Tuesday, April 25, 2006

A Recipe for Poverty

A larger income creates an aspirational staircase forever spiralling upwards, where all that counts is being on a higher rung than other people, and from where the fall, when it comes, will be desperately painful. As Adam Smith remarked, a long time previously, we suffer more when we fall from a better to a worse situation than we ever enjoy when we rise from a worse to a better. As Adam Smith remarked, a long time previously, we suffer more when we fall from a better to a worse situation than we ever enjoy when we rise from a worse to a better.” Melanie Reid, ‘A rich doctor who knows when enough is enough’, The Herald (25 April).

Melanie Reed’s article is promoted by the news this week of a General practitioner (GP) in a remote island community off the west-coast of Scotland having the highest earnings (£500,000) for medical doctors in the UK, up from his earlier pay of £50,000.

Her reference to Adam Smith’s various views on individual wealth and the efforts to attain it should be placed in context. Scotland in Smith’s day was a largely poverty stricken place with vast disparities in income and the bulk of the population living in destitution. Smith’s personal conduct like David Hume’s was to live frugally and to advise of the benefits of being so. It suited him and it had unintentional consequences too, of which he approved.

Frugality, not prodigality, drove the economy towards affluence because it provided the savings that were put to productive work by those who produced the food and manufactures that fed and clothed, etc., the lowest income earners. Smith also was not careless about looking after his means of acquiring the wherewithal to be frugal!

He received an income of over £40 a year (1740-46) while a student at the University of Oxford, which he continued to claim for three years until he resigned his Snell Exhibition in 1749 and studied at home (the original distance learner?). He earned £100 a year delivering a series of public lectures on moral philosophy, rhetoric and jurisprudence in Edinburgh (1749-52). His income at the University of Glasgow (1752-63) as a professor was about £300 a year, partly by salary and partly by students’ fees, plus a rent free house. On his return from his tour of France (1764-66) with the young Duke of Buccleugh he was awarded a life pension of £300 a year by the Duke’s stepfather, Charles Townshend (Chancellor of the Exchequer). In 1778 he became a Commissioner of Customs for Scotland, worth about £600 a year until he demitted office in 1790 a few months before he died.

These were affluent wages for the 18th century. Bear in mind there were no pensions, except savings, once you stopped work, which for poor labourers meant they were in absolute poverty. However, Smith is also an example of what any well-off person who believe they earn too much income can do about it, besides exhibiting the angst of Melanie Reid: they can give their surplus income above what they feel is enough for them away to whomsoever they consider more worthy.

Smith did just that: when he was appointed a Scottish Commissioner of Customs, he sent his life pension bond worth £300 a year back to the Duke of Bucceugh’s factor and asked that it be cancelled. The Duke returned it, somewhat angrily, as the termination of a life promise would reflect badly on him. So Smith did as he always hinted was appropriate: he gave to needy relatives and anonymous other beneficiaries throughout his life almost all his income, leaving a paltry £400 in cash in his estate on death, and all his books and other fixtures and equipage to his heir who had lived in his household in Edinburgh for over twenty years. If being rich is burden, the rich can unburden themselves by living frugally and either give to charity or invest in activities that benefit others. Both are commendable duties in Smith’s moral continuum.

In Book I of Wealth of Nations’, Smith brings out this last point clearly:

But when by the improvement and cultivation of land the labour of one family can provide food for two, the labour of half the society becomes sufficient to provide food for the whole. The other half, therefore, or at least the greater part of them, can be employed in providing other things, or in satisfying the other want and fancies of mankind. Cloathing and lodging, the household furniture, and what is called Equipage, are the principal objects of the greater part of those wants and fancies. The rich man consumes no more food than his poor neighbour. It quality it may be very different, and to select and prepare it may require more labour and art; but in quantity it is very nearly the same. But compare the spacious palace and great wardrobe of the one, with the hovel and a few rags of the other, and you will be sensible that the difference between their cloathing, lodging and household furniture, is almost as great in quantity as it is in quality. The desire for food is limited in every man by the narrow capacity for the human stomach; but the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to have no limit or certain boundary. Those, therefore, who have the command of more food than they themselves can consume are always willing to exchange the surplus, or what is the same thing, the price of it, for gratifications of this other kind. What is over and above satisfying the limited desire, is given for the amusement of those desires which cannot be satisfied, but to be altogether endless.” [WN Ixi.c.7: pp 180-1]

For Melanie Reid, and the others she quotes, should contemplate that it is the increase in agricultural production, suited to satisfy the needs of each peasant household in the egalitarian vision, that the production of non-agricultural items, using surplus unemployed labour, destitute of land and the wherewithal to feed their families, a common enough experience in the unemployed in poverty stricken parts of the world, and all too graphically portrayed when drought, war and famine reach our tv screens, that is the key to a modicum of wealth creation. When unemployed people can obtain work in manufacturers of clothes, household goods and equipage, and later, in the supply of ‘amusement ‘and other ‘gratifications’, that a society moves from hopeless poverty towards opulence.

This is necessarily accompanied by great inequalities in incomes, which if it bothers the consciences of those with the wherewithal, they ease these concerns by either giving some of theirs to those without directly or by investing it with charities that create wealth creating activities or by placing their savings in investments that create the jobs for those without to improve themselves. Artificially restricting incomes to some figure (£8,000!) is a sure route to driving living standards and absolute poverty levels back to what we can see in poorer countries today.

[Read Melanie Reid: http://www.theherald.co.uk/features/60712.html]


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