Thursday, December 29, 2005

Wealth Creation is the Main Antidote to Poverty

An angry reader of the Dallas Observer reacts to news that the authorities are to embark on a campaign to drive out the “trailer trash” in East Dallas, Texas, and writes to the Dallas a sharp rebuke and side-swipe at Adam Smith. This is an example of the damage done to the moral philosopher’s reputation by those who purloined his legacy (read it at:

Trailer-Park Blues

Out of sight, out of mind: There's a deeper issue behind the East Dallas campaign to drive out the "trailer trash" ("Board of Scrooges," by Jim Schutze, December 21), and it's one that exposes what is probably capitalism's most grievous flaw and one that may ultimately prove fatal to this kind of economic system. Adam Smith, the great capitalistic theorist, thought he had the problem hammered in "A Theory of Moral Sentiments" (along with Smith's The Wealth of Nations, one of the bibles of capitalism). Smith argued that the wealthy will always take care of the poor because their consciences won't be able to weather the discomfort of routinely seeing real want and deprivation up close. What Smith couldn't know is how effective the rich and the reasonably well off would become at avoiding anyone in poverty or genuinely modest circumstances. Call it the cocooning of the privileged. This isolation of sensitivities and sensibilities is achieved by such means as gated communities, megachurches, gerrymandering the homeless--and, of course, banishing the trailer trash. Too bad Adam Smith isn't around today; a sensitive soul in many ways, he'd probably be hard at work on a book titled "A Theory of Moral Wealth."
Dudley Lynch

Now Mr Dudley Lynch is better informed about Adam Smith than your average person, but his information about Adam Smith must have come from an unreliable source.

Smith was not ‘the great capitalistic theorist’ and neither were his books on Moral Sentiments and Wealth of Nations in any shape or form ‘bibles of capitalism’ or bibles anything else. Those who have conflated Smith into an exponent of capitalism have him into the 19th century and not the 18th century. Even the word ‘capitalism’ was unknown in usage until 1854.

Mr Lynch may be right that people ought to take care of the poor, but whether Smith ‘argued that the wealthy will always take care of the poor because their consciences won't be able to weather the discomfort of routinely seeing real want and deprivation up close’, I am not convinced. Smith favoured a form of distributive justice, something unique in philosophy up to then.

Long before capitalism appeared on Earth the entire experience of humanity was one of abject poverty and deprivation. I think it was Tim Worstall who pointed out in his Blog recently that the dreadful condition of Africa is roughly how it was for all humanity for much of the history of the human race. As a scientific analogy it may be unreliable, but it captures an important point when we discuss poverty today (nobody is arguing, least of all Dudley Lynch, that the so-called Trailer Trash of Texas are living with lower per capita income than the majority of Africans).

Poverty is the absence of wealth and the creation of wealth is its only antidote. And I do not mean the absence of money by the absence of wealth. Money is a short-term fix for alleviating poverty. It is not a sustainable policy. Taking all the wealth from the ultra-rich (of which Texas abounds) from the entire world and handing it to the people of Africa, let alone the rest of the world, would serve no useful purpose on two counts: it would simultaneously ensure that the world’s wealth – the annual output of the wealth creating process – would begin to cease to be produced and, the knock-on effects rippling outwards into the wealth of the modest rich and then the almost rich, and on downwards through the income ranges, everybody would soon become as poor as the poorest Africans, with no hope for anybody of climbing back out of poverty.

My second count is that redistributing all the wealth of the world of all the people above average world income would not make much difference to the deprivation of those below average incomes. If these two counts are unbelievable, sceptics might ask themselves how long did it take for a section of the human race to climb out of the poverty experienced by everybody else for thousands of years before the appearance of capitalism in the 19th century?

Hence, for thousands of years the observation of poverty was the norm, not the exception. Kings, Emperors, Warlords and Princes were separated from the abject poor by armed men and they held more than an aversion to having desperately poor people nearby – they held the power of life and death over anybody they chose to chastise for whim, fancy or just for the hell of it. The idea that they ‘took care’ of the poor is a selective quotation from those who preached that they should do so – who were then mostly put to death for their pains.
Dudley Lynch asserts: ‘What Smith couldn't know is how effective the rich and the reasonably well off would become at avoiding anyone in poverty or genuinely modest circumstances.’

The ‘rich and reasonably well-off’ have families and it is from within the families that these sentiments were occasionally practiced. I have commented elsewhere that the anti-poverty campaigns are peopled by the sons and daughters of the rich, not the very poor. But the drivers of the rich (the rulers of mankind, not their sometimes wayward children), with few exceptions, have always ‘avoiding anyone in poverty or genuinely modest circumstances.’

There is a large and longstanding literary tradition that writes about these practices. People in ‘poverty and in genuinely modest circumstances’ did not wander at will into what for most of human history passed for ‘palaces’ (often not much cleaner than their subjects’ hovels) and helped themselves to an audience with the ‘prince’. They were kept out by armed guards, who were not subject to a Geneva Convention, and kept back by aggressive-minded guards when the King and his retinue passed through the country, doing whatever took their fancy, including destroying the living areas of what passed for Trailer Trash in their times, beating up anybody they took a dislike to and raping any women or girl they felt like.

Mr Dudley Lynch should wake up to the reality of human history. There has always been the equivalent of “gated communities, megachurches, gerrymandering the homeless’ and, of course, campaigns to banish the trailer trash. Mr Lynch’s Irish ancestors could have told him a lot about the whippings, transportation to the American colonies, and even hangings for those of his predecessors who were caught on or near the Lord’s land with poached game in their possession.

Adam Smith (his mother’s family were landowners and gentlemen farmers in Scotland) observed the predicament of common labourers in mid-18th -century Scotland (and those totally without paid work below them). His insight was to notice the almost imperceptible rise in real incomes underway for over 100 years in Britain and to study how this secular trend, despite all its imperfections, mal-distributed gains and selfish rapacity of the very rich, was a solution to the problem and not the cause, as seen by the ‘Dudley Lynch’ types of his day, usually of a sanctimonious disposition too.

Smith did not rush out with a manifesto and a call to arms. He studied current events in an historical context. He did not afford the luxury of a narrow vision. He wrote Moral Sentiments first, but taught its contents and his political economy and jurisprudence alongside each other from 1748 to1764, and wrote Wealth of Nations later, as he refined his concepts and validated his conclusions. He saw the need to understand what was going on around him and to make his conclusions known to a wider audience, so that they, in their own way and in their own time, and with all their prejudices and foibles he recognised without him becoming depressed, would follow their inclinations and without planning or coercion, gradually lift humanity out of the vicious spiral of endless tyranny and deprivation.

What he reported was truly momentous, namely that the course of events was gradually lifting the world he knew out of the dark ages of perpetual poverty. If this continued, then the common labourer and his family would attain the living standards they sought above mere subsistence. They were already way ahead of the living standards of the richest ‘African Prince’, who had the lives of '10,000 naked savages' at his disposal. What he could not foresee – he had no idea of the pending industrial revolution, the surge in technology, and the evolution of an entirely new economic mode, later called capitalism – was that the unprecedented rise in per capita income that accompanied these developments would set ever new standards in living standards, longevity, health and education, with each generation reaching new heights materially compared to their grandparents.

Of course, it could all revert to past norms of human civilisation and that is why he believed in quiet gradualism.

In all this there are no signs that he believed that the constants of human nature would change much, despite the massive improvement in living conditions. In one reported conversation with Samuel Rogers, a poet, in 1789, Smith, in a discussion in his ‘social hours’, referred to Ann-Robert Turgot, the French économiste, whom he described as ‘an excellent, absolutely honest, and well intended person, who was not well versed in human nature with all its selfishness, stupidity, and prejudice’ (Ian Ross, The Life of Adam Smith, page 399).

Adam Smith was never naïve or blind to what went on around him, nor to what others would or could do about it.


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