Why Adam Smith, father of capitalism, would have hated neoliberalism

1776 was a very good year. The US declared independence and Adam Smith wrote the Wealth of Nations. Both of these events helped mark the transition to a new world; both have contributed enormously to human freedom, and have therefore been claimed by neoliberals as their own.

The problem is that neoliberalism, unlike classical liberalism, is a force that has diminished our freedoms – has in fact packaged and delivered them to moneyed interests that represent the true power guiding the human ship today – corporate power.

It’s why Adam Smith would have hated the neoliberal agenda, and also why the US Constitution is perhaps no longer fit for purpose in the 21st century. Both envisaged an economy of small businesses, not the corporate monster – founded on gambling, that must grow or die – that feeds on our freedoms and makes a mockery of democracy today.

Liberalism, first time round, was a noble attempt to get rid of the blatant injustices of mercantilism. Adam Smith sounded its death-knell before the Americans and the French buried it. Here are the main stages of human economic history.

1. Tribalism – the rich don’t exist yet
2. Imperialism and slavery – the rich own the poor
3. Feudalism – the rich hold the poor in bondage
4. Mercantilism – the rich are the government
5. Neoliberal capitalism – the rich own the government

Yes, control had become more subtle over the centuries, but Smith and his fellow liberals wanted more – they wanted the freedom that popular control of government and business brings. It was a radical idea. They wanted to introduce a fifth era – the era of free-market capitalism. They weren’t to know that business wealth would concentrate in entities stronger than governments, and whose funds would bring governments under their control.

The capitalism of today is not the kind of capitalism that Smith would have recognised. Capitalism was supposed to set us free – to deliver a world of small businesses in free and fair competition, with elected governments of honest men. Governments were not supposed to ‘rule’ – they were to ensure that contracts were honoured and to prevent foreign invasion. People were supposed to be independent, responsible, free citizens, and constitutions, checks and balances were initiated to ensure that government knew its place. But no such checks and balances were used to prevent companies from dominating the global economy.

Smith was a very moral man – in fact the Wealth of Nations has a moral message about control being in the hands of upstanding, responsible, moral citizens. This is evident in his quote about land ownership. He would have opposed corporate power. A corporate-controlled economy is anything but free.

The end of history? No – we haven’t got to freedom yet. The next stage could be freedom, but we have to recognise its absence, we have to want it and we have to be prepared to put the work in to get it – and that includes intellectual work. If we’re prepared to do that, Adam Smith would be proud of us.