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Free on the Internet, the Introduction to

Wealth Without Nations

The 20th century began with capitalism and modernism as the norm. It is ending with capitalism and modernism as the norm. So was the socialist alternative just an illusion?

The 20th century began with male dominance and white superiority seen as normal and proper. Imperial rule over the non-white world was also seen as eternal and proper. Christian morality of a very narrow old-fashioned sort was defined as the only morality. Inherited privilege and aristocratic power was seen as inevitable and necessary for civilisation.

A classless society was a fringe notion when Marx and Engels called for it in the Communist Manifesto of 1848. It was a demand confined to the more extreme socialists, radicals and anarchists at the start of the 20th century. It was still a questionable idea in the liberating 1960. And yet it was included without fuss in John Major's definition of Toryism in 1992.

Thatcher promised to roll back the state. She didn't. She did roll the cost away from the rich and onto the poor through the growth of indirect taxation, roll the benefits away from the poor and towards the rich through privatisations that made a mint for managers and shareholders.

The state remains necessary for a complex society. It may now use the rhetoric of 'efficient business' rather than social justice, but the substance has not changed much. But it has finally been kicked out of most aspects of family life and sexual choice, areas where right-wingers have traditionally wanted it to operate.

The success of socialist ideas about race, nations and family life rather makes up for reversals on the economic front. Reverses that come in part from a failure to take Hayek and similar people seriously at a time when they seemed marginal and trivial.

However bleak things may seem in the short run, the way the New Right came in from nowhere and redefined mainstream economic thought should be noted. Corresponding successes from a rejuvenated Left could also happen, especially since a lot of our wider ideas have triumphed.

On the economic front, the lack of a decent left-wing critique of Adam Smith is remarkable. It indicates the smugness and complacency of the left-wing economists whose task it should have been. Since none of them seem likely to do it, I've done it instead.

Britain today is a capitalist society, part of the capitalist West - or is it? The state sector remains large, and most private businesses look to the state to regulate economic life. Read magazines like The Economist, and you will be told that Alan Greenspan's management of the USA's economy has been highly successful. State interference in the Free Market is always wrong, and also sometimes right. That is the logic of these people.

Capitalist economics turn out to be detached from any particular social values. Adam Smith and Karl Marx were equally wrong on this point. But Marx had a deep insight when he said that the very process of capitalist exchange would undermine small independent property and bourgeois morality.

Adam Smith is the idol of the New Right. Like most idols, he has feet of clay. Not so much in his dull private life as in his political alignments. And his ideas were as different from Victorian morality as Victorian morality is from our present day views.

Adam Smith was attached to the 18th century faction known as the King's Friends. This group was centred on George III, and was based on a vision set out by Viscount Henry Saint John Bolingbroke in his Idea Of A Patriot King. This political clique had a vision of a world dominated by a progressive gentry. A vision which lost control of the world with the American War of Independence.

Smith's biographers prefer to mention his other connection, with William Pitt the Younger and with Edmund Burke. One of his later Liberal biographers classed him as a 'Burkean Whig'. But while Pitt and Burke were Whigs, their 'Old Whig' faction went into an alliance with Tories and Independents in the long war against Revolutionary France. Pitt's coalition became 19th century Toryism / Conservatism.

All of Adam Smith's political links are to people whose political heritage flowed into 19th century Toryism, which makes it odd that 19th century Liberals saw him as one of their own

Pitt made use of Smith's ideas, but was pragmatic about his free-trade beliefs. Pitt was condemned in his own day as a tax-and-spend Whig, as well as the inventor of income tax, and forgiven only when these policies proved a success for the ruling class and gentry interests. His government opposed the French Revolution in Continental Europe while carrying through the Industrial Revolution within Britain.

Pitt took what he needed from Smith and ignored the rest. And it was 19th century Tories who curbed the excesses of Liberals who were full of ideological zeal for 'free' markets.

Capitalism as defined by Adam Smith is a world ruled by exchange based on money: exchanges devoid of either sympathy or morality. Adam Smith built a model of a modern economy in the belief that it could only work if all transactions were perfectly amoral and selfish in nature. And Smith's model assumes that morality and mutual support would automatically emerge from such selfishness.

The actual economy has never been like that. Real-life business people are like people elsewhere, with conflicting feelings of self-interest clashing with sympathy. A desire to do the right thing is at odds with a temptation to cut corners and achieve some grand success.

You do not expect benevolence or free gifts from the butcher or baker. But if there are two shopkeepers and you like one of them better, you may shop there even if the goods are worse or slightly more expensive.

Throughout history, the exchange of goods has gone hand in hand with the building of social networks. The 'trade routes' detected by archaeologists are just as likely to have been routes of gift-exchange. The notion of a world where people just looked after their own self-interest and never built a social network would be almost everybody's nightmare.

We do not yet live in such a world. But Thatcherism has successfully pushed us in that direction. And people are not noticeably happier than they were in the more stable and social world of the 1950s and 1960s.

Self-interest plays a larger part than it used to. The 1970s and 1980s saw the 'shareholder revolt' - the punishment of managers who put anything ahead of shareholder profits. This has made life better for shareholders, it has not improved the economy.

For middle-income groups, and even for superior skilled workers and moderately successful professionals, the same natural improvement in living standards has occurred as if Thatcherism had never happened. Most of us are at the same level we would be if the Keynesian system of the 1950s, 1960s and 1970s had continued unchanged. Thatcherism has created more poverty, crime, unemployment and stress, without benefiting anyone except the richest 10%.

This is how things are in Britain. Western Europe and East Asia were growing much faster before the crises of the 1970s, while in the USA, 90% of the population has seen no improvement at all since the 1970s. In the USA, supposedly ruled by a great self-confident and powerful middle class, the entire extra wealth has gone just to the top 10%, especially to a few million millionaires.

AdamSmithite ideas were used to attack Keynesianism, and create a muddled Post-Keynesian order which is in no sense an improvement. This is only to be expected, since Adam Smith's theories were spun out of nothing at all.

Adam Smith is wrongly credited with discovering the 'division of labour'. The usefulness of splitting work between specialist trades was well known to the Classical Greeks, indeed I don't know of a single economist before Smith who failed to observe it and comment on its merits.

Adam Smith's unique contribution was to see the growth of more complex production systems as a division of work rather than a unification of work.

A self sufficient farming village has real division of labour. It can be divided off from the rest of the world without suffering much damage, whereas even in the 18th century, pin-making involved workers using sophisticated tools and machines. They would turn brass imported from Scandinavia into pins that would be sold to many different nations, as I'll detail later. Pin making requires a complex society.

Complex societies require state power, either one Empire, or several large states coexisting in passable harmony. Of course a group of neighbours can spontaneously form their own social order, without the state. The New Right are quite right to observe this. What they miss is that each particular group of neighbours does it in its own unique way. Different customs, different weights and measures, different names for the same objects, different language, different ideas of what is and is not polite, different concepts of what forms of sexual behaviour are acceptable and which are wicked, all of these can be found in advanced commercial cultures.

The spontaneous choices of different human groups will form them into completely different and incompatible social networks. In most cases, most of the people within each network will feel superior to all of the other networks, and definitely not willing to surrender their own ways for some possible economic advantage. Merging them - or at least creating a common network to allow for widespread exchange and complex economics - has been the historic task of the state.

Collectivist anarchists stand on solid ground when they oppose both state power and capitalism (and often condemn the modern world as being an error from start to finish). Right-wing or capitalist anarchists - libertarians - are simply deluding themselves when they suppose that capitalist economics could ever have grown or survived without active state support and supervision.

18th century Europe consisted of several large states coexisting in passable harmony, together with a welter of tiny ones in Germany and Italy, which had lost their previous economic lead. Britain imposed some sort of standardisation with the British Imperial systems of measurement, pounds and quarts and miles. Other European nations used different measures - including miles that were seven times as long as English miles - but in the end opted for the Metric System which was the creation of the French Revolution.

'Free Trade', they say. Free of what? It has never been the dictionary definition of freedom, people doing whatever they willed. Britain during the Industrial Revolution was protectionist, and had a state that imposed common standards within which 'free trade' could operate. When it opted for Adam Smith's advice it found itself overtaken by protectionist systems in Germany and the USA.

Adam Smith is the guru of modern mathematical economics - though it was Karl Marx who first started turning industrial relationships into complex algebraic formulae. Modern New Right economics relies on a theory that starts off from absurd assumptions, supposing that people are naturally detached social atoms operating by cold well-informed self-interest. It produces models of economic life that contradict the views of everyone with practical experience in the field. These yield no predictions better than commonsense guesses - mostly much worse. This sort of theory is known technically as 'garbage'.

If you start from the assumption that people are really billiard balls, you might build up all sorts of wonderful mathematical models. They just wouldn't have anything to do with actual human behaviour.

The economics of 'rational self interest' produced a false and misleading explanation for things that are quite nicely understood using 'common sense'. Common sense is a much more sophisticated thing than academics normally recognise. Computers can be usefully programmed to solve complex problems in Quantum Mechanics, General Relativity etc. But no one has yet been able to automate common sense.

Physics, chemistry and biology remain essentially the same regardless of human culture - though we are innovating new species with genetic engineering, and changing the climate with industrial pollutants. The laws of science operate without regard for our wishes and opinions.

Economics is not a science in that sense. It is a specialisation of human culture, and it is a massive misunderstanding to treat economic forces as if they had any existence outside of and apart from human opinions. Having begun studying Adam Smith from a Marxist point of view, it gradually dawned on me that the errors in Smith had been carried over into first Ricardian Socialism and then Marxism.

Unexpectedly, I found myself coming back to the wider mix of social and cultural analysis that my father Raymond Williams had pioneered in Culture And Society and The Long Revolution. I can't say definitely that he'd have approved of my analysis, I only began this line of development several years after his death. But it does seem to me a logical extension of much of his work, including the habit of using Marx's ideas where they make sense, without accepting any quasi-theological obligation to agree with all of Marx's opinions.

Just now, the work of Raymond Williams is out of favour with most of the intelligentsia - though not with the wider reading public. But long revolutions are the rule in history, and the present intellectual flavours are too shallow and silly to last long. Also my father did definitely did warn that new technology in the media could be combined with a 'dumbing down' of its contents, if it were left to commerce. Privatisation has meant vulgarisation, not liberation.

Media that get most of its revenue from advertising should be expected to produce trivia, material that is just about good enough to keep the viewers watching, and keeps them in a mood to be receptive for adverts.

Another of my father's books, Keywords, gave a lot of clues that I found useful. Whereas gravity or the electron are particular things with a discoverable inner nature, terms like 'natural', 'capitalism' and 'the industrial revolution' are complex bundles of concepts, with an intricate history and a range of possible meanings.

Adam Smith did separate out the concept of capitalism from the complex social structures of his day. The word 'capitalism' as a term for the entire system only came much later, Smith speaks mostly of commercial society, yet the concept is definitely there.

The concept is there. But has real commercial or industrial life ever followed the rules of ideological capitalism?

A detailed analysis of Smith's logic shows that he cheated, not on minor matters but on the key and central arguments. Rather than show reasons why division of labour is best expressed in commercial society, he pretended that division of labour could only happen via a free market. No attempt was made to reconcile this with existing social realities, where Britain's flourishing industry relied on regulated markets and where complex division of labour would be found in areas where market forces had not yet reached.

Adam Smith's most famous example, the manufacture of pins, turned out to have ignored the actual social context of pin-making. It was in fact one of many industries that had been promoted in England by government initiative. It was moreover exceptional among the industries of the time, with its fragmentation of production into small repetitive tasks.

Smith stood for the 'rights of money', as distinct from the rights of producers and workers. But money is no more than a way of thinking about certain sorts of human relationship. And Smith's ideology had time and again been used as a pretext for distorting society in favour of the owners of money and against the interests of everybody else. And yet, as I show in detail later on, his assertion that progress was generated by the 'rights of money' is just an assertion, and rests on no genuine body of evidence.

After several years spent studying both Adam Smith and the standard histories of industrialisation, my main conclusion is that there is no necessary connection between the Industrial Revolution and the Commercial system idolised by Adam Smith.

Original scientific thought, agricultural improvements, technological progress, mass production - all of these can occur without the commercial system. Whereas commercial structures with no strong state to support them tend to fail - this was the fate of the Hanseatic League.

The British Industrial Revolution was a special case, occurring outside of existing social structures, yet also under the protective umbrella of a state that imposed peace and a common legal standard, as well as tariff barriers that featherbedded newly-born British industries until they gradually grew to world-class status. And it was a state that was all in favour of 'improvement'; and happy to leave the details to enterprising individuals.

If there is one device that was key to the Industrial Revolution, it was Watt's steam engine. But this device received special patent protection by an act of parliament, suppressing competition for longer than the norm. You can imagine the noises the New Right would make, if it had been anyone but Watt.

British success came from a mix of commerce and other forces, not least of which was massive commercial slavery, with enslaved blacks from Africa working in the New World to produce cash crops for European consumption. The massive flow of wealth from modern capitalist slavery gave the British and North American economies an enormous boost.

No one knows the real factors that allowed Britain to create an industrial society in the late 18th century, whereas previous surges in Italy, Germany, Holland and France had petered out. Professional economists may win Nobel Prizes for mathematical models of the economy, but none of these make any useful predictions about the real economy, past or future. Even attempting to apply the wisdom of Nobel-Prize-winning economists to market speculations has led to some of the world's most spectacular bankruptcies.

In the absence of hard evidence, it is a reasonable suspicion that Britain could not have achieved its industrial takeoff just by honest work and ingenuity. It could not have happened without colonies based on conquest and genocide. It would have failed, or been much slower, without the remarkable flow of wealth that came from the modern capitalist slave trade.

Smith was remarkably evasive on the subject of slavery. He preferred to look just at the residual serfdom in foreign countries and not at the modern capitalist chattel-slavery that was fueling the progress and prosperity he so admired. As an observer of the world around him, he was decidedly 'economical with the truth'.

Adam Smith should really have called his book The Wealth Of Rich Individuals. His view of the world was fixed on these characters, gentry and aristocrats and rich successful merchants. I'll show later that he assumed without evidence that the growth of individual wealth must be the same as the growth in the nation's wealth and in the wealth of poorer individuals, whom Smith sees as passive objects dependent on the enterprise of the rich.

Whatever else he got wrong, Marx made a grand correction to the errors of Smith and his followers, pointing out that the wealth of the rich would be meaningless without the work and skill of ordinary people, who were also quite competent to organise their own work in various alternative ways.

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