What Adam Smith Got Wrong
Posted by Marc Hodak on October 26, 2007 under Self-promotion | 
2 Comments to Read
Forbes added the first and last line of this article. The rest was (mostly) what I wrote last weekend. For those of you taking my “History of Scandal” class, this is your first reading. Enjoy!
Gavin Kennedy said,
Hi
I have criticised your interpretation of Adam Smith on the chartered trading companies in the Forbes’ article on my blog http://www.adamsmithslostlegacy.com
It is too long to insert here but briefly you have taken Smith’s critcique of the trading companies,paricularly the East India Company which was part of his critricism of mercantile political economy and applied that to joint stock companies generally. There problem was their trading monopolies and they were ran by thieves.
He supported joint-stock company structures when they had no monopoly rghts (Bank of Scotland, Royal Bank of Scotland, and the Bank of England) and for public works that facilitated commerce, such as canals.
If merchants needed a monopoly to start up their trade he conceded that a temporary, strictly limited local monopoly might be considered. The East Inida Company was founded in 1600 and was 183 years old when he added that section (Book V) to Wealth of Nations, and lasted until the late 19th century.
You cannot legitmately implant his views into the 19th-21st centuries.
M. Hodak said,
Gavin,
I appreciate that Smith was particularly critical of particular trading companies, but the WON passage I cited was a general critique of agency costs (though he didn’t use that term), and explicitly was not meant to exempt any corporation, with or without “an exclusive privilege.” That’s what he said, and what he meant.
Far from implanting his views on later centuries, I tried to explain what has changed since his time by way of explaining the reasonableness of his views in his time. It seems you’ve interpreted this piece as an attack on Smith, which it was not.