The Other Adam Smith, Part 3

Here as elsewhere we find an Adam Smith who was predictably unpredictable. Even if we disagree with some of Smith’s analyses, there can be no doubt that we are witnessing a profound, insightful, and original mind at work. I therefore offer this series in the hope that it will inspire libertarians to read Adam Smith for themselves, rather than assuming that they already know what he had to say. If you are familiar only with the economic theories of Adam Smith, you are missing out on a great deal.

Let us first consider Smith’s views on the sale and consumption of alcoholic beverages.

Voluntary exchanges, according to Adam Smith, benefit all the participants, though some may gain more than others. It had been argued, in Smith’s day as in ours, that commerce in some commodities, such as alcoholic beverages, should be restricted by government, because the cheap prices and abundance that free trade produces may harm consumers who overindulge. It is true, Smith admits, that some products of unrestrained competition might harm and even ruin some consumers, “but to take care of this is the business of the parties concerned, and it may safely be trusted to their discretion.” It is also true that sellers “may sometimes decoy a weak customer to buy what he has no occasion for”—but, again, this should be a matter of individual responsibility. The undesirable consequences of some voluntary transactions should not be used as an excuse to restrict trade through government-​granted monopolies. In the final analysis, “a general disposition to drunkenness among the common people” is not the result of a “multitude of ale-​houses”; rather, “that disposition arising from other causes necessarily gives employment to a multitude of ale-​houses.” Demand generates supply, not vice-​versa.

In Lectures on Jurisprudence, 1762-3 (vi.84-86), Smith maintains that taxes on commodities raise their prices above normal market levels and thereby diminish “public opulence and natural wealth of the state.” Such taxes are especially hard on the poor, who are unable to purchase heavily taxed items that the rich can easily afford. Liquor is no exception in this regard. Indeed, Smith goes so far as to compare the function of liquor in our lives to our need for government.

Smith continues with an interesting claim: “It is said indeed that taxes on those liquors prevent drunkenness, but the contrary is probably the case.” He expands on this point in Wealth of Nations (IV.iii.c):

What would happen in Great Britain if all duties and taxes on wine, malt, beer, and ale were “taken away all at once”? Smith speculates that “a pretty general and temporary drunkenness” might occur, especially among the lower classes, but this “would probably be soon followed by a permanent and almost universal sobriety,” as most people learned to moderate their drinking habits. Moreover, “The restraints upon the wine trade…do not so much seem calculated to hinder the people from going, if I may say so, to the alehouse, as from going where they can buy the best and cheapest liquor.”

Thus the laws and regulations that purport to control the consumption of alcohol accomplish no such thing. Their net result—and, Smith suspects, their original purpose—is to restrain competition and keep prices artificially high by granting special privileges to those producers favored by a government.

Again, Smith concedes that the freedom to purchase alcoholic beverages at low market prices may be “abused,” but the same is true of other commodities, as when a glutton purchases too much meat from a butcher. In any case, the personal excesses of a minority are no justification for compelling everyone to pay the higher prices caused by duties and excise taxes—measures that are in fact motivated, not by any authentic concern for the public good, but by the desire of governments and their businessmen cronies to line their own pockets with artificial and excessive profits. Here as elsewhere, the interests of consumers are sacrificed, via the instrumentality of legalized coercion, to the interests of privileged manufacturers and merchants—and all in the name of the public good.

Smith discusses and criticizes slavery at length in his Lectures on Jurisprudence, 1762-3 (iii.104-47), and he summarizes much of the same material (in a more polished form) in Wealth of Nations (III.ii). These discussions cover a good deal of ground, but I shall focus on Smith’s point about the primary motivation of slaveholders—a point that may surprise those libertarians who believe that, according to Smith, economic considerations trump all other values.

Smith had no doubt that slave labor is less efficient than free labor.

Given the relative inefficiency of slave labor, we might think that we could appeal to the economic interests of slaveholders to persuade them to replace slave labor with free labor. But this method of argument rarely proves effective, because the gratification people get from owning slaves runs far deeper than pecuniary gain. As Smith puts it in Wealth of Nations:

Similarly, in Lectures on Jurisprudence, we find this statement about slaveholders in a democracy.

Although Smith’s prediction fortunately proved inaccurate-​-​in 1833, for example, Great Britain abolished slavery throughout most of the British Empire-​-​his analysis is interesting on several fronts.

First, Smith’s claim that the “love of domination” will frequently override rational economic considerations-​-​discussions of the “lust for power” were common among eighteenth-​century libertarians– gives the lie to the stereotypical image of Smith propagated by his critics, according to whom he had a superficial and simplistic view of human motivation. Quite the reverse is true. As revealed not only in his Theory of Moral Sentiments but also in his Wealth of Nations, Smith appreciated the complex nuances of human desires and motivations. If Smith focused mainly on economic interests in Wealth of Nations, this was because economic motives are most relevant to economic theory, not because he believed that humans are motivated by nothing more than economic interests.

Although Smith believed that the total abolition of slavery would probably never occur, he argued that slaves are more likely to be liberated in an absolute monarchy than in a democratic republic. This is because slavery, if legal, will be widespread in a democracy, so vested legislative interests will prevent it from being abolished. A single absolute monarch, on the other hand, may find that abolition increases his power, as was the case with those periods in European history when kings and clergy joined forces to lessen the power of nobles. Moreover, an absolute monarch has little respect for property rights, so he will be willing to violate the legal property in slaves. Thus, at the very least, slaves are likely to receive better treatment under an arbitrary government than in a democracy.

Knud Haakonssen comments on this unusual analysis in The Science of a Legislator: The Natural Jurisprudence of David Hume and Adam Smith (Cambridge, 1981, p. 140).

In short, the political freedom to participate in a government does not necessarily entail personal freedom. Unrestrained majorities can be as despotic and cruel as any absolute government. This is a lesson that modern cheerleaders for democracy would do well to remember.