The Jus Semper Global Alliance Living Wages North and South The Neo-Capitalist Assault Essay Two of Part I (The Economics of Reference) April 2001 GLOBAL ECONOMIC DEVELOPMENT – A TLWNSI ISSUE ESSAY SERIES The Historical Summary The Liberal Paradigm in Formation Background in the XVIII and the Idea of the Common Good. and XIX Centuries The initiation of liberalism The Pursuit of Individual Self-Interest By Alvaro J. de Regil a as the Best Way to Bring Prosperity to All Levels of Society Adam Smith and the Pursuit of the From time to time TJSGA will issue essays on Common Good topics relevant to The Living Wages North and South Initiative (TLWNSI). This paper is the The Classical School and the Principle second in the series “The Neo-Capitalist Assault” of the Common Good –a collection in development about Neoliberalism by its Executive Director. A Refreshment of Mercantilism In a narrative and analytic style, the essay John Stuart Mill, Social Justice, and describes the historical roots of modern economic His Social Liberalism thought with European Liberalism and its laissez faire ideology as a reaction to the era of Classic Economic Theory, Applied monopolistic Mercantilism. The objective in the essay is to describe the development of liberal The Struggle for Social Justice Begins economic thought and establish the great differences between its philosophical postulates A Parallel in Views. A Gap Between and its actual application. While a true spirit of Theory and Practice freedom and the pursuit of the common good imbued economic liberalism, the actual application of the Industrial Revolution was of paedists, “The Physiocrats”, who liked to regard laissez faire for the owners of money and of dire themselves as “The Economists”, were the first to exploitation for labour. The period covered goes enunciate the concept of laissez faire, laissez- from the time of the merchant empires, Adam passer. They constructed a model that aspired to Smith, the French Physiocrats and the attain optimum results, according to their development of XIX century classical economic rationale, except for the influence of the thought to the brink of the Great War of 1914. imperfections of a human being’s thinking, which The essay opens by stating that the birth of could not clearly understand the natural order. economic thought began with the enunciation of the concept of laissez faire, laissez-passer in its The Liberal Paradigm in Formation and the Idea search for a model that would produce optimum of the Common Good. The initiation of results. liberalism The Physiocrats represented a reaction to French “mercantilism” which can be compared today, in several aspects, with an extremely closed and The birth of modern economic thought began at archaic mixed economy; for it was controlled by the dawn of modernization with the Industrial (monarchical) absolutism and was tremendously Revolution. Associated with the French encyclo- inefficient, the result of the extravagances of the ©TJSGA/TLWNSI ESSAY/NEO-CAPITALIST ASSAULT (2)/APRIL03/Alvaro de Regil Castilla 1 The Neo-Capitalist Assault Living Wages North and South The Historical Background in the XVIII and XIX Centuries monarchies of Louis XIV and Louis XV. Strangely remained in obscurity until late into the XIX enough, the Physiocrats pleaded for a revolution century, Cantillon also conceived in his Essai sur from above through a monarch enlightened about la Nature du Commerce en Générale, a market natural order relative to the economic well being system kept in continuous adjustment by the of the nation. But it is very likely that their activity of self-interested entrepreneurs.2 And, like approach was heavily influenced by political the Physiocrats and Adam Smith, he considered considerations. For, although the absolutist the entrepreneurs as the central element in a monarchy was the perpetrator of the demise of market system of competition where the welfare for the French nation-state, the landholders are the only participants of the 1 Physiocrats were members of the court. Thus, by system who are independent, whilst “all the other alluding to “natural law”, they blamed tax abuses are dependent, either as entrepreneurs, or wage- to wage foreign wars, mismanagement of public earners, and that all the trade and circulation of debt and court extravagances for hurting the the state is conducted through the intermediation economy. They contended that it was the land of the entrepreneurs”.3 and not the accumulation of gold and silver that was the origin of human wealth. In this way, the I consider it of key importance to relate these formation of wealth was part of a natural order. historical events. For in them we will find a And, thus, the Physiocrats constructed a theory, in conductive and consistent train of thinking in Quesnay’s Tableu Echonomique, that an ideal their ideas and in that of other contemporary economy is that which is left to the natural order, philosophers involved in the initiation of political tending automatically to achieve maximum economics as a discipline. These events explain results except for the influences of mankind’s why they arrived at some conclusions as a result incomplete understanding of this order. of their times; and how these have been reinterpreted today, out of their historical context, The Pursuit of Individual Self-Interest as the Best to support what I believe to be a different Way to Bring Prosperity to All Levels of Society paradigm. This is the origin of the laissez faire paradigm that advocated that national prosperity could only be Adam Smith and the Pursuit of the Common attained by allowing for the personal liberty and Good prosperity of all. The Physiocrats François Adam Smith, in his “An Inquiry Into the Nature Quesnay (1694-1774), Jean de Gourney (1712- and Causes of the Wealth of Nations” of 1776, 1759) and J. P. Dupont de Nemours (1739-1817), which was intended to be the capstone of his among others, were contemporaries of Adam philosophical work, focuses on the growth of Smith and had substantial influence on his national wealth; and he meant of total national philosophical work. The Scottish professor wealth, pervasively reaching all levels of society. resided in Paris in 1765-1766, ten years before For that, he strongly believed in freedom as the his “Wealth of Nations,” and became their close centre point in the achievement of a perfect and acquaintance (especially of Quesnay). Their upwardly-mobile economy that resulted from a philosophy coincided with Adam Smith’s, and he simple and free system of competition: The commended them for understanding both the real establishment of perfect justice, of perfect liberty, origin of wealth and for recognizing the need for and of perfect equality is the very simple secret a laissez faire environment for economies to which most effectually secures the highest degree prosper. Thus, when he initiated his work at of prosperity of all three classes.4 Glasgow University, he was already influenced by the ideas of the French Physiocrats. Albeit, in However, his aim was not the accumulation of his work, he differed from the Physiocrats’ wealth per se, but the achievement of a perfect thinking on the fact that it was human effort and equilibrium of supply and demand that would not natural science that made commodities achieve the maximum level of “general welfare”. available to humankind. For Smith, this is possible through the freedom to Heavily influencing the Physiocrats was Richard choose the employment of resources that would Cantillon, an Irish philosopher who preceded maximize the state of general national welfare. them. Cantillon died in 1734, albeit his work was not published until 1755 in Paris. Although he 2 ©TJSGA/TLWNSI ESSAY/NEO-CAPITALIST ASSAULT (2)/APRIL03/Alvaro de Regil Castilla The Neo-Capitalist Assault Living Wages North and South The Historical Background in the XVIII and XIX Centuries This is the angular stone of his philosophy. own goods, “beyond what they have occasion Contrary to popular belief, which has erected him for” to accommodate all “amply” and as the father of Capitalism, the driving force in his “abundantly” and “a general plenty diffuses writing of “The Wealth of Nations” is not through all”. If he were to rise from the dead in Capitalism as we know it today, but a Capitalism these times, he would see how wrongly his that is the instrument of “general welfare”, just as teachings have been followed and would he considered money the instrument of probably abrogate his constant reference of a fair commerce. Thus, to Smith, money and accommodation of wealth and demand the need commerce were merely the vehicles to obtain the for the redistribution of wealth in a very unjust general welfare and happiness of all members of order; for we are in one of the worst periods of society. We must remember that Adam Smith was fulfilment of the Common Good. a moral philosopher, who started teaching in 1751 by holding the Chair of Moral Philosophy at Smith was profoundly preoccupied by the moral the University of Glasgow, where he published elements of the economy. Judging from how he his Theory of Moral Sentiments. During his referred to monopolies, Smith would have greatly tenure, he became a philosopher of economic opposed today’s corporations, in general, and matters when he started inquiring about how multinational corporations, in particular. For he greed and self-interest could benefit the common believed that it was in their nature to try to good.5 maximize profits at the expense of labour and consumers. Throughout his book, he showed his Indeed, it is absolutely clear that Adam Smith was repugnance for these organizations and saw them extremely interested in the Common Good of as only beneficial to their own kind.