Noam Chomsky (2014) on Economics & Classical Liberalism

Professor Noam Chomsky discusses misinterpretations of classical liberal tradition, origins of really existing capitalism and history of free trade in the U.S. and in the world. Interview was recorded on July 23rd, 2014 (Boston, MIT) by Antti Jauhiainen & Joona-Hermanni Mäkinen (Parecon Finland).

About Noam Chomsky

Avram Noam Chomsky is an American linguist, philosopher, political activist, author, and lecturer. He is an Institute Professor and Professor Emeritus of Linguistics at the Massachusetts Institute of Technology.

About Parecon Finland

Parecon Finland aims to help bring issues of democracy and environmental sustainability more into the focus of discussion on economy and economics in Finland. The organization writes commentaries, organizes events and talks, and publishes material related to such key issues as market reforms, local economies, climate change and political and economic democracy.

keywords: noam chomsky, parecon finland, capitalism, liberalism, history, economy, free trade, adam smith, invisible hand, economics

[zeppyfish]

"In the progress of the division of labour, the employment of most of those who live by labour comes to be confined to a few very simple operations, often only one or two. Now, the understandings of most men are formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations—with effects that are always nearly the same—has no occasion to exert his understanding or to exercise his invention in devising ways to remove difficulties that never occur. So he naturally loses the habit of such exertion, and generally becomes as stupid and ignorant as a human creature can possibly become. The torpor of his mind makes him incapable of enjoying or taking part in any rational conversation, conceiving any generous, noble, or tender sentiment,   or, therefore, forming any just judgment concerning many even of the ordinary duties of private life. But in every improved and civilised society this is the state into which the labouring poor—i.e. the great body of the people—must necessarily fall unless government works to prevent it."

[nthperson]

Ignored by most Smith interpreters is his treatment of land ownership and the private appropriation of the rent of land. His analysis was not as direct as that provided a century later by Henry George, but Smith explained that rent arises out of population growth and aggregate demand rather than by what any individual owner of land does or does not do to improve the land held. Thus, rent is a surplus that can be publicly collected without adversely impacting the production of wealth. Failure to do so gives to government (or a governing elite) the excuse to tax earned income, wealth produced by labor and capital (e.g., buildings and machinery) and commerce. The result has been centuries of entrenched landed privilege at the expense of those who actually labor and produce goods or services.

[lamwlw]

[00:00 Well, one thing is it's grossly misinterpreted, so it's worth remembering that the early classical liberals, say Smith and Humboldt, were pre-capitalist. Later ones, like John Stuart Mill, were basically social democrats, not the classical liberal in much of his thinking, but social democratic in the policies that he advocated. In fact, one of the policies he advocated was worker self-management. I thought that was an ideal that society ought to move towards. But if you go to the interpretations, it's kind of interesting. So for example, I once wrote a review of the bicentennial scholarly edition of Wealth of Nations put out by the University of Chicago with an introduction
[01:04 by a Nobel laureate, Chicago economist George Stigler. Practically everything he said about it was wrong. It was obvious he'd never looked at the book. In fact, it was so extreme that even some of the most important parts were not even in the index. So for example, take say Division of Labor. Everyone is familiar with the early... Yeah. ...early paragraphs about the butcher and the baker and how wonderful it is and so on. But when Smith continues a couple hundred pages later, he sharply condemns Division of Labor and says it's kind of an abomination that any civilized society will have to overcome by government intervention. And the reason is, goes right back to the roots of classical liberalism, the reason is that Division of Labor will turn... ...will turn every human being into a creature as stupid and ignorant as a person can possibly
[02:06 be because it'll just be repeating the same actions over and over. It doesn't have a chance to exercise his intelligence and reach his full development and so on. And that's the core of classical liberalism. Well, interestingly, that passage on Division of Labor isn't even indexed in the scholarly edition. Yeah. So if you look up Division of Labor, it's not there. Another interesting case is the notion of invisible hand. Actually, Smith rarely used the phrase, but the few times when he did use it are interesting. It's used once in Wealth of Nations, so it's hard to miss. And if you look at the context in which it's used, it's basically a critique of contemporary neoliberalism. I mean, what he points out is that... He says, talking about England, of course. He says... He says, if in England, the merchants and the manufacturers decided to invest abroad
[03:06 and import from abroad, they might profit, but the people of England would suffer. However, he says, their natural inclination to operate within their home country, what's called home country bias, will lead them as if by an invisible hand, not to... Not to carry out these actions, and therefore, things will work out in England. That's an argument against neoliberalism. That's the one use of the phrase invisible hand in Wealth of Nations. He uses it again in his other major book, Moral Sentiments, and what he says there is interesting. He says that... He argues that... Even if you have a cruel and vicious landlord... ...who takes all the land and so on, nevertheless, his natural concern for the happiness of other
[04:05 people will lead him as if by an invisible hand to make sure that the necessities of life are distributed as equally as they would be if there was an equal distribution in the first place. That's the second use of invisible hand, and of course, that's based on his conception shared with David. David Hume and others, that a core element of human nature is sympathy, in fact, the core notion. So, for Smith, we have a natural inclination to appreciate and enjoy the happiness of others even if we don't gain from it at all, and he contrasts that natural instinct with what he calls the vile maxim of the masters of mankind, all for ourselves and nothing for anyone else. And he evidently thinks that the benevolent element, which is the core of human nature,
[05:02 will overcome the impact of the vile maxim. Those are his uses of invisible hand, and we can go on case by case. This is pre-capitalist thinking. Now, he wasn't entirely pre-capitalist by any means, so, for example, if you look at Smith's recommendations to the... The newly independent American colonies, actually during the Revolutionary War, he gave advice to the colonies, what is now the United States, as to what policies they should follow. And the policies he advised are what are called sound economics, basically the Washington consensus, neoclassical economics, just what's told to the third world today, so concentrate on what you're good at. What later was called comparative advantage for the colonies, he said produce primary
[06:03 products, agriculture, he kind of overlooked slavery, but primary products, fish, fur, agricultural products, and don't try to develop industrial products because England is much superior, so everyone will gain. If you import advanced industry, by the standards of the day, it was advanced industrial projects from England, instead of producing your own, that will be beneficial to everyone. That's contemporary economics. Well, of course, the colonies were independent, so they didn't have to follow sound economics, so they did exactly the opposite. What they did is block British manufacturers. With very high tariffs, like the highest tariffs in the world, well into the 20th century,
[07:01 were able to develop a textile industry, first stage of industrial revolution, then all the accessories to a textile industry, like making equipment and so on. Later in the century, a steel industry, blocking superior British steel, and finally the U.S. developed. Actually, it followed Britain's own course. That's the way Britain developed. Yeah. That's the way Britain developed, by radically violating sound economics. In fact, that generalized to every developed state. Smith also urged the colonies not to try to monopolize the agricultural products where they had a natural advantage. What he was thinking of, primarily, was cotton. Cotton was kind of the oil of the early Industrial Revolution. Again, that's what sound economics is, but the colonies did the opposite. They first did develop a huge cotton production through slavery, the most radical violation
[08:02 you can imagine of market principles, and also by conquering half of Mexico. One of the goals of the conquest of half of Mexico, what's now southwest and west United States, was to try to monopolize cotton. The reason was very straightforward. Yeah. The only enemy in those days was England. England had a big military force. It was preventing the United States from conquering Canada, from conquering Cuba. The idea was, you take a look at the Jacksonian presidents, Polk and those guys who were involved in the conquest of Mexico. What they said straight out is that if we can monopolize cotton, we can bring England to our feet. Yeah. We'll be able to overcome them. Yeah. Yeah. That was the record. They did exactly the opposite of sound economics. Sound economics, yeah. Sound prospered. On the other hand, take say Egypt. If you go back to say the early 19th century, Egypt was about in the same, not identical,
[09:06 but it was rather similar to the early United States in its prospect. It had a developmentalist dictator, Ahmed Ali. It had cotton. It didn't have slaves. But they had cotton. It had fellahin. It could have developed. It was rich agriculture. That's why Napoleon conquered it, in fact. It had the conditions that could have led to an industrial revolution, but they had to follow sound economics by force. The British simply announced straight out that they were never going to allow independent economic development in the Eastern Mediterranean. The French cooperated. Yeah. So Egypt did follow the principles of economics, and Egypt is Egypt, and the United States is the United States. That generalizes worldwide.

[BenGelfandMusic]

I would absolutely love to see Chomsky’s review of the bicentennial edition from Stigler.

[kropotkinbeard]

I recommend a book by Michael Perelman 'The Invention of Capitalism: Classical Political Economy and the Secret History of Primitive Accumulation'. It's online in its entirety. Please read it and come back here. It's quite interesting.

[nthperson]

Seldom in any discussion of what Adam Smith wrote and argued for is the connection made with his French contemporaries, the Physiocrats. Smith was strongly influenced by the perspectives put forward by Francois Quesnay and Anne Robert Jacques Turgot. Turgot’s presentation of rent theory was highly developed (expanding on Richard Cantillon), the basis for the Physiocratic proposal for the “impot unique” – the societal collection of the potential annual rental value of land and the elimination of all other taxation. Smith did not go this far in his exposition on rent, but he acknowledged the theoretical accuracy of the Physiocratic analysis.

[becauseitscurrentyear]

I think he skipped the part in wealth of nations where smith argues successfully that slavery is more costly than paid workers. and slavery 10 years later is first banned by his which was the foundation of the idea of capitalism, free interactions. and even sparked the moment to fight wars to end slavery around the world. Marxism was reactionary to that revolutionary innovation.

[tylermcfadden]

Has he ever debated an economist? Classical or Keynesian? I'd really like to see that.

[uuu]

what page in wealth of nations does Smith denounce 'division of labor'? please link it.

[barcode]

This is a quite extreme reading of Smith, whom is straightforward in his intention with regards to the "invisible hand" concept.

[lamwlw]

Nowadays, cannot do without division of labour, every subjects are so specialized, subspecialized, may be sub-subspecialized. If you are specialist, you know you are not even close to stupid. Had Prof. Chomsky ever involved in real life production in any industry ?

[anythgofnthg]

Chomsky is sooo important. Who will wear his crown?

[JuanMercado]

Now that we know of the correlation between more money and less empathy, the idea of a home bias is ridiculous.

[allenmoses]

Chimpsky, you are a linguist, stop having ridiculous views on everything under the sun.

[hairetikos]

Noam Chomsky commits the fatal flaw of thinking that he is in expert in all fields of political and economic science because he is an expert in the field of Linguistics.

[kulgan]

Chomsky doesnt really understand much about economy. So be careful about that. His economic analysis are very poor, unlike for instance Hayek.

[samiullahkhan]

Exposing the biggest fraud in economic philosophy

[johnathanvale]

Noam Chomsky is the kind if guy that goes into a particular field (in this case, linguistics) and then believes that he is now educated enough to go into a field that he knows absolutely nothing about. (In this case, economics) there is no reason to not be a laissez-faire capitalist in a practical sense. If anyone wants to argue with me, come at me bro 😏