Wealth Of Nations/Econ History jargon -- Adam Smith's 'control factor'?
March 28, 2015 11:18 AM   Subscribe

What was the control factor for the Laissez-fare capitalist system as proposed by Adam Smith in Wealth of Nations?

How was this control factor supposed to work? Why didn't it work?
posted by Rash to Grab Bag (9 answers total)
I'm certainly no expert, but I haven't heard the term "control factor" in this context before. Can you explain what you mean by the term?
posted by HoraceH at 12:56 PM on March 28, 2015

If you are thinking about "controls" of poverty or inequality, you have Smith's thinking quite on its head. He believed -- as do most serious economists even unto this day -- that free markets and competition were how one maximized total welfare, and that unfree markets and lack of competition so impoverished a society that it couldn't help but leave more individual poverty in its consequence. He would point to North Korea and South Korea and say "QED."

If you are speaking about bad capitalist behavior, well, that's precisely what Smith believed that free markets and competition tended to oppose. Sell your bread at too high a price, and another baker will come along to undercut you. Offer a farmer too low a price for his wheat, and another banker will come along to outbid you. He was also a fan of common law contract and tort litigation for aggrieved individuals to keep people honest and responsible. He recognized that were hard cases -- cartels and monopolists most famously -- but even then usually thought government intervention a cure worse than the disease.
posted by MattD at 1:11 PM on March 28, 2015

Yeah, "Adam Smith + 'control factor'" just doesn't compute.
posted by Cool Papa Bell at 1:44 PM on March 28, 2015

Do you mean "the invisible hand?"
posted by ZenMasterThis at 5:11 PM on March 28, 2015

Response by poster: I've no idea what 'control factor' means, hence the question. I'm guessing now that it's the professor's notion (just trying to help out a friend with her homework here). Possibly, he does mean the Invisible Hand (who I know best from Tom Tomorrow).
posted by Rash at 6:47 PM on March 28, 2015

I'd be happy to defer to someone who knows more about this, but I think you're probably right that it's a term invented by the professor ... sorry not to be more help!
posted by HoraceH at 9:59 PM on March 28, 2015

Yeah, that's the professor's jargon, not anything from either of Smith's major works.

Also, and not to confuse the issue too much (especially because your friend is getting—and presumably having to regurgitate—your prof's reading of AWON), but Adam Smith isn't actually enamored of "free markets," "laissez faire capitalism" or any of the other things that people often try to fob off on him. That tends to be a reading of those who haven't read him, or haven't read him closely.

The dude hates capitalists. Thinks they're the scum of the earth, really. They don't work for their money, but make money by means of money, which makes them essentially parasitical. His vision is a bunch of owner-producers, not a bunch of financiers and arbitragers. Reading AWON is a great corrective to what one hears about it, because it's so obviously not the capitalist bible that it gets discursively produced as.

Back on point: Adam Smith is enamored of the division of labor, which for him is best operationalized the operation of markets. The genius of markets is that we can get what we need regardless of whether other people actually like us. That often quoted (and misappropriated line) about how it is "not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest" (in I.2.2) is actually discussing the division of labor, not "rational self-interest" or capitalist exchange. The division of labor is beneficial irrespective of the motivations of those involved, not because they are self-interested; it is a statement of non-relation.

Anyway, that seems like a poorly written homework assignment. So just spit back out what the prof wants (whenever that becomes clear) and chalk it up to a less-than-clear class lesson.
posted by migrantology at 11:41 PM on March 28, 2015 [2 favorites]

Best answer: The professor is probably referring to either the concept of rational self interest or the invisible hand. The latter is only mentioned once in the Book II of Wealth of Nations, but the concept of rational self interest is referred to throughout the work, I so I'd begin by that and refer to the invisible hand at the end.

Contrary to the misguided interpretation above, in Book I Chapter II, Adam Smith develops his theories of the division of labor, wage, and rent on the foundation that human beings act rationally according to their self-interest, which as a consequence will form self-regulating laws that maintain the harmony of the market society without the need for intervention.

I would also look at Theory of Moral Sentiments to fully understand this concept of rational self interest as it is clearly different from Hobbsian atomism, for example. The professor' question about how it failed is too vague. Does he want your friend to use Marx's critique of political economy as a reference, or use contemporary examples?
posted by snufkin5 at 4:49 AM on March 29, 2015

Rational self-interest:

Book I
"Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods both at 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. They complain only of those of other people."
Chapter IX, p. 117.

Book I
"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 or 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."
Chapter X, Part II, p. 152.

"Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters."
Chapter X, Part II, p. 168.

Book V
"Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all."
Chapter I, Part II, 775.
posted by Mister Bijou at 7:52 AM on March 29, 2015

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