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Against the neoliberal denunciation of the welfare state

by Rudolf Walther Tuesday, Sep. 15, 2020 at 10:17 AM

No economist is so misunderstood and misinterpreted as Adam Smith. Many consider him to be an advocate of the "free market" and narrow-minded egoism. What a mistake! Smith saw an important and strong role for the state.

Against the neoliberal denunciation of the welfare state


No economist is so misunderstood and misinterpreted as Adam Smith. Many consider him to be an advocate of the "free market" and narrow-minded egoism. What a mistake! This falsification is gladly spread by neoliberal editors. Smith saw an important and strong role for the state.

by Rudolf Walther

[This article published on 9/4/2020 is translated from the German on the Internet,]

"One may think man to be selfish no matter how selfish, but there are evidently certain principles in his nature that determine him to participate in the fate of others. (Adam Smith, Theory of Moral Sentiments) DGB/Archive

Adam Smith (1723-1790) is one of the most important founders of political economy. This sailed under the false flag of "national economy" in the German-speaking world and degenerated into the ideology of free trade in the 19th century. Afterwards Smith was made in the 20th century an apologist of the free market and inventor of the small multiplication factor of the "enrichment science" (Friedrich Engels). From his theories, national economists distilled such bland platitudes as the "invisible hand" of the market that regulates everything, or the proverbial baker who sells bread not out of goodwill but out of selfish interest. Thus, interest, which considers every interest equal and of equal value, moved to the center of the national economy. Supposedly political and moral-free interests thus form the motor and goal of economic activity. What someone acts with and for what purpose becomes as indifferent as the means used to do so. Almost everything is completely absorbed in trivial calculations of interests under the name "business administration". The interests of humans and animals, nature and environment thus become mere "cost factors".

Smith sees a claim to equality and equal treatment of all people

Although the economy never and nowhere functioned according to the model of the "free market" or "perfect competition," it remained effective at least as an ideal to be aspired-even in the "social market economy," which replaced free trade liberalism in many places after World War II. However, many mainstream economists imprisoned Adam Smith for its justification. They reduced the theories of the economist and moral philosopher Smith to trivial and banal set pieces.

The often quoted passage on the "system of natural freedom" in Smith's 5th book on the "Wealth of Nations" (1776) is often interpreted in a coarse way. The "perfect freedom" of each individual "to pursue his interest in his own way" is seen to this day in the horizon of a narrow-minded egoism. The book of 1776, however, must not be interpreted independently of the "Theory of Moral Sentiments" (1759), published in German under the falsifying title "Theorie der moralischen Gefühle". In the moral-philosophical context of the Scottish Enlightenment, "Moral Sentiment" means moral judgment and not simply subjective moral feeling.

In this complex work, Smith attempted to clarify the anthropological foundations of human coexistence and to empirically prove the paradoxical interplay of interest and sympathy. By "sympathy", the emotional basis for human communication with humans, Smith meant our way of making moral judgments - because sympathy is part of human nature, is deeply rooted in it. According to Smith, this natural disposition also includes the claim to equality and equal treatment of all people. Smith developed his thesis not normatively, but empirically-pragmatically from observing everyday life. The first sentence of the "Theory of Moral Sentiments" reads: "No matter how selfish one may think man is, there are obviously certain principles in his nature that determine him to participate in the fate of others.”

Copper engraving of an early modern manufactory with simple wooden tables where people work.

When Smith wrote his main work "Wealth of Nations", modern capitalism did not yet exist, but the first manufactories like this one existed in Great Britain.

As the philosopher Ernst Tugendhat emphasizes, Smith does not assume that two actors have the same interests, but rather that there is a "harmony of affects" that is natural in all human beings - people want to act humanely among themselves, i.e. with sympathy for the other. The argumentation is indeed circular, but it is not based on an egocentric principle, but on the principle of the mutual dependence of men on each other as genuinely equally social beings.

According to Smith, cooperation and mutual assistance are inherent in the division of labor

Smith also argues on this basis in his work "Wealth of Nations". He does not - as is widely assumed - rely on narrow-minded, egotistical interests and calculations of the pluses of shopkeepers. His fundamental insight is: "We do not expect our meal from the goodwill of butchers, brewers or bakers, but from their consideration for their interests. We do not turn to their humanity, but to their 'self-love'" and "never speak to them of our needs, but of their advantages. The two sentences are usually reduced to the first part of the sentence and, on top of that, they are interpreted in a falsifying way - namely, in the horizon of mercantile shopkeeper egos or of neo-liberal market radicalism, which ennobles the ego of shopkeeper souls to an "invisible hand".

But this is not what Smith means at any point in his 1,000-page book, in which the word "self-interest" occurs exactly once - in the context of government spending on religious instruction, where it says: "In the Roman Church, the diligence and zeal of the lower clergy is kept alive by the powerful motive of self-interest". In the economic context, Smith is not concerned with motives, but with the anthropological basis of human action.

For Smith, in social coexistence this is sympathy, out of which people act and exchange, because "the inclination to exchange, to barter, and exchange one thing for another" ("to truck, barter, and exchange one thing for another") is part of the existential basic equipment of social beings: "Give me what I want and you shall have what you want.” For Smith, the civilizing progress of an exchange society based on the division of labor consists in the fact that not everyone has to and can produce everything he or she needs for survival. Cooperation and mutual help are inscribed in the division of labor, and these do not spring from selfish calculations, but rather form the elementary social basis of exchange societies.

First page from the book "Wealth of Nations"

"Wherever there is much property, there is also great inequality. For a very rich man there must be at least 500 poor, and the abundance among the few presupposes the meagerness of the multitude." (Adam Smith, Wealth of Nations)

Gerald Braunberger, the FAZ editor responsible for economics, recently admitted in an essay entitled "More Adam Smith Wage" that Adam Smith was not an "uncritical follower of laissez-faire" or the crude neoliberal idea of a "spontaneous order" (Friedrich A. Hayek). But Braunberger polishes Smith up until he fits in with his thesis, according to which Smith advocated state intervention for education and health and for combating poverty, but did not want to know about state funds for individual branches of industry or investments in the future. For Braunberger, therefore, financial aid is out of the question in cases of permanent unemployment, because such aid only leads to higher national debt and not to greater productivity and growth. Contrary to his thesis mentioned at the beginning, he turned against the "increasingly active state" and finally ended up with the usual oath on the trinity of "more market, less state and zero deficit (black zero).".

State intervention for compensation and equal opportunities

Smith's "commercial society" is about technical and economic progress, but not at any price: "A person who spends his whole life performing a few simple operations (...) has no opportunity to exercise his intellect" and becomes "stupid and limited" unless state intervention provides compensation and equal opportunities.

Braunberger's polemic against a soundly based demand policy and his partisanship of the business-friendly supply policy finds no support in Smith: "Consumption is the sole purpose of all production; and the interest of the producer should be taken into account only to the extent necessary to promote the interest of the consumer. (...)” In the market system alone, the interest of the consumer is almost constantly sacrificed to that of the producer, and it seems that production, and not consumption, is then regarded as the ultimate purpose of all industry and commerce. Smith finds no arguments for the neoliberal denunciation of the welfare state as "comfortable stable feeding" (Wilhelm Röpke).

As for the appeal "Dare more Adam Smith", it can be said that, contrary to Braunberger's neoliberal interpretation, Smith has many points of reference that are strictly contrary to his view: "Wherever there is much property, there is also great inequality. For a very rich man there must be at least 500 poor, and the abundance among the few presupposes the meagerness of the multitude.” The abundance of the rich arouses the unwillingness of the poor, who are often driven by want and envy to attack their possessions. Smith also has a more succinct response to the healthy talk of Hartz IV reforms, the low-wage sector, and the associated poverty of old age than the neoliberals with their reservations about the minimum wage: "Moreover, it is no more than cheap that those who provide the whole body of the people with food, clothing, and housing should have so much of the product of their own labor that they themselves can feed, clothe, and live in a bearable way.”

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