The Creator of Capitalism and his 240-Year-Old Warning on the Danger of Corporations

You can leave Marx, Bakunin and Chomsky alone for now: One of the most clear reproaches of the power of corporations comes from the person credited with creating the theory of modern [capitalist] economics. Contrary to popular understanding, In 1776 Adam Smith clearly argued that incorporated industry is a danger to the people and a cancer to the “wealth of nations.”

Most high school and college students are familiar with first paragraphs of Adam Smith’s classic “The Wealth of Nations” in which he extols division of labour, but conveniently left out of the curriculum is his idea that it forces people into work that makes them “as stupid and ignorant as it is possible for a human creature to become.” The contrast between the two Adam Smiths; the dumbed-down mascot of capitalism and the true economist, is reified by the absence of his scathing condemnation of corporations from popular curriculum and consciousness.

“They are silent with regard to the pernicious effects of their own gains.”

The 18th century champion of capitalism vehemently warns that the unique qualities of incorporated industries would threaten the balance of civil society. The “exclusive privileges” of corporations warp the “natural” distribution of capital between the wages of labour, rent of land and the profit of stock. Here are a few points he makes to explain how and why this works…

“The masters, being fewer in number, can combine much more easily [than] the workmen.”

  1. “The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments (profits) greatly above the natural rate.
    1. But what kind of capitalist despises excessive profit, you ask? Smith explains that “in reality, high profits tend much more to raise the price of work than high wages … [in that] the rise of wages operates in the same manner as a simple interest does in the accumulation of debt [whereas] the rise of profit operates like a compound interest. Corporations, says Smith, like to “complain much of the bad effects of high waged in raising the price, and thereby lessening the sale of their goods at both home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains.”
  2. “Corporation laws enable the inhabitants of towns to raise their prices, without fearing to be undersold by the free competition of their own countrymen.”
    1. Thus a corporation also prevents the free flow of labour from one industry to another which would have occurred naturally in the absence of its by-laws.
  3. “In all disputes [between masters and workers] the masters can hold out much longer” by subsisting off of the stock they have already accumulated.
  4. The interests of corporations, unlike those of labourers, landlords and unincorporated merchants, is not strictly tied to the wealth of the nation.
    1. “…to widen the market and to narrow the competition is always in the interest of the dealers. To widen the market may frequently be agreeable enough to the interests of the public, but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profit above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.”

“…they have become formidable to the government, and upon many occasions intimidate the legislature.”

So we see that by manipulating what Smith calls the “natural” relationship between the price of goods, labour and the rent of land, corporations acting in their own interest (as stated which, unlike those of labourers, are partially de-coupled from the interests of society as a whole) threaten the health of the different arms society and thereby threaten also the sustainable growth of the economy itself. In this system, the labourers and land-lords are stretched more thin than they would be in their “natural” state while the expanding corporations slowly overtake the wealth of the international market. The blood of the market begins to flow more and more exclusively through the heart of the burgeoning corporations while anemia spreads through the shrinking veins of the labour upon which parasite gains its sustenance.

Intimidating the Legislative Branch

Adam Smith’s connection between the unique power of corporations to their propensity to corruption helps to clarify the rhetoric in this year’s Presidential election surrounding the “power of money in politics.” By following the infringement on free trade by corporate industry to its logical conclusion, it is natural to suggest that such interests would be forced into imposing secondary measures of control to sustain itself against backlash directed against its hegemony.

Adam Smith explains that the opulent minority will naturally respond to any threat to its power by employing part of its stock to lobby governmental bodies to pass measures which preserve their interests. Or in other words, the energy used to attack corporate power will be re-directed toward measures to protect itself. In Smith’s own his own words:

“To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the public, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; were the former to animate their soldiers, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.”

“…to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us”

Conclusion

The natural consequences of corporate behavior including the systematic exploitation of the working class have been concealed by the myth of generalized neoliberal prosperity. The strength of this lie is limited by the ability of the ruling class to indoctrinate the masses and internalize their values. As always, when the masses answer the demand to rise against their oppressors, the “tyrants will flee like a dream’s dim imagery”*

The most powerful weapon against any centralized power is today the same as it has always been: Organization. It’s no mistake that the culture has replaced for us community for individual competition. Rivers of resources exit ecosystems and rural and local communities and flow into the pockets of transnational corporations which operate in concert to under-cut local procurement and control resources. We have submitted the value of the faculty of our attention to be led into veritable cells fixed to screens which train us to be professional consumers competing for endless commodities like animals fighting over scraps that fall off the table of our gluttonous masters. Focused on our own petty gains against our brethren and neighbors we let them infiltrate our liberty and our democracy like a negligent farmer lets his crops be stifled by the overgrowth of noxious weeds.

In “the land of the free” corporations systematically limit our choices by designing for itself an economic environment in which men and women must perform menial tasks divorced from the meaningful relationship between the nature and fruits of their labour. No witch hunt is required because we can understand that the shift of corporate power from the economy to government fits within the logical frame-work of laissez-faire economics, and it is because these effects are predictable that any policy regulating industry or trade must be examined with the utmost suspicion and by those of us who rent themselves in service to unaccountable private power.

In conclusion, those who argue in favor of corporate industry; the ostensible “job creators” of society, have not only left-wing theorists to contend with: Their beef is with the revered “Father of Capitalism” himself, and he was not in the least bit ambiguous on the matter.

*From Percy Bysshe Shelley’s poem “The Masque of Anarchy” composed when in Italy he heard news of fifteen dead and hundreds injured during the Peterloo Massacre in Manchester, England, August 16th, 1988.

Source

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Chicago: Encyclopædia Britannica, 1955. Print.

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