Quotes with which to annoy the Adam Smith Institute: Number One

The Adam Smith Institute is – according to its website – a libertarian thinktank. It promotes free market solutions to policy questions, and individual freedom more generally. It does not pretend that it agrees with absolutely everything its namesake believed, but purports to promote his “belief in humanity and the power of freedom”. I would share that belief – but it’s unclear to me that the ASI understands the same thing Adam Smith did by ‘freedom’, and indeed whether the libertarian understanding of freedom has much in common with the kind of classical liberal understanding of freedom that Adam Smith is understood to have promoted.

I’ve been reading through An Inquiry into the Nature and Causes of the Wealth of Nations, and I’ve been pulling out quotes that appear to me to conflict with what could be called a procedural justice version of libertarianism; a version which may not be held by every contributor to the ASI, but nonetheless appears to inform some of their work.  This post, the first in an occasional series, will examine some of the ASI’s work in the context of the actual words of the Master.

I am using the OUP World’s Classics version of WoN. The following is from Book 1, Chapter VIII:

“What are the common wages of labour, depends everywhere upon the contract usually made between those two parties, whose interests are by no means the same. The workmen desire to get as much, the masters to give as little, as possible. The former are disposed to combine in order to raise, the latter in order to lower, the wages of labour.
“It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily: and the law, besides, authorises, or at least does not prohibit, their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work, but many against combining to raise it. In all such disputes, the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks, which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year, without employment. In the long run, the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.”

Smith is here observing that the freedom of contract between capitalist and worker is, in reality, no such thing. The relative levels of capital each holds distort the negotiation: the capitalist can always afford to hold out for longer. However, within procedural justice libertarianism, freedom of contract is interpreted as absolute: any Government intervention, whether it be through regulation of rights or wages, is an immoral intrusion into a private negotiation.

The above quote appears to indicate that Smith understands that the freedom to make contracts varies between capitalist and worker, in a manner dependent on their relative wealth. This particular freedom appears to be determined less by Government intervention and much more so by possession of capital. Being a strong believer in the power of freedom, I would advocate that some way be found to bring a greater equality of freedom to negotiations between a capitalist and a worker, as an end in itself. I am agnostic as to how this can be achieved, whether it be through the State or through a non-state body, such as a trade union.

However, the Adam Smith Institute has recently put forward a proposal that runs counter to this aim of securing greater freedom of negotiation, which they have dubbed the ‘Self Employment Option’. This calls for greater use of the self-employed status amongst workers, which “sidesteps the burdens not only of PAYE and NI, but also of unfair dismissal, discrimination suits, maternity and paternity leave, statutory sick pay and holiday pay“. The self-employed, being freed from the ‘burden’ of rights, will have less freedom in negotiation than the employed. It is difficult to interpret this in any other way than the ASI having a very different understanding of freedom of contract to Adam Smith.