Classical Economists, Good or Bad; M. Skousen

Many free-market economists congratu late Adam Smith for his profundity and wisdom in The Wealth ofNations , published in 1776. His work almost singlehandedly destroyed the mercantilist arguments for protectionism and other forms of govern ment intervention. George Stigler con cludes, "It's all in Adam Smith." Dr. Skousen is an economist at Rollins College, Department ofEconomics, Winter Park, Florida 32789, and editor of Forecasts & Strategies, one of the largest investment newsletters in the country. His book Economics of a Pure Gold Standard has just been reprinted by FEE. In his monumental new book Capitalism, George Reisman carries on this tradition of extolling the virtues of Adam Smith and David Ricardo (1772-1823).In hisjudgment, there are four great economists, whom he ranks in the following order: Ludwig von Mises, Adam Smith, David Ricardo, and Eugen Bohm-Bawerk. Although he does not ignore their weaknesses, Reisman considers Smith and Ricardo great economists who have been much maligned.

Rothbard's Challenge But consider Murray Rothbard's critique of classical economists in his two-volume work Economic Thought Before Adam Smith and Classical Economics, published at the time of his death in January 1995. He lambastes Smith, Ricardo, and Mill, among others, arguing that the classical economists moved away from the sound doctrines and theories previously developed by pre-Ad amites such as Richard Cantillon, Anne Robert Turgot, and the Scholastics. Accord ing to Rothbard, Adam Smith's contribu tions were "dubious," that "he originated nothing that was true, and that whatever he originated was wrong," and The Wealth of Nations is "rife with vagueness, ambiguity and deep inner contradictions."3 He has little better to say of Ricardo and Mill. How can free-market economists see things so differently? Having read both Reisman and Rothbard, as well as the major works of Smith and Ricardo, I have an 706 answer: Smith and Ricardo were largely right on policy, but often wrong on theory.

A Critique of Classical Economics If you look at the theories developed by the classical economists, you can easily find fault. Smith advanced an exploitation the ory of labor, referred to the work of minis ters, physicians, musicians, orators, actors, and other producers of services as "unpro ductive, frivolous" occupations, and made a distinction between "production for profit" and "production for use. " All of these Smithian concepts gave ammunition to Karl Marx and other socialists. Ricardo furthered the Marxist cause by implying that profits could only increase at the expense of workers' wages, which tended toward the subsistence level. As rents earned by idle landlords increased, profits would decline, he predicted. He also invented what economists call the "Ricard ian Vice," whereby theorists build models based on false and misleading assumptions that lead inexorably to the desired results.

Ricardo used this device to "prove" his labor theory of value. As a result, some commentators have identified Ricardo as the source oftoday's highly abstract, math ematical, and ahistorical theoretical model building.4 Positive Contributions Despite these theoretical blunders, Smith and Ricardo were consistent defenders of laissez-faire capitalism. Smith ably de fended the right to immigrate. He opposed minimumwage laws, and argued for lower 707 taxes and a simpler tax code. War was bad for the economy, according to Smith. He pleaded for balanced budgets. He spoke favorably about saving and capital invest ment. His "invisible hand" doctrine de clared that the voluntary self-interest of millions of individuals creates a stable, pros perous society (what Smith called "natural harmony") without the need for central direction by the state. Smith viewed free market capitalism overall as socially human izing and prosperous, while Marx saw cap italism as dehumanizing and alienating.

Smith eloquently promoted the principle of "natural liberty," the freedom to do what you wish without interference from the state. His words literally changed the course of politics, dismantling the old mercantilist doctrines of protectionism and human bond age. The Wealth of Nations was the ideal document to accompany the Industrial Rev olution. Despite his pessimism about the future, David Ricardo favored a strict 100 percent gold standard, was opposed to public wel fare and the corn laws, and was a firm believer in free trade. In short, the classical economists had much to offer the world. Their theories weren't always on target, but they usually proposed the right solution. D 1. George Reisman, Capitalism (Ottawa, Ill.: Jameson Books, 1996), p. 2. 2. Murray N. Rothbard, Classical Economics: An Austrian Perspective on the History of Economic Thought (London: Edward Elgar, 1995), p. xi.

3. Rothbard, "The Celebrated Adam Smith," Economic Thought Before Adam Smith (London: Edward Elgar, 1995), pp.435-6. 4. For critiques of Ricardo, see Graeme Donald Snooks, Economics Without Time (Ann Arbor, Mich.: University of Michigan Press, 1993) and Elton Mayo, The Social Problems of an Industrial Civilization (Cambridge, Mass.: Harvard University, 1945).