Adam Smith and the Norwegian government’s economic policies

I have touched on Adam Smith from time to time in my discussions about driving forces behind economic and social development in societies. Some of you may recall Smith’s famous statement:

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our necessities, but of their advantages.”

The message here is that greed is good: greed makes us productive, and because we only buy what we want the brewer and the baker have to produce what we want. Somehow, miraculously, what he terms the “invisible hand” of the market organizes all of this individual striving and acquisitiveness into a harmonious whole. We are greedy, but our greed makes us socially productive.

I think very few people who honor Smith’s view have ever read the Wealth of Nations, and most probably they haven’t read Smith’s other great work either, the Theory of Moral Sentiments. Because even a brief browsing of these books would refrain one from the idea that Smith was some kind of radical libertarian, let alone one who believed that wealth is the most important measure of value. In fact, Smith was deeply ambivalent about the emerging capitalism that he saw in the late eighteenth century. He was the first to comprehend the productive power of specialization and the division of labor. But he also saw that the same processes generated massive inequalities, and that these inequalities could lead to conflict and undermine social progress.

In Norway the last election gave us a new government, and in this government the economic – libertarian Progress Party, which gained some 16 % of the votes, will represent a force to be reckoned with. The party leader herself chose the Ministry of Finance, and she has already made a footprint on next year’s national budget. The dominant party is the Conservative Party, with some 27% of the votes, and the undisputed choice for Prime Minister was the leader of that party, Erna Solberg.

It struck my mind that Erna Solberg, who is something so rear as an intellectual politician, would benefit from sitting down with the top politicians in the Progress Party and read the essential parts of Smith’s books I mentioned above. I am sure Erna Solberg knows her Adam Smith. For instance;
‘Servants, laborers, and workmen of different kinds, make up by far the greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be great and flourishing of which the far greater part of the members are poor and miserable. It is but equity besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged’ (Smith, 1776: 88, volume 1).

He recognized one of the central problems of capitalism: the lifting of wealth above all other measures of value, and the corresponding decline of other essential values, such as mutual assistance, social solidarity, or what he called “benevolence”: ‘The disposition to admire, and almost to worship, the rich and powerful, and to despise, or at least, to neglect persons of poor and mean condition, though necessary to maintain the distinction of ranks and the order of society, is at the same time, the great and  most universal cause of the corruption of our moral sentiments’ (Smith 1761: 61).

‘All the members of human society stand in need of each other’s assistance. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bonds of love and affection, and are, as it were, drawn to one common centre of mutual good offices’ (Smith, 1761: 85). The foundation of such cohesion was ‘benevolence’: ‘To feel much for others and little for ourselves, to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature; and can alone among mankind produce that harmony of sentiments and passions in which consists their whole grace and propriety’ (Smith, 1761: 25).

The invisible hand was an argument against trade protection, but it was not – as often assumed today – a moral justification for market outcomes. Smith did not believe that markets are moral. He foresaw that they would drive growth and productivity forward, but at the cost of equality, social solidarity and benevolence. Far from a libertarian nirvana, Smith feared that the market would undermine society itself, leading to inequality, conflict and corruption.

It will be very interesting to see which interpretation of Adam Smith’s statements will prevail in the new Norwegian minority government, depending on at least one more party to transform political will into practical results. That additional party could be the Liberal party, may be closer to Adam Smith’s interpretations and constraints of capitalism at work.

Knut Harald Nylænde is a Norwegian based businessperson and investor who from his base in Oslo, Norway is investing and advising companies in Norway and beyond. His company, Moxie AS, is the main vehicle for his activities. He also is an active blogger both in Norwegian and English.