Contrary to popular opinion, he was not a free market apologist

The authority of Adam Smith is frequently invoked by supporters of the free market, who argue for extending the market forces to all conceivable goods and services and eliminating any kind of government intervention in markets. However, Smith’s The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations make it clear that he was not a laissez faire or free market capitalism apologist.

Favouring liberal capitalism

Smith favoured liberal capitalism over the extant socio-economic arrangement (elements of feudalism and mercantilism). While feudalism was characterised by the rule of the nobility/landowners, mercantilism was characterised by state monopoly over trade. The East India Company was an example of the latter. It is in this historical context that Smith called for the state to withdraw its monopolistic interventions in both external and internal commerce.

Contrary to public opinion, Smith presupposed the government provision of legal infrastructure, defence, transport infrastructure and education for the proper functioning of liberal capitalism. For him, the responsibility of providing institutions “for promoting the instruction of the people” is one of the chief duties of the state. The state, he said, must undertake this responsibility just as it accepts responsibility “for protecting society from the violence and invasion of other independent societies”.

The appropriators of Smith also forget his telling commentary on the role of power in society. One aspect of this relates to the power employers have over workers. The second aspect relates to the inequality of power, expressed in the form of status and ranks.

Modern appropriators of Smith also make abundant use of the “invisible hand” metaphor. But Smith used this metaphor only once in Wealth of Nations, and twice in his other writings in different contexts.

The self-interested individual in the Wealth of Nations is embedded, as it were, in the society Smith described in The Theory of Moral Sentiments, which is characterised by good moral sentiments: “All the members of human society stand in need of each other’s assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy.” Indeed, the Wealth of Nations and The Theory of Moral Sentiments are complementary texts.

Education is not a commodity

Smith conceived of education in a broad manner. Education for him not only includes the “study of wisdom” but also the learning of good moral sentiments such as virtue, sympathy, gratitude and benevolence. Since Smith considered education as central to a flourishing society, he did not treat it as a commodity. He argued that the costs of education should be such that “even a common labourer may afford it”. In the Wealth of Nations, he said: “For a very small expence the publick can facilitate, can encourage, and can even impose upon almost the whole body of the people, the necessity of acquiring those most essential parts of education.” This dispels the myth of him being a champion of private education.

Almost all popular commentaries on Smith’s economics highlight the role of division of labour or technological progress in the growth of an economy. The growth enhancing effects of division of labour via increasing labour productivity are an important part of Smith’s growth account. But Smith understood the central consequence of division of labour on the workers: repetitive work numbs their minds and negatively influences their capacity to make prudent decisions. Therefore, the “education of the common people requires, perhaps, in a civilized and commercial society, the attention of the publick.”

Smith advocated accessible education for the entire class of workers, which constitutes the majority of the population. In fact, he advocated compulsory education for them so that it offsets part of the debilitating effects from the division of labour. Smith also believed that education would empower the citizens to make wise decisions which contribute to the “safety of the government”. Yet another reason is that education positively affects customary wages, which over time, would increase workers’ real wages.

It would therefore be wise to take heed of Smith’s views on education, which comprise both the learning of “wisdom” and “moral sentiments”, and not only strengthen but also expand India’s public education system.

Alex M. Thomas teaches economics at Azim Premji University, Bengaluru