(Jonathan Schlefer’s article can be found on the World Wide Web at www.theatlantic.com/issues/98mar/misquote.htm.)

We should have an annual awards event called the “Economic Bloopers Bash.” Straight-thinking economists and others could be entertained by dramatic renderings of allegedly serious articles, official documents, and broadcasts issued during the previous twelve months. The uproar from the audience would be deafening! Not only is economic asininity abundant, but much of it is so rich in misunderstanding that it serves as excellent intellectual slapstick.

As with most awards ceremonies, the Economics Bloopers Bash would feature different categories of awards—for example, the award for “Silliest Government Regulation”; the award for “Wackiest Editorial by a Major Newspaper”; and the “Bobbing Anchor Prize,” awarded to the network news host who utters the year’s stupidest on-air line. Competition would be stiff, but dedicated judges would settle on winners in each category.

Alas, economists are busy people—too busy to attend such an awards ceremony. So, instead, The Freeman will occasionally feature a critical analysis of a recent piece of popular economic writing. Our aim is not to criticize for the sake of criticizing. Rather, by exposing the flaws that mar much of what passes today for economic journalism, we hope to inspire in readers a more critical stance toward what is advanced as economic information by newspapers, magazines, television, and radio.

Our inaugural column examines Jonathan Schlefer’s bizarre essay “Today’s Most Mischievous Misquotation,” appearing in the March 1998 issue of The Atlantic Monthly. In less than three pages, Schlefer, former editor of Technology Review, argues (among other wrongheaded things) that (1) Adam Smith was no great friend of free trade; (2) Smith believed that the interests of business people generally conflict with those of the public; (3) Smith would have opposed privatization of government services; and (4) free trade and colonialism are largely identical.

If Schlefer’s portrayal of Smith as a mixed-economy enthusiast were accurate, it would indeed be a colossal blow to the cause of free markets. After all, discovering that Adam Smith was really nothing more than the Richard Gephardt of eighteenth-century Scotland would surely spawn malignant doubts about the entire edifice of classical-liberal scholarship.

Fortunately, Schlefer’s Smith is a phantasm.

Let’s examine each of Schlefer’s contentions in turn. First, he claimed that Adam Smith really was no great free trader. Schlefer’s evidence for this astonishing claim is that Smith’s famous mention of the invisible hand occurs in a passage from The Wealth of Nations which argues that among the benefits is that (in Schlefer’s words) “entrepreneurs . . . invest at home rather than abroad.”

Smith does indeed argue that, all other things equal, entrepreneurs will tend to invest at home. Investors prefer to keep personal tabs on how their investments are employed. And investments close to home can more easily be monitored than can investments made in faraway lands. Smith also said that domestic investments directly create more employment at home than do investments in foreign countries. He reasoned that profits from domestic investment are more quickly realized than are profits from investments made abroad. Therefore, to the extent that the reinvestment of profits creates jobs, they will be created quicker from investment at home.

But as a Generation-Xer would snidely ask, “Sooooooooo?”

Nothing that Smith said qualified his endorsement of free trade. Free trade has long been accused of “shipping jobs abroad.” Smith took pains to show that this accusation is false. But he also argued that profitable investment opportunities at home will not remain unexploited.

Therefore, Schlefer’s assertion that Smith praised the invisible hand only insofar as it promoted domestic investment is mistaken. It is no less ludicrous than inferring from Milton Friedman’s claim that the free market would supply good postal service that Friedman supports the free market only insofar as it supplies good postal service.

Schlefer is wrong also to claim that Smith believed that the interests of “large capitalists” and of the public are generally in conflict. Where Schlefer gets this notion is anybody’s guess.

Perhaps Schlefer assumes that Smith’s opposition to government-sponsored monopolies means that Smith saw capitalists as the natural enemy of the public. If this is the source of Schlefer’s take on Smith, then Schlefer should consult a dictionary on the difference between “competition” and “monopoly.” Smith knew the difference; his 1776 book is a long treatise explaining why the wealth of nations is increased by capitalists unaided by government-granted privileges and decreased by capitalists protected by such privileges. Here’s a selection from Smith on the subject:

Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.

We leave it for the reader to determine whether Smith saw the interests of capitalists, large or small, as being necessarily at odds with those of the public.

Another peculiar inference drawn by Schlefer from Smith’s opposition to government-protected monopolies is that Smith would oppose privatization! Smith did indeed detest government-protected monopolies such as the Dutch East India Company—but he detested them not because they were private companies but because they were monopolies. Schlefer’s persistence in equating “capitalist” with “monopolist” prevents him from understanding not only Smith, but economics in general.

Schlefer’s misunderstandings extend far beyond misreading Adam Smith’s text. Consider what Schlefer says in response to Smith’s opposition to colonial wars waged “for the purpose of raising up a nation of customers.” Schlefer says, “He raised a point that we might at least consider: is our globalization just a new mercantilism?”

By what logic is expanded free trade equivalent to mercantilism in general or to colonial wars in particular? Mercantilism’s essence is the threat by government to restrain its citizens (with violence, if necessary) from dealing voluntarily with foreigners on terms disapproved by the government. In short, mercantilism is founded on government force.

In contrast, globalization results when people are free to trade peacefully with residents of other countries. Global free trade is founded on peace. With free trade, firms certainly do try to win foreign customers—but they do so only by offering attractive products at attractive prices. To equate this peaceful and productive means of gaining customers with mercantilism’s reliance on warships and armies is to display a breathtaking inability to make distinctions. Global free trade has no more in common with mercantilism than the Waldorf-Astoria Hotel has with a Soviet gulag. People eat and sleep in both, but would Schlefer find accommodations in one comparable to accommodations in the other?

To nearly everything Jonathan Schlefer writes in his March 1998 piece in The Atlantic Monthly, we say “It just ain’t so!”