The misinterpretation of Adam Smith

The disciples of Adam Smith seem to have swallowed completely the economic orthodoxy which views the public sector as a fetter upon the private sector. Private sector jobs are by definition proper jobs contributing to the wealth of the country, whilst the public sector drains wealth from society.

This is a travesty of Smith’s views. This crude ideological orthodoxy is contributing to the decline in the wealth of the country.

The crucial distinction for Smith was between productive and non-productive occupations. not between the public and the private sector. Many occupations are unproductive because their work “in the very instant of their performance” leaves no trace or value behind. He includes lawyers and opera-singers in this category. We could probably include bankers, restaurants and car-clamping companies as well.

Some unproductive occupations are, for Smith, “important”, some are “frivolous”. No doubt he would have classed doctors, nurses, teachers and carers as important, whilst gambling casinos, premiership football and night clubs would have been on the frivolous side.

Smith believed in the public sector. Public institutions and public works for him are often “in the highest degree advantageous to a great society”. They are of such a nature that “profit could never repay the expense” and no individual or individuals should be expected to maintain them.

Lately, we have had governments which clearly think profit can be contrived to be made out of any public service.