The Skeptics Society & Skeptic magazine

Shermer and Oreskes discuss:

• What is a myth?
• market fundamentalism/market absolutism/market essentialism
• What is the myth of market magic?
• capitalism (economic system) and democracy (political system): democracy vs. tyranny, well-regulated capitalism vs. poorly regulated capitalism
• the U.S. Constitution and capitalism
• the early republic and what the founding fathers believed about markets
• what Adam Smith really said about markets and capitalism
• how economists rewrote Adam Smith and purged his theory of any role for government regulation of capitalism
• why markets need regulation in the same way sports need rules and referees
• rhetorical fallacies of market fundamentalists: slippery-slope, ad hominem, straw man, half truths, misrepresentations, denial of documented evidence, outright lies
• Keating-Owen and child labor laws
• 19^th century factory conditions: William Blake’s “dark Satanic Mills”
• Triangle Shirtwaist Factory fire of 1911, mine collapses, RR accidents etc.
• electricity markets
• The Great Depression and the New Deal
• banking and bank failures — Federal Deposit Insurance Corporation (FDIC)
• Sherman Anti-Trust Act of 1890, Theodore Roosevelt trust-buster
• Rose Wilder Lane, daughter of Laura Ingalls Wilder, author of Little House on the Prairie
• Ludwig von Mises, Friedrich Hayek, Milton Friedman
• religion and capitalism: Billy Graham, Normal Vincent Peale
• General Electric Theater, Ronald Reagan
• Conservative Think Tanks, Libertarian Think Tanks
• collective action problems and how they are solved in the real world.

Naomi Oreskes is Professor of the History of Science at Harvard University. Her opinion pieces have appeared in the New York Times, the Washington Post, the Los Angeles Times, and many other outlets. Her TED talk, “Why We Should Trust Scientists,” was viewed more than a million times. Erik M. Conway is a historian of science and technology and works for the California Institute of Technology. He is the author of seven books and dozens of articles and essays. Their new book is The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market.

About the Book

In their bestselling book Merchants of Doubt, Naomi Oreskes and Erik M. Conway revealed the origins of climate change denial. Now, they unfold the truth about another disastrous dogma: the “magic of the marketplace,” namely, the myth that free market capitalism can solve any and all social problems.

In the early 20^th century, business elites, trade associations, wealthy powerbrokers, and media allies set out to build a new American orthodoxy: down with “big government” and up with unfettered markets. With startling archival evidence, Oreskes and Conway document campaigns to rewrite textbooks, combat unions, and defend child labor. They detail the ploys that turned hardline economists Friedrich von Hayek and Milton Friedman into household names; recount the libertarian roots of the Little House on the Prairie books; and tune into the General Electric-sponsored TV show that beamed free-market doctrine to millions and launched Ronald Reagan’s political career.

By the 1970s, this propaganda was succeeding. Free market ideology would define the next half-century across Republican and Democratic administrations, giving us a housing crisis, the opioid scourge, climate destruction, and a baleful response to the COVID-19 pandemic. Only by understanding this history can we imagine a future where markets will serve, not stifle, democracy.

Note: Oreskes and Conway are not making the case for socialism or communism; rather, they make the case for regulated markets.

Notes on Adam Smith from Dr. Shermer’s 2008 book The Mind of the Market

It should be clear by now that Adam Smith was anything but blindly pro-business, as the myth shrouding his legacy would have us believe. Adam Smith was, in fact, quite skeptical of the base motives of producers. Throughout The Wealth of Nations, Smith criticized “factions”—groups of politically connected businessmen, bankers, tradesmen, and industrialists who turned to the government to do their bidding—because their formation constituted a power bloc that would serve the special interests of producers rather than the general interests of consumers: “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.”¹

Also contrary to myth, Smith did not argue that self-interest is always good. He believed that self-interest is a part of human nature (along with empathy and other pro-social sentiments) and is therefore not necessarily bad. But he never pulled his punches against those whom he perceived acted out of excessive greed and avarice, observing that “We are not ready to suspect any person of being defective in selfishness,” and warning that “all for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”

We must read both A Theory of Moral Sentiments and The Wealth of Nations. Smith’s theory holds that we have both virtues and vices, which interact and feed on one another, and whose relative expression depends on the social context. Mutually beneficial free exchange environments produce cooperativeness even while each party may be motivated by competitiveness. As long as there is no fraud or coercion in the exchange, buyers and sellers both win when they agree upon the reciprocally advantageous terms of the trade. The buyer selfishly values the seller’s product more than he does his money, and the seller greedily values the buyer’s money more than he does his product. As Smith explained in one of the most famous passages in The Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”²

By allowing people to follow their natural inclination to pursue their self-love, the country as a whole will prosper as a result, almost as if the entire system were being directed by a magical force. It is here where we find the one and only use in The Wealth of Nations of the most famous metaphor in Western thought:

Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. … He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

Smith was, in fact, a professor of moral philosophy at the University of Glasgow where he taught courses in jurisprudence, ethics, rhetoric, and political economy. His first major work was A Theory of Moral Sentiments, published in 1759, in which he laid the foundation for the theory that we have an innate sense of morality, as he explained in the opening sentences: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner.”

We sense someone else’s joy or agony through empathy—by putting ourselves in their shoes and imagining how we would feel: “As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation.”³ Out of our empathic nature comes the basis of a civil society—as we endeavor to assuage the distress we feel at others’ distress, we attenuate our negative emotions and accentuate our positive passions:

Upon these two different efforts, upon that of the spectator to enter into the sentiments of the person principally concerned, and upon that of the person principally concerned, to bring down his emotions to what the spectator can go along with, are founded two different sets of virtues. The soft, the gentle, the amiable virtues, the virtues of candid condescension and indulgent humanity, are founded upon the one: the great, the awful and respectable, the virtues of self-denial, of self-government, of that command of the passions which subjects all the movements of our nature to what our own dignity and honour, and the propriety of our own conduct require, take their origin from the other.⁴

A Theory of Moral Sentiments was followed in 1776 with Smith’s treatise on political economy which, in its full title, reveals it to be a grand work of science: An Inquiry into the Nature and Causes of the Wealth of Nations.

Adam Smith’s The Wealth of Nations was one long argument against the mercantilist system of protectionism and special privilege that in the short run may benefit producers but which in the long run harms consumers and thereby decreases the wealth of a nation. All such mercantilist practices benefit the producers, monopolists, and their government agents, while the people of the nation—the true source of a nation’s wealth—remain impoverished: “The wealth of a country consists, not of its gold and silver only, but in its lands, houses, and consumable goods of all different kinds.” Yet, “in the mercantile system, the interest of the consumer is almost always constantly sacrificed to that of the producer.”⁵

The solution? Hands off. Laissez Faire. Lift trade barriers and other restrictions on people’s economic freedoms and allow them to exchange as they see fit for themselves, both morally and practically. In other words, an economy should be consumer driven, not producer driven. For example, under the mercantilist zero-sum philosophy, cheaper foreign goods benefit consumers but they hurt domestic producers, so the government should impose protective trade tariffs to maintain the favorable balance of trade. But who is being protected by a protective tariff? Smith showed that, in principle, the mercantilist system only benefits a handful of producers while the great majority of consumers are further impoverished because they have to pay a higher price for foreign goods.

The growing of grapes in France, Smith noted, is much cheaper and more efficient than in the colder climes of home, for example, where “by means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland” but at a price thirty times greater than in France. “Would it be a reasonable law to prohibit the importation of all foreign wines, merely to encourage the making of claret and burgundy in Scotland?” Smith answered the question by invoking a deeper principle: “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them.”⁶

This is the central core of Smith’s economic theory: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.” The problem is that the system of mercantilism “seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.”

Even that icon of free market capitalism, President Ronald Reagan, compromised his principles in 1982 to protect the Harley-Davidson Motor Company when it was struggling to compete against Japanese motorcycle manufactures that were producing higher quality bikes at lower prices. Honda, Kawasaki, Yamaha, and Suzuki were routinely undercutting Harley-Davidson by $1500 to $2000 a bike in comparable models. A true defender of free market economics would have cheered this spectacular savings to American consumers. After all, what difference does it make to consumers who produces the products that they want? But on January 19, 1983, the International Trade Commission ruled that foreign motorcycle imports were a threat to domestic motorcycle manufacturers, and a 2-to-1 finding of injury was ruled on petition by Harley-Davidson, which complained that it could not compete with foreign motorcycle producers.⁷

On April 1, Reagan approved the ITC recommendation, explaining to Congress, “I have determined that import relief in this case is consistent with our national economic interest,” thereby raising the current tariff of 4.4 percent to 49.4 percent for a year, a ten-fold tax increase on foreign motorcycles that would have to be absorbed by American consumers. The protective tariff worked to help Harley-Davidson recover financially, but it was American motorcycle consumers who paid the price, not Japanese producers. As the ITC Chairman Alfred E. Eckes explained about his decision: “In the short run, price increases may have some adverse impact on consumers, but the domestic industry’s adjustment will have a positive long-term effect. The proposed relief will save domestic jobs and lead to increased domestic production of competitive motorcycles.”

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