Adam Smith And Classical Liberalism

Yesterday I met with several individuals to plan our Chapel event for next week. The title of our event is “Economics, Business, and Social Justice: doing well, while doing good.” We laid out our program, listened to the students who will be a part of the panel discussion, and we believe we are ready to go. However, something has stuck with me as a result of this meeting that I have been pondering it.

When I started teaching at Warner Pacific, I focused on Management of people. I did that for several years, and enjoyed it, and I think I did ok at it. However, somewhere along the line I stopped being just a practitioner who teaches, to an academic who thinks and then teaches. As I told my academic dean the other day, I want to evolve as a Professor and academic, but not lose the practitioner elements. Today’s blog will be an academic reflection of why my teaching focus has taken a more philosophical edge.

Almost two years ago I taught a class, URB/EC 420: Microeconomic Development. We have changed the title to Microenterprise Development, which reflects more closely what the class is. This 7:30am class was an early morning exploration into “Social Change initiated through collaboration.” We identified the collaborators as the government, business, and community.  I had five business students and five social science students. They would sit across the table from each other and discuss how society could be improved through partnership. It was one of those classes that changed how I look at things.

I have also come to the conclusion that proponents of free enterprise have allowed market philosophy to be pushed into a civic definition that is not accurate. The fallen nature of human kind, being what it is, ensures that we will mess things up, but this can be redeemed. To support this premise, I want to review Adam Smith’s view of the market. I specifically want to thank Debra Statz, from Stanford, for her help in this idea.

Statz, in her book “Why Some Things Should Not Be For Sale,” argues that Adam Smith, viewed as the Father of Capitalism believed, “that, in the context of market relations, independent individuals would not only produce increased wealth but would also make a liberal social order.” To understand the significance of this statement we have to define what is meant by “liberal social order.”

Smith’s “Inquiry into the Nature and Causes of the Wealth of Nations,” was written in 1776, last revised in 1784.  He wrote this book in the context of emerging commerce, which was allowing the serf to escape bondage. Feudalism was eroding, while order and good government were leading to more freedom. “Smith argued that markets liberate individuals from their abject dependence on one powerful person [the lord] by allowing them to sustain themselves through exchanges with thousands of anonymous and indifferent customers.” Through the process of voluntary exchange, buyers and sellers had a choice, recognizing the commonality of status and freedom. They can choose to do what they want, when they want, and how they want.

Statz develops this further when she states, “Yet Smith recognized that the ability of laborers to escape from servility to a master through markets is dependent upon a number of conditions, including how competitive the labor market actually is and the skill levels of laborers,” but the fact is, due to free enterprise, and not a Feudal system of master and slave, we have a choice.

I am convinced that not only does free enterprise support innovation of products and processes, thus leading to a higher standard of living, but it supports a liberal society in the classical understand of liberty. Freedom!

Smith also recognized the validity of government’s relationship with free commerce. Smith was aware of the fallen nature of humankind. He also understood the role of government within God’s economy. God has established government to ensure society is safe. Therefore, Smith “was extremely aware of the tendency of the merchants to attempt to bring the state in as an ally in controlling their workers a tendency that he argues must be resisted.” Thus we could argue that government has a role when any type of asymmetric event occurs. For voluntary exchange to truly be free; and not create a tragedy of the commons; the commons must be properly maintained by government!

The free market allows us to raise our status, we are no longer frozen in a Serfdom enslaved to a lord, with initiative and hard work we can improve our lot in life. The congruency of free enterprise and political freedom, in my way of thinking, can never be separated. That is unless, we want to go down the regressive road of Serfdom.

And that is my thought for the day!

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