Adam Smith did not wear an Adam Smith necktie
OK, so this is not about the Canadian economy. But I woke up this morning with that phrase about Adam Smith ties in my head and had to track it down â€“ the Adam Smith tie being the burkha of free market fundamentalists, and as a result, a fitting gift to guest speakers at Fraser Institute functions.
The quote comes from an economist named Herbert Stein, a former Chair of the President’s Council of Economic Advisors in the Nixon administration, writing in the Wall Street Journal, April 6, 1994, who reflects on what Adam Smith, way back in 1776, actually said in The Wealth of Nations:
[T]he people who wear the Adam Smith tie are not doing so to honorliterary genius. They are doing so to make a statement of their devotion to the idea of free markets and limited government. What stands out in WofN, however, is that their patron saint was not pure or doctrinaireabout this idea. He viewed government intervention in the market with great skepticism. He regarded his exposition of the virtues of the free market as his main contribution to policy, and the purpose for which his
economic analysis was developed.
Yet he was prepared to accept or propose qualifications to that policy in the specific cases where he judged that their net effect would be beneficial and would not undermine the basically free character of the system. He did not wear the Adam Smith necktie.
These cases were numerous, and some of them are surprising. I give here a list, certainly incomplete, largely derived from Viner’s article on Smith written for the sesquicentennial of the WofN. (The parentheses are mine.)
The government could legitimately do the following:
— Protect the merchant marine and give bounties to defense-related manufacturing industries.
— Impose tariffs on imports in order to bargain for reduction of tariffs by other countries.
— Punish, and take steps to prevent, dishonesty, violence and fraud. (Does this include the SEC, and would prevention of violence justify measures to assist ghetto youth?)
— Establish indicators of quality of goods, such as the sterling mark for silver. (Does this justify the Food and Drug Administration, the Federal Trade Commission and the Consumer Product Safety Commission?)
— Require employers to pay wages in cash rather than in kind. (Could the government conversely require employers to pay part of wages in the form of health benefits?)
— Regulate banking.
— Provide public goods, such as highways, harbors, bridges and canals. (What about railways, airlines?)
— Run the post office. (Also telephone, the information highway?)
— Grant patents and copyrights.
— Give a temporary monopoly to a trading company developing commerce in new and risky regions. (Is this industrial policy, managed trade?)
— Require children to have a certain level of education.
— Provide protection against communicable diseases.
— Require the streets to be kept clean. (Environmentalism?)
— Set a ceiling on interest rates.
— Impose discriminatory taxation to deter improper or luxurious behavior.