamentally different. I don't think that the problems of governmentalizing social affairs are fundamentally different at all. And so I just don't buy that the application is so different today.

[Fourth:] And then we come to the matter of looking at particular passages, and the particular passages that left Smithians bring forward as evidence for their claim on Smith. And there's a set of passages there, perhaps a, maybe half a dozen especially. I think there are often problems with the way they handle these passages [the Friedman piece deals concisely with many of those passages]. I don't want to go into detail; I do have slides that would enable us to treat them if we want to get into some of them. But the main topics here that I would be very prepared to push back on would be claims about progressive taxation; claims about Smith's favor for the government being heavily involved in schooling; I think that the usury-restriction endorsement in Smith is very curious, and I don't think it necessarily should be taken at face value. Also stuff about the regulation of labor markets, I think, is significant in that connection. Those are specific things that we could get into. Emma Rothschild talks about his support for progressive taxation. Then there's stuff about the regulation of labor markets that have been mentioned, and Amartya Sen I think has problems there. The use of this “equity, besides,” passage, which is quite famous, is another interesting matter in all of this. Poor relief is another one that I should add to the list as a significant one where I think they misplay their hand. And schooling. Am I about up to ten minutes? Jason, do you know?

Jason Briggeman: I think that's probably good, Dan.

Dan Klein: Okay, I'll quit and turn it over to Branko.

Branko Milanovic: Well, thank you very much. Thanks a lot to Jason for moderating us. Also, please let me know when I'm at ten minutes, and thanks a lot to Dan for this presentation. We have agreed beforehand that the first presentations would be basically dealing with our own points without answering the points which were raised by the other discussant.  I'm  going simply to go through my own presentation. And then afterwards both Dan and I would discuss each other's points.

Let me explain why I believe that there is a misreading of Smith as being a uniquely and especially anti-governmental thinker, in the sense of skepticism towards government. The reason is as follows. When one reads Smith, it is very clear that he is very skeptical of all associations. So he looks at every and each association from a very skeptical and sometimes cynical angle. That applies to governments, applies to trade unions—those didn't exist, but, organizations of labor did—applies to the organizations of capitalists, whom he calls at the time masters or employers, and applies even to the organized church. Now, when you look at these statements, of which are quite a few in the Wealth of Nations especially, but also in The Theory of Moral Sentiments but perhaps fewer, and also in the Lectures on Jurisprudence, you notice that the statements that are most numerous and most negative, are those regarding employers and employer associations. I can go and quote them—and actually in the papers, I did—many of them are well-known, but they're seldom mentioned, because what happens is that people focus on his negative statements on government—so I would do the reverse, I would just focus on negative statements towards capitalists.

Now, where do they come from, what kind of statements are they? The first group of statements is about the acquisition of wealth. That's something which is, well, not specific to Smith, but afterwards is essentially repeated by Marx, on the primitive accumulation. And these are statements about monopoly, monopsony power, collusion, and colonialist trading companies. We all know that he was extremely critical of the East India Company. He's extremely critical of crusades that made money for the cities of Pisa, Genoa, and Venice—the cities that are often held as a great example of trading cities and the early commercial society, Smith basically says they have become rich on the suffering of others, and he calls crusades the greatest folly which ever befell mankind. So this is the issue of the acquisition of wealth. But it goes further. The other reason why he's critical of capitalist associations, of what you can call the bosses of the world, is because capitalists are few in numbers. They can easily talk to each other, and consequently, as he says, they are permanently in the business of deceiving the public. The government, as Adam Smith says, cannot stop that collusion, but it should really do nothing to help it. So he's critical because they're also very influential, and, as Smith says, they are very sophisticated, they're in some sense full of sophistry in defense of their arguments.

The other groups, which are workers or landlords, are not as criticized by Smith for their influence on government policy, not because they are better people, but because, he says, landlords are indolent and lazy, and workers are uneducated. So the group that is most likely to influence government policy, and of course to help themselves, are capitalists, because they are easier to combine, since they are fewer in number, they are more endowed with sophistry and ability to convince, and they would thereby have an influence on government policy which is out of proportion to their numbers, and the last point, out of proportion to the social interest. Actually, he says clearly, in one or maybe two quotes, he says that that's the group whose interest is directly opposite to the social interest. And the reason is, it is derived, I believe, from his theory of evolution in income distribution, and I don't think it has been noticed before.

The reason this is follows. When Smith discusses what will be the evolution of income distribution in the future, he says, ‘okay, as societies get prosperous, wages would go up, and of course a high wage is an indication of a prosperous society, and consequently a low rate of interest is also an indication of a prosperous society. As we all know, the Netherlands is actually noted by Smith precisely as a prosperous society, characterized by high wages and low profits. Now, the second source of income, which is rent, he says also will go up because there is greater demand for food, and there will be greater demand for all the produce of the earth, including from mining. Now which of the three incomes of the three factors of production would go down? Interest. Because, as he says, in a richer society, which has more stock, which means capital, there will be greater competition, and that would drive the rate of profit, and hence the rate of interest down. Moreover, he says it is good that the rate of interest should be low, because it does not allow people to live off interest alone. That's sort of an ethical statement. So to conclude, why Smith believes that the interest of capitalists run counter to society’s is because, he says, the evolution of the income shares is detrimental to them, since the evolution is such that the wage share would go up, the land rent share would go up, and the rate of interest and profit would go down. Their interest hence is not the development of society, because it really runs against their major source of income.

And I think it's interesting to derive that statement, which, as I said, does explain when he says that their interests are opposite to the interest of society, from his longer-term view about what the good society is. And that good society, I think, for Smith is indeed the society of natural liberty, a free competition, but it is also a society where the capitalist class does not have an influence on government policy, where the rate of interest is low and the wage is high.

Dan Klein: All right. Shall I proceed, Jason?

Jason Briggeman: Sure. Let's go on to the next portion.

Dan Klein: That was great, Branko, thank you. Let me make clear to listeners that I don't see Branko as so much of a left Smithian, and I don't mean to ascribe the criticisms that I made earlier to Branko. I reviewed Branko’s writings on Smith in preparation for today, and, of my four criticisms I make of left Smithians, I do not see Branko eliding the classical liberal natural liberty spine of Smith, I do not see him taking passages and misrepresenting them or taking them out of context. The only thing I would fault him on, perhaps, is under that first broad heading that I listed, of my four points, which is to suggest that Smith was sort of a left-oriented philosopher on certain grounds which I don't really think make him such. Your remarks just now are a little bit in that vein. Yeah, he's totally against merchant groups, manufacturers, employers, rent-seeking, and being granted privileges. They get those privileges from the government, and Smith's saying the government shouldn't grant all such privileges. And it's the government policy, the government action, which to me is at the heart of these ideological conversations and disagreements. So he's very suspicious of merchants in particular. He hardly says a nice word about them, and he does, just like you say, Branko, in that interesting discussion he gives to the three classes, landowners, workers, and employers, he says the interests of the first two are quite aligned with the general interest of society, whereas the interest of the merchants, in the manner that you just described, at least those with influence, and those who are in the position to get the privileges, those merchants, they are not aligned to the interest of society. They have an interest to narrow the competition in whatever way they can, and that's generally through government privileges rather than the free market. That's right. But again I wouldn't chalk that one up for his left-wing bona fides. It's totally consistent with Smith as classical liberal, pro-free market, and so on.

Let me remark on a couple other things Branko shared. It's correct that Smith is critical of all sorts of organizations. I think he thinks that the further and more complicated social affairs get, the less reliable our moral signals become, and the more susceptible organizational actions become to corruption and vice.

That's not to say that all organizations are equal, however. I think he likes the idea of smaller, more local, and more voluntary-based organizations. So while it's true that he's skeptical of all organizations, I think he's especially skeptical of governmental organizations. And when it comes to employers colluding, wanting to narrow the competition, the danger is that they're going to avail themselves of government, and he says the government should not do anything to facilitate their doing so. So he never really comes out and says that what we need are special legislations to protect workers, restrictions on employers to protect workers from this. What he says is that the government should not facilitate them, or employers, or do anything to make it possible for that collusion.

There's one exception, there's one restriction, having to do with payments in kind [‘truck wages’], that might be an exception to what I just said. The nature of that very restriction is a little unclear to me. So I'm not saying it's always 100% against some kind of worker protection. But the general thrust clearly is to hold up the free market principle as the best protection against monopoly and worker exploitation.

Branko Milanovic: Thank you very much, Dan. Well, I don't have a very strong reaction or critique. Let me try to explain how I see Smith, and you would see certainly parts where we totally agree, and I think maybe some parts where maybe the emphasis is different. I see Smith's view of, first, natural liberty and freedom to do whatever a person wants to do—trade, sell, buy, be an entrepreneur—as absolutely in the background, absolutely fundamental. Then, of course, there are exceptions to that, for example, the Navigation Act is one exception that is dealt with differently in two parts of the book. So there are exceptions which may be due to national defense issues. And then there is what I called in my book the “really existing capitalism,” which would be the really existing capitalism where masters or employers have a disproportionate influence in government policy. What Dan said is interesting in the following sense. We can all agree that that was a critique of a really existing capitalism. No, the question is, really, is this critique directed mostly against collusions or lobbying by capitalists, or is it mostly directed onto the government for not resisting that, or being there so that you actually can influence it? So it's actually the question, should such a government exist? And that then becomes really the critique of government, or it could be a critique of masters for having infused the government and to some extent become the government themselves. So I agree that it could be actually seen differently.

One part where it's kind of interesting, when Dan gave all these left-wing critiques, my critique is quite different, comes from a different angle, because I think that it is a mistake on the left wing to compare Smith in 1776 with today's situation. I mean, there are significant differences. There is no doubt that the role of the state is much greater today, even if you were to take simply the percentage of GDP that is actually spent. Smith could not have envisaged that 40 or 45 percent, or even 50 percent would be spent. So then that becomes tricky, because obviously, people from the right say, ‘well, Smith probably would not expect more than 10 percent of GDP to be spent by the government.’ So the right critique says, ‘look, guys, you're spending 50 percent and Smith would spend 10, so how can he be a left-wing economist?’ And I agree with that, but I think one has to put Smith in the context of the time, and I think there are two important things that I think make Smith much more progressive, or I called it also pro-socialist or left-wing. The first one is the concern with the welfare of the largest group, and that largest group was wage workers, workers in general, and that of course was not the case with the mercantilist tradition before. So I think that is quite an important departure, which is towards the welfare of the largest group. And the second departure that he would consider—actually, Dan mentioned that—things like education and taxation—I think there was this sentence that you actually showed, Dan, about progressive taxation—which were also ahead of his time, and in that respect I would see him as a left-wing economist. Not necessarily that when we compare what exists today and say, ‘would Smith approve of all of that?’ Yes, I agree—not only that I'm not sure he would approve or not approve, but he could not conceive of it. So I think when we think of Smith, I think we should think of him in the conditions at that time, and as I said before, I think that the emphasis on the welfare of the largest group, concern with poverty, including relative poverty, and concern with the role of the state in education and taxation, make him different from the previous thinkers.

Dan Klein: That does have a bit of a flavor of a ‘that was then, this is now’-ism. However, I kind of agree with what I take to be your part of your drift here, in terms of the 10 percent versus the 50 percent. I think you're right that he's oriented around the current status quo. So today, 2024, that's where we are, and I don't think he's gonna say, ‘Oh, we gotta cut out 40 percentage points right now,’ because I don't think he's that radical. So I see it as, like, where we are in the moment, in history, and then directional from there. That's what I'm saying hasn't changed. The direction is still: Let's not grow the state, let's not grow intervention, let's do the opposite, if we can, from here. And not necessarily radically. So I think he would come off as kind of moderate, talking today, but I think the direction would be the same, and he would be wanting to reduce the 50 percent and all the regulation and so forth.

Now, what you say about progressive taxation, that's one of the issues I feel pushback is needed on. First of all, Smith had four maxims of taxation that he thought should be general principles for a good tax system. The very first one was proportional taxation, which is to say a flat tax, as opposed to progressive taxation. And then there's the passage where he says ‘it would not be very unreasonable if the rich paid more.’ But the whole context of that is that, ‘Hey, people, look, there's this certain kind of tax, a ground-rent tax, (a house tax he calls it, associated with Henry George) that has a lot of virtues to it, because of the unique nature of land in that it's in fixed supply, it's got no elasticity of supply.’ These special features give this kind of tax certain advantages. However: Well, the rich would be paying disproportionately, because they own more of the land. Well, what should we think? Well, it is not very unreasonable that the rich should pay more than proportional. So it's not a feature of what he's talking about—it's a bug. He's saying it's a good idea despite that bug. So it shouldn't be taken as a principle in favor of progressive taxation, that passage. And then there's a sentence about luxury carriages on toll roads, and he's saying, ‘turnpike trusts can, or perhaps should, charge more.’ First of all, it’s a toll on a road. I wouldn't call it a tax. And it's traveling first class, kind of a way of price discriminating. And I just don't see it as that big a deal, or really the same thing. Again, the first maxim of taxation is proportionality. So I think the case for progressive taxation is quite thin and has been very much overstated.

His comments on education, I think, are complicated, on schooling. His final words on the subject are that maybe there's more advantage in leaving things entirely voluntary. (He says this in the conclusion of the chapter, in Book V. And if Smith were here today and looked at our government school system, I hardly think he would be favorably impressed, and I think he would be an advocate of school choice and school competition, for all the reasons which he favored competition in things like that, including churches. So I’d push back a little bit, I think, on some of your drift.

There's one other point I meant to make. He hardly has a kind word for merchants and manufacturers. But he lived in an age of aristocracy, and he was trying to persuade the policymakers, the rulers, the aristocrats. That's partly why he pinned so much on the merchants and manufacturers. Also, he wanted to make clear, like, ‘I am not their apologist. I am not one of these guys. I'm not celebrating these guys. And meanwhile, you guys, your interest is in in the same direction as the public interest, and you just need to pay better attention and understand it better. And let's reform things in this classical-liberal direction.’ He didn't want to condemn the government as being so foolish or so corrupt that it does these things knowingly and incorrigibly. He's negotiating with the aristocrats, trying to persuade them to come along, which is one reason I think he reserved special abuse for the merchants and the manufacturers.

Branko Milanovic: Let me but take that last point that Dan made. I agree with that. I was saying before, we need to situate Adam Smith at that time in the place where he was writing. And actually, that's what you did now by saying that his disproportionate critique of merchants was a way of dissociating himself from them, and not being seen as an apologist for their interests. This is a little bit like what you call now-and-then-ism, with which I agree, but I think that actually this is not a vice; in my opinion, it is actually virtue to situate a person and people generally in the place and time when they write.

Now, let me say I would skip education and taxation, because I think it can be interpreted both ways. I agree on taxation, which I know better, that there is this one sentence about greater-than-proportionally, but it could be, as you said, argued that it is like many things in Smith, that it's actually derivative from principles, that the principles cannot be fully observed, so you do have to have an adjustment. But let me say what I think now, moving to the present, where the bulk or the strongest part of Smithian critique would be made today: I think that would be about lobbying, about special interests, and the desire and ability of manufacturers, producers, and companies to influence government policy. We are actually near Washington, we can see it every day, and I think it is there that the critique would be very strong, including the funding of the elections, and the dependence of the body of people who are elected on support from the business sector. I think that's where the bulk in my opinion of critique that Smith or some Smith-alike would make today. And that's part of the critique that I have to say when you read the Wall Street Journal is not there; it is taken as a normal function of government to respond to what the manufacturers or employers want, and I think that that's where he would disagree with that.

Dan Klein: That could be. It's hard to say how he'd react to the scene around us today. So I'm not sure where to begin really on that question. I think there'd be so much for him to take in and consider.

Anyhow, it's remarkable that we're talking about this guy that was born in 1723. It's wonderful how people of different point of views and different disciplines, as well as different religious orientations, are still talking about Adam Smith. That's testimony to something special about him, that he appeals to so many people, and that we all want to claim him. We're fighting over him—not that you and I are, so much, but you know, this broader conversation.

Branko Milanovic: I totally agree, I think, that actually, the wealth of his writing is such that obviously it appeals to people who are very different, economists, sociologists—he was, after all, into jurisprudence and moral philosophy—it appeals to political scientists, actually appeals even to people in international relations, and those who talk about theory of war and the role of commerce in creating a more peaceful society. Smith is , I think, so rich also because he's not dogmatic. And I think we would both agree that he's not dogmatic. He had a certain number of principles, but he was aware where he believed that these principles should be modified. It doesn't mean that Smith, believed that they should be modified forever, but the modification should be a particular modification at a particular time, and later maybe you would actually go back to the original principle. But I like this non-dogmatic attitude, which I think pervades the entire Smith, including, and maybe we'll finish with that, the end of The Wealth of Nations where he discusses U.S. independence. It's a very ambiguous discussion, which is quite long, where he lists the reasons that he understands the colonists’ desire to become free. On the other hand, he says, they have not contributed anything to the defense of Great Britain, whereas Great Britain has actually paid for them. So it's again from different angles, so it's not dogmatic. And of course, as we all know, he ends The Wealth of Nations with basically the statement about U.S. independence, which also is an extremely great foresight; you know, in 1776 it was not obvious, first, that the U.S. would become independent, second, that it would become a giant in terms of political and economic and military influence.

Dan Klein: I have a feeling that if we talked about him on imperialism and war, and so on, there we probably wouldn't have any disagreements at all. Not that we're finding so many now.

Branko Milanovic: I think we can both agree obviously, we are very much influenced by Smith. The more I read Smith, somehow…the more you learn, because you see the aspects that maybe at the first reading eluded you.

Dan Klein: I find that, too.

Jason Briggeman: Great conversation, Branko and Dan. Thank you so much for doing this today.