If political conservatives were to read the work of their economic mentor, Adam Smith, they’d be forced to apply the same Marxist label to Smith that they apply to President Obama. In fact, as the founder of free-market economic philosophy, propounded in his landmark 1776 book, An Inquiry into the Nature and Causes of the Wealth of Nations, Smith promoted progressive taxation of the rich more forcefully than our current president.
Here are Smith’s words from that book justifying higher tax rates for the rich: “The rich should contribute to the public expense, not only in proportion to their revenue, but something more than that proportion.”Denouncing vast differences in wealth and income, Smith praised a fellow economist’s tax proposal: “To remedy inequality of riches as much as possible, by relieving the poor and burdening the rich.”
In words almost as virulent as Karl Marx’s, Smith also expressed contempt for capitalists: “The interest of the dealers,” he wrote, “is always in some respects opposite to that of the public. To widen the market and to narrow the competition is always the interest of the dealers. To widen the market may frequently be agreeable enough to the public, but to narrow the competition must always be against it, and can only enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow citizens.”
Smith not only championed progressive taxation; he also advocated rigorous bank regulation. This may come as a surprise to the chief spokesman for the banking industry, JP Morgan Chase CEO Jamie Dimon, who displays his ignorance of Smith’s economic philosophy in his adamant opposition to bank regulation—notably in his recent denunciation of the Volcker rule, which would prohibit banks from gambling with taxpayers’ money. Dimon demands taxpayer-financed FDIC guarantees for bank deposits, despite the risk of banks gambling with depositors’ money. Bank regulation, according to Dimon and his ilk, constitutes a numerated intrusion into free-market enterprise.
Adam Smith demolishes this argument with an incontrovertible rebuttal: “Such regulation may, no doubt, be considered as in some respects a violation of natural liberty. But these exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are and ought to be restrained by … all governments. … The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulation of the banking trade which are proposed here.”
Here, again from The Wealth of Nations, is Smith’s argument for rigorous bank regulation: “Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart upon any occasion from those rules, is consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal to the banking company which attempts it.”
If former Federal Reserve Chairman Alan Greenspan had read Adam Smith instead of Ayn Rand’s Atlas Shrugged (a diatribe against all forms of government regulation), we would probably have avoided the catastrophic loss of 4.5 million jobs and a 2.7 percent decline in the 2008 GDP, a financial meltdown that continues to plague the U.S. economy. Republican anti-regulatory zealots nonetheless persist in their colossal ignorance of their presumed economic mentor.