Beth Baltzan in American Affairs:
Adam Smith is often considered a libertarian icon. For that, we have Milton Friedman to thank, at least in part. Unlike the more balanced take of his Chicago School predecessors, Friedman portrayed Smith as something of a free market extremist. Friedman’s approach sparked a counterattack by scholars determined to reclaim the nuance in Smith’s ideas, and the effort to correct the record continues to this day.
Still, as we approach the 250th anniversary of the publication of Smith’s The Wealth of Nations, there remains one area in which a misunderstanding of his work persists: international trade. Friedman, perhaps the most influential economist of the second half of the twentieth century, included trade in his caricature of Smith.4 But Friedman’s rendition is flawed at its core because it ignores the real basis for Smith’s antipathy to mercantilism. Smith takes issue not with tariffs per se but with tariffs as a tool of monopoly. To Smith, the interests of the monopolist are at odds with those of the general public. He sides with the public.
The Chicago School approach, in both antitrust and trade, focuses almost exclusively on benefits to the consumer. Smith cared about the effects of monopoly rents on prices, but he saw the public as more than merely a mass of consumers longing for cheap stuff. His political economy is broader than that. It’s about power. When monopolists have too much of it, the public suffers. Smith’s free trade is not freedom from tariffs; it’s freedom from monopolists.
Unfortunately, even today, the Friedman-esque focus on the consumer reigns supreme in trade policy. Yet this myopic emphasis on consumers ended up paving the way for the “the spirit of monopoly” to reenter the trading system, even facilitating the rise of a powerful and aggressive neomercantilist state. This was the opposite of what Smith wanted.
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