The first is this: Communism looks great on paper, but has never worked in reality. Of course, both sides have their interpretations of this fact. For the capitalist, communism therefore stands as a self-evident failure, a utopian ideal that can never be realized. For the communist, though, this is better explained by pointing to particular historical circumstances that have nothing to say against communism per se.
A second line is equally problematic: Capitalism works, but is based on greed and leads to the exploitation of the less fortunate. Of course here the lines are again clearly drawn, but now reduced to mere tautologies. The communist reply is that capitalism only succeeds at exploiting the less fortunate and the capitalist answers with a now half-hearted, “Yeah, but it works.” What these methods have in common, however, is their attempt to work out the relationship between ethics and economics before degenerating into sheer utility.
Ironically, however different these two sides may be, they both seem to end up with the same general approach: economics should be subjected to ethics and since communism is morally superior to capitalism, communism is our goal; but since pure communism has never worked, we should have a sort of mixed economy that gives us the best of both worlds. So by a weird twist of Hegel’s historical dialectic, Smith’s thesis on capitalism gives birth to Marx’s antithesis of communism, which have since synthesized into Keynesian economics.
And what we have found here in principle we can more than readily identify politically as well. More specifically, the whole moral and practical debate on capitalism versus communism hinges on the discussion of how well each system provides for the poor. In this debate, however, communists usually rise as victors because they frame their discussion in explicitly ethical terms while actually denying most moral norms. Thus, even a moralizing adherent to private property can write, “We must, then, throughout this inquiry, keep strictly to the economic aspect of the case,” thereby seemingly undermining the moral case for a free economy (Belloc 53; see our first post for Works Cited).
As we have seen already, though, in our discussion of Christian economics, we cannot merely state our preference on the matter and move on. Instead, loving both God and neighbor leads us to engage with these schools of thought from a Christ-centered, biblical perspective in order to build an economy that recognizes the created order, human nature, and a true concern for the working class, in addition to practical economic considerations.
But capitalism is not all bad. In fact, many of the ills of capitalism were foreseen and spoken against by none other than Adam Smith himself. To Smith, though, these were problems with crony capitalism or sheer greed, not capitalism itself. He argued for liberal reforms of Britain’s mercantile system both to increase necessary freedom in the economy, while mitigating the inherent risks of any market. But what benefit could such a mixed bag have for blue-collar workers? Smith’s views range from the obvious, to the overstated and the dubious.
The first should be almost self-evident: employment. When a person or his family is in great need there are two ways in which one can meet that need: address the symptoms or address the problem. Charity is both good and useful when someone needs a shoulder to lean on until they can stand on their own two feet. But it can also be abused, creating a culture of dependency that has fiscal, political and even spiritual ramifications. Good employment, however, paves the way to financial independence. Smith therefore finds that,
the accumulation of valuable commodities [raising capital to support additional workers] . . . is more favourable to private frugality, and, consequently, to the increase of the public capital [the wealth of everyone], and as it maintains productive, rather than unproductive hands, conduces more than the other to the growth of the public opulence [because everyone works, and shares in the fruit of that work]. (Smith 2.3)
Many aspects of existing public welfare programs fall under this general heading, particularly those tied to unemployment. Such programs could (and should!) exist in some form under a system of ‘perfect liberty’, but under any system they must utilize practical means to encourage people to actually regain employment. As Hayek points out, “Nor is the preservation of competition incompatible with an extensive system of social services—so long as the organization of these services is not designed in such a way as to make competition ineffective over wide fields” (ch. 3). Labor itself, then (contra Marx), is the solution to poverty, not its cause.
A second way in which Smith believed the poor are aided in a truly free market is through free labor. Free labor means that a person has a right to use his abilities in whatever way(s) he can in order to provide for himself and his family. The greatest hindrance Smith saw to this ideal is the way in which many trades organized themselves in trade associations.
Historically, such associations were developed to uphold professional standards. So, for example, an apprentice worked for a master free of charge for seven years to learn his trade and gain experience so that he too could one day become a master in his own right. Smith, however, claimed that the underlying purpose was to restrict the number of competitors in the market. So while well-intended, he believed they degenerated into self-perpetuating oligarchies that strongly favored existing masters of the trade (Smith 1.10.2).
Though Smith probably overstated his case, more modern examples—such as closed shops or all-union shops, and even restrictions on non-union side jobs—certainly demonstrate some wisdom in his thinking. In a perfectly free market, however, the greatest measure of a tradesman’s ability is the satisfaction of his customers, not his membership in the local chapter of the AFL-CIO.
But Smith’s third claim is perhaps the most controversial: competition is an unqualified good. To a business owner, competition is a double-edged sword. On one hand, such freedom allows a businessman to do all within his power to increase the profitability of his business, provided he does so within certain legal and moral limits. On the other hand, it provides this same opportunity to every other businessman in the market, increasing the probability that any one of them might fail. As a consumer, one could certainly laud the consequences: lower prices and a higher overall standard of living.
But these are hardly fair prospects for producers, whether owners or employees. Smith believed that greater competition in the labor market is a good thing because it means that our employer must do more to keep us from leaving for one of his competitors, which translates into higher wages and benefits (Smith 1.9). And combined with competition in production, he thought that these two effects would tend to reach equilibrium, settling both the rate of wages and the price of particular goods and services, thereby accruing to the working class greater purchasing power than before.
This is all well and good, until the economy is no longer doing well. And as we know, when economies slide into recessions and depressions, it is most often the Little Man who feels the crunch. Even Hayek, one of the more doctrinaire capitalists of our age, writes that, “the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them . . . is . . . one of the gravest and most pressing problems of our time” (Hayek 9).
Though Smith actually thought quite a bit about problems facing the working class, his solutions are only about half effective, both then and now. So while communism is incorrect in its assertion that Smith ignores the concerns of blue-collar workers, it does raise questions concerning the ultimate ends of economic theory and practice.