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Adam Smith on Class and Productive and Unproductive Labour

Adam Smith developed a number of ideas which should be of interest to liberal class theorists. It must be remembered at all times that Smith believed that the pursuit of selfish interests, when not associated with political power but followed within the confines of the free market, improved the condition not only of the merchant but also society in general. This is the point of his invisible hand quotation which makes little sense of selfish interests are furthered by political power and privilege. Here is the invisible quote in full to remind us:

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

[From Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, edited with an Introduction, Notes, Marginal Summary and an Enlarged Index by Edwin Cannan (London: Methuen, 1904). Vol. 1. CHAPTER II: of restraints upon the importation from foreign countries of such goods as can be produced at home]

A point which would be worth pursuing at another time is the difference in his and Ferguson''s thought between the idea of "rank" and "class", and what leads to "corruption" (mere wealth however it is achieved, or the impoverishment brought about by too many parasitic groups sucking the lifeblood of society?).

With this distinction betwen the harmony and productivity of the free market and the unjust and unproductive activities of those who benefit from state privileges clearly understood, Smith is also aware that any group or individual, whether the poor, princes, the military, and even merchants, can conspire among themsleves and seek the power of the state to further their own interests at the expense of others - what he calls elsewhere the "corporation spirit" which is a holdover from the practices of medieval towns. He makes this explicit in a discussion of business and merchants who can conspire to achieve this purpose, in fact he asserts that it is inevitable:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

[From Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, edited with an Introduction, Notes, Marginal Summary and an Enlarged Index by Edwin Cannan (London: Methuen, 1904). Vol. 1. PART II.: Inequalities occasioned by the Policy of Europe]

What is also interesting about this passage is the idea that the law cannot and should not prevent such meetings and discussions and also that under no circumstances should the law facilitate this process. I presume he means by this the practice of the legislature and the courst to turning a blind eye to lobbyists and politicians passing legislation to benefit one group at the expence of others.

In his day, one of the great battles he fought was against the system of mercantilism in which particular producers and importers prevented, by means of state legislation, a policy of strict laissez-faire . Monopoly privileges were very common including such practices as import licences, forced trade in British owned ships, and outright prohibitions on some kinds of trade. This is a classic example of state privilege creating a class of individuals who had access to state power and used it to their advantage. This is what Smith had to say about this:

Country gentlemen and farmers, dispersed in different parts of the country, cannot so easily combine as merchants and manufacturers, who, being collected into towns, and accustomed to that exclusive corporation spirit which prevails in them, naturally endeavour to obtain against all their countrymen the same exclusive privilege which they generally possess against the inhabitants of their respective towns. They accordingly seem to have been the original inventors of those restraints upon the importation of foreign goods which secure to them the monopoly of the home-market. It was probably in imitation of them, and to put themselves upon a level with those who, they found, were disposed to oppress them, that the country gentlemen and farmers of Great Britain in so far forgot the generosity which is natural to their station as to demand the exclusive privilege of supplying their countrymen with corn and butcher’s-meat. They did not perhaps take time to consider how much less their interest could be affected by the freedom of trade than that of the people whose example they followed.

[From Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, edited with an Introduction, Notes, Marginal Summary and an Enlarged Index by Edwin Cannan (London: Methuen, 1904). Vol. 1. CHAPTER II: of restraints upon the importation from foreign countries of such goods as can be produced at home]

To show his disapproval of this monopolistsic behaviour, Smith goes so far as to call a governemnt of and by businessmen "the worst of all governments":

The small islands of St. Thomas and Santa Cruz are the only countries in the new world that have ever been possessed by the Danes. These little settlements too were under the government of an exclusive company, which had the sole right, both of purchasing the surplus produce of the colonists, and of supplying them with such goods of other countries as they wanted, and which, therefore, both in its purchases and sales, had not only the power of oppressing them, but the greatest temptation to do so. The government of an exclusive company of merchants, is, perhaps, the worst of all governments for any country whatever. It was not, however, able to stop altogether the progress of these colonies, though it rendered it more slow and languid. The late king of Denmark dissolved this company, and since that time the prosperity of these colonies has been very great.

[From Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. I and II, ed. R. H. Campbell and A. S. Skinner, vol. II of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981). CHAPTER VII: Of Colonies]

Smith was aware that the rise of the merchant class in his own time posed a serious risk to liberty if they were able to seized control of the state and use it for their own purposes. The example they had before them of course was the restrictive and explortative behaviour of the traditional wielders of power and privilege in the state, namely the aristocracy, the army, and the established church. A clue to the composition of the traditional elites could be found in the Civil List, the official list of individuals and groups who received official grants of tax money from the crown. In Lectures on Jurisprudence (1763) Smith states the following about the Civil List. The whole very long paragraph is interesting because he grapples with the idea of the national debt and interest payments as well as raising tax revenue. It shows how other powerful and wealthy individuals could become essential to the maintenance power of the king and how their wealth created independent centres of power which were able to resist the king:

The Civill List amounts in this reign to 800,000; in the last reign it was somewhat more; and in the preceding reign it amountd to about 700, which was somewhat greater than that in the two reigns preceding it. This summ is set appart for maintain<in>g the kings household and supporting the dignity of the crown, but might in the hands of more vigorous or ambitious princes give the king more authority than the constitution of the kingdom designed he should have. The other part which arises from the greatb taxes laid on the subjects, viz that on malt and that on land, whichc varies from 2 to four shillings | in the pound. These amount ordinarilly to something above 300,000£. They are set appart for maintain<in>g the marine and land forces, the fleet and army, for which they generally suffice in time of peace, extraordinary supplies being granted in the time of war. The 3d. part of the revenue is the funds mortgaged to pay the debts contracted in the present reigns. The creditors requird some security for this money. For this purpose fixed taxes have been introduced, and the revenue arising from them mortgaged for their payment. With <?this> the king can not meddle. It is paid into the offices of the exchequer where it is perfectly secure. The auditor and other officers of the exchequer are accountable for <it> to Parliament and must give in their discharges to it, none of which will be received except they be from the publick creditors appointed by Parliament. This part of the revenue can therefore give him no authority but as it gives him the disposall of some very profitable places. It strengthens also his interest against that of the Stuart family as thesed | creditors would, on their introduction, be cut out of both principall and interest. It is levied indeed by his officers but never comes into his hands, but goes (as I said <)> first to the exchequer and then to the creditors. There is generally a surplus in these taxes above what is necessary to pay the creditors interest to whom it is appropriated. This goes, being unnapropriated, into what is called the unappropriated or sinking fund; this the king can never come at. It is under the immediate direction and care of the auditors and other officers of the exchequer, who, as they are officers for life with very high salaries and are generally the first men in the kingdom, will not risque for any consideration the loosing of those offices by granting the use of it for other purposes than those to which it has been alotted. The Civill List is established indeed at the beginning of every reign, but givese in the present management no authority, as it is all expended on the luxury and magnificence of the court and the household of the king. | The other partf which isg revenue, viz that raised from land, excise, and customs, is alottedh for the fleets and the army and is granted from year to year. The mortgaged taxes are necessarily perpetuall; the Civill List for the life of the king; and the other part is occasionall,i which would therefore fall if the Parliament was not called. The funds for the support of the armies and fleets also depends on the grant of the Parliament; so that the whole of the government must be at an end if the Parliament was not regularly called. So far is the king from being able to govern the kingdom without the assistance of Parliament for 15 or 16 years, as Chas. 1st did, that he could not without giving offence to the whole nation by a step which would shock every one, maintain the government for one year without them, as he has no power of levying supplies. In this manner a system of | liberty has been established in England before the standing army was introduced; which as it was not the case in other countries, so it has not been ever establishd in them. The standing armies in usej in those countries put it into the power of the king to over rule the Senate, Diet, or other supreme or highest court of the nation.—The supreme power in legislation is here divided betwixt the king, Lords, and Commons. A law may begin in either House and be passed by the other. The king cant however interfere after the debate is begun and tell them that he dissaproves of such or such a debate, tho he may recommend one to their consideration before it has been consider’d. Money bills however can not begin anywhere but from the Commons. The Lords indeed have disputed this priviledge, but we see it has been possessed by the Commons for above 100 years. The Lords can only either assent to it simpliciter or refuse it simpliciter, but can not alter or add to it in any shape. The king has in all cases the power only of putting his assent or negative | to a bill, and the denying any bill that has passed both Houses, being altogether unpopular, has gone into dissuse. The king has always given his assent to every bill since Wm. 3ds time. Charles 2d was so sensible of it being altogether disagreable to the people that he never attempted it, tho he often used methods very low and mean, as the stalingk of a bill, etc.; the umbrage this would give, he thought, was less than that of plainly refusing it. The Civill List and the standing army are the only things which can any way endanger the liberty of the subjects. The Civill List is so considerable that in the hands of designing, vigorous, and ambitious princes it might give them an influence far superior to that which the dependance of a few officers about the palace can bestow. But customs of this sort are very difficulty changed by any prince.—The standing army might also without doubt be turned against the nation if the king had attained great influence with it. But there is one security here also. Many of the persons of chief rank and station in the army have also large estates of their own and are members of End of Volume Four of MS. | v.1 the House of Commons. They have in this manner an influence and power altogether independent of the king. It would never be their interest to join with the king in any design to inslave the nation, as no consideration he could bestow on them will be able to turn their interest to his side. So that however mercenary we should suppose them, those at least may be depended on who have a seat in the Parliament or offices depending on it.

[From Adam Smith, Lectures On Jurisprudence, ed. R.. L. Meek, D. D. Raphael and P. G. Stein, vol. V of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1982). Chapter: Tuesday. March. 8th. 1763]

Smith gives another hint about the kinds of groups which constituted an unproductive class which used the state to siphon wealth from the labour of other men and impoverished the nation. In this passage from the Wealth of Nations Smith explicitly mentions the "numerous and splendid court, a great ecclesiastical establishment, great fleets and armies". When one adds to this, conspiracies of businessmen and merchants in the mercantilist system, that about covers the ruling elite of his day:

Great nations are never impoverished by private, though they sometimes are by publick prodigality and misconduct. The whole, or almost the whole publick revenue, is in most countries employed in maintaining unproductive hands. Such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, great fleets and armies, who in time of peace produce nothing, and in time of war acquire nothing which can compensate the expence of maintaining them, even while the war lasts. Such people, as they themselves produce nothing, are all maintained by the produce of other men’s labour. When multiplied, therefore, to an unnecessary number, they may in a particular year consume so great a share of this produce, as not to leave a sufficiency for maintaining the productive labourers, who should reproduce it next year. The next year’s produce, therefore, will be less than that of the foregoing, and if the same disorder should continue, that of the third year will be still less than that of the second. Those unproductive hands, who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment.

[From Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations, Vol. I ed. R. H. Campbell and A. S. Skinner, vol. II of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1981). CHAPTER III: Of the Accumulation of Capital, or of productive and unproductive Labour]

Smith is not always clear sighted when it comes to the concept of "unproductive labour". For example he lumps into this category "slothful landlords" who, he argues, live off the productive labour of their peasants. A libertarian would find this objectionable if the landlord had justly acquired their landed property and were freely renting it out to tenants. The libertarian would not find this objectionable if the "slothful landlord" had acquired his land through military conquest, a state land grant, or some other unjust means. Smith unfortunately mixes the two kinds of property ownsership together and thus clouds the issue. Nevertheless, there are some interesting insights to be gleaned from this passage:

It cannot be very difficult to explain how it comes about that the rich and the powerful should, in a civilized society, be better provided with the conveniencies and necessaries of life than it is possible for any person to provide himself in a savage and solitary state.c It is very easy to conceive that the person who can at all times direct the labours of thousands to his own purposes, should be better provided with whatever he has occasion for than he who depends upon his own industry only. But how it comes about that the labourer | and the peasant should likewise be better provided is not perhaps so easily understood. In a civilized society the poor provide both for themselves and for the enormous luxury of their superiors. The rent which goes to support the vanity of the slothful landlord is all earnedd by the industry of the peasant. The monied man indulges himself in every sort of ignoble and sordid sensuality, at the expence of the merchant and the trades man to whom he lends out his stock at interest. All the indolent and frivolous retainers upon a court are, in the same manner, fed, cloathed, and lodged by the labour of those who pay the taxes which support them. Among savages, on the contrary, every individual enjoys the whole produce of his own industry. There are among them no landlords, no usurers, no taxgatherers. We might naturally expect, therefore, if experience did not demonstrate the contrary, that every individual among them should have a much greater affluence of the necessaries and conveniencies of life than can be possessed by the inferior ranks of people in a civilized society.

[From Adam Smith, Lectures On Jurisprudence, ed. R.. L. Meek, D. D. Raphael and P. G. Stein, vol. V of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1982). Chap. 2.: Of the nature and causes of public opulence.]

Smith shows the same confusion in the following passage from Lectures on Jurisprudence where he plays a thought experiment concerning the equal division of property in a society and ponders about those who work and do not work. What is intriguing is his refernce to "violence" and "the orderly oppression of law" to explain why some groups are better off than others:

What considerably increases this difficulty is the consideration that the labour of an hundred, or of an hundred thousand men, should seem to bear the same proportion to the support of an hundred or of an hundred thousand, which the labour of one bears to the support of one man. Supposing therefore that the produce of the labour of the multitude was to be equally and fairly divided, each individual, we should expect, could be little better provided for than the single person who laboured alone. But with regard to the produce of the labour of a great society there is never any such thing as a fair | and equal division. In a society of an hundred thousand families, there will perhaps be one hundred who don’t labour at all, and who yet, either by violence or by the more orderly oppression of law, employ a greater part of the labour of the society than any other ten thousand in it. The division of what remains, too, after this enormous defalcation, is by no means made in proportion to the labour of each individual. On the contrary those who labour most get least. The opulent merchant, who spends a great part of his time in luxury and entertainments, enjoys a much greater proportion of the profits of his traffic than all the clerks and accountants who do the business. These last, again, enjoying a great deal of leisure and suffering scarce any other hardship besides the confinement of attendance, enjoy a much greater share of the produce than three times an equal number of artizans, who, under their direction, labour much more severely and assiduously. The artizan, again, tho he works generally under cover, protected from the injuries of the weather, at his ease and assisted by the conveniency of innumerable machines, enjoys a much greater share than the poor labourer who has the soil and the seasons to struggle with, and who, while he affords the materials for supplying the luxury of all the other members of the common wealth, and bears, as it were, upon his shoulders the whole fabric of human society, seems himself to be pressed down below ground by the weight, and to be buried out of sight in the lowest foundations of the building. In the midst of so much oppressive inequality, in what manner shall we account for the superior affluence and abundance | commonly possessed even by this lowest and most despised member of civilized society, compared with what the most respected and active savage can attain to.

[From Adam Smith, Lectures On Jurisprudence, ed. R.. L. Meek, D. D. Raphael and P. G. Stein, vol. V of the Glasgow Edition of the Works and Correspondence of Adam Smith (Indianapolis: Liberty Fund, 1982). Chap. 2.: Of the nature and causes of public opulence.

Thus we can see that Smith is generally of the view that political privileges and the violence associated with them are the cause of much injustice and inquality in society, and thus opposes them. At the same time, he is confused about the nature of what he calls "oppressive inequality", attributing it sometmes to the result of the unjust use of state power and at other times to the operations of the market itself. Historians who wish to use Smith to develop their analysis of class theory need to proceed with caution and disentangle waht is sound from what is unsound in his approach.