Libertarianism Lost its Nobility

“One of the great mistakes is to judge policies and programs by their intentions rather than their results.” So said the modern libertarian apostle, Milton Friedman. Oft cited, the quote works to position Friedman and the likeminded against leftists and liberals, typically advocating a welfare state and social safety nets for the lowest. Only the welfare state is inefficient and much more likely to do harm. The ends justify the means. So says Milton Friedman.

The ethics of the market economy have transfixed economists and philosophers for centuries. The great debate tends to fall across a spectrum of Friedman’s “maximize profits to advance society” idea to the somewhat more mainstream Keynesian economics principles to finally a Marxist priority of human health and labor value.

However, a shallow moral debate has mapped the same spectrum. Libertarians have espoused being efficient and results-driven to contrast themselves from well-intentioned, but vacuous, liberals.

Were libertarians always like this? Who they look to in history would tell us otherwise.

Adam Smith has long been held as a giant of the libertarian ideal. Liberty Classics’ best-seller list, a libertarian publishing house focused on spreading the fundamentals of the philosophy, is topped by Smith’s books. Libertarianism.org lists him as one of its central thinkers. Indeed, Friedman could often be seen wearing an Adam Smith tie at lectures and interviews.

Of course, libertarianism was posthumously imposed on Smith. The philosopher put his work under the umbrella of a larger philosophy. Nevertheless, it’s worth dissecting whether Smith produced a normative theory for libertarianism. Are Friedman and Smith really from the same intellectual lineage?

Smith’s analyses of market economies and the world around him have provided libertarians numerous reasons to believe that exceptionally limited government makes for great societies. The most cited reference is the “invisible hand,” found both in Theory of Moral Sentiments and Wealth of Nations. Particularly in the former, Smith writes that the owners of the means of production redistribute their wealth equitably among their laborers, naturally, and without government intervention. Friedman defined the practice of the invisible hand as, “the way in which voluntary acts of millions of individuals each pursuing his own objectives could be coordinated, without central direction, through a price system.” Those finding success on their own wouldn’t need government intervention to make society better.

With this interpretation. Friedman would be right to see Smith as outlining a normative account of ends, not means. The ends should simply be limited intervention. Moral rightness and prosperity will follow.

Though reading more deeply, we find that Friedman might have turned Smith’s work on its head. Smith’s first work, Theory of Moral Sentiments, begins with the nature of humanity, which delivers us to the impossible thought of the invisible hand.

To Smith, the very first neurological capacity that makes us human is our capacity to feel sympathy.  Sympathy is the basis for our society. Care for each other helps keep the peace.

Sympathy also creates our functioning market economy. The invisible hand, directed by the impartial spectator, directs our profits to benefit society. (For those unfamiliar, the impartial spectator is effectively the little voice in our heads that tells us what is good and what is not. I might consciously screw over my friend by returning his car on empty, though in my mind I’ll know that I shouldn’t have done that). Profits will be redistributed naturally because owners of the means of production simply will not be able to stomach seeing their fellow man overworked or homeless.

Limited government may be beneficial means for equality, as he advocates for abandonment of mercantilism, protectionism, and importantly, imperialism. Smith was wise to realize later, though, that limited government isn’t foolproof. He amends his invisible hand theory substantially in Wealth of Nations. In Book IV, he writes that self-interest benefits all of society—as it did in Theory of Moral Sentiments—but government must provide some caveats, including banning monopolies, providing quality public education, and maintaining the defense of the state. For the last point in particular, wealth distribution becomes a necessity to Smith. Soldiers produce nothing in the market economy but are still central to its function. Paying taxes is a “badge of honor” for participants of the markets—a stark departure from Friedman’s modern libertarian thought that they should be avoided whenever possible. To take it further, he even adds in Wealth of Nations that unproductive laborers and the ‘laborless’ are “equally maintained by the annual produce of the land over the country.”

With these amendments, Smith already emphasizes the means. Profits were never supposed to be the end goal of society. Making sure that everyone was cared for, was.

So, what if the political economy prioritizes profiting and shareholder wellbeing (as Friedman’s cornerstone theory suggests)? The megacorporation Amazon works well as an a priori case study. With Amazon in the public debate of monopoly-building and antitrust, Smith would likely fail to appreciate its existence as it is. But if we examine further Smith’s analysis, we could of course find benefits to the economy (not least in providing a service nearly everyone uses, its strength to shareholders, and as a major employer), and significant departures from everything Smith found natural to humanity.

There’s a comfortable argument that Amazon has had limited government oversight to begin with. Amazon has drawn public ire for not paying any federal taxes in the past years, abdicating Smith’s “badge of honor.” The US is only now suing Amazon for years of selling unsafe products.  Further, factory worker complaints and inequality between these workers and its CEO, for instance, would likely aggravate Smith, regardless of how buoyant the company keeps the S&P 500.

Why still advocate for limited government when there is endless evidence of its abuses? Principally, modern scholars overlook Smith’s foundation that we are all driven by sympathy. Perhaps we are driven by selfish desires, but at our core, we limit ourselves by doing well by others. Virtue is a key concept in Smith’s writing and a foundation of the importance of state education. Good-living is also the premise of the state in general. As he writes in the Theory of Moral Sentiments, the purpose of state constitutions is to promote happiness. In this way, he rejects the primacy of economic production, property, and profit (see Locke for the foundation that Smith is contradicting).

Faith in the goodness of people establishes a framework of justice to pursue: collective happiness and prosperity. He gives leeway to the role of government to establish this. Aware that markets without regulation will inevitably produce monopolies, poor labor standards, and thus, rampant inequality, he advises the government to intervene. With an impartial spectator suggesting that wealth should be distributed across the land so that even the laborless can survive further evinces the immorality of the modern economy.

Government should not be needed to intervene in such instances. Sympathy and good living should be our directors. Friedman and the libertarian-right lost sight of the purpose of the philosophy. Limited government is not suggested to produce the most profit possible, but to help redistribute wealth to promote a happy society. Turning a blind eye to the power of the rich and the suffering of the poor is contrary to the basis of our humanity.

Read for yourself (sources used in the blog):

Adam Smith

The Theory of Moral Sentiments, 1759

An Inquiry into the Nature and Causes of the Wealth of Nations, 1776

Milton Friedman

New York Times Editorial: “A Friedman doctrine‐- The Social Responsibility Of Business Is to Increase Its Profits”, 1970

Article in Chicago Booth Review: “Adam Smith's relevance for 1976”, 1976

Capitalism and Freedom, 1962

Relevant Editorials:

Glory Liu – “How the Chicago School Changed the meaning of Adam Smith’s ‘invisible hand’”, 22 April 2019 in the Washington Post

Jennifer Burns – “Companies should concentrate on maximising their profits”, 20 October 2019 in the Financial Times