Friday, October 27, 2006

Michael DeGoyer's Rightful Claim to the October Lost Legacy Prize for Accurate Presentation of Adam Smith's Views

Occasionally, but not often enough, we get a piece that gets close to Adam Smith’s actual views on government – Kirkcaldy Smith not the Chicago version – and it is a pleasure to read them.

One such is an unpretentious article’, “In praise of action man” by Michael De Golyer, 26 October, in ‘The Standard’ (China’s Business Newspaper).

The concept of limited government goes back to political philosopher John Locke. Adam Smith conducted an extensive study of how the concept, applied to trade and industry, led to growth while traditional forms of government- granted monopoly and industrial proscriptions bred economic stagnation.

Smith, the first economist worthy of the name, did not say government had no responsibilities. He did not believe that government is best which governs least. That was Thomas Paine, the anarchist.

Small and inactive were not Smith's descriptors for good governance.
Smith stipulated three areas in which government must act. National security came first. No business could prepare a nation to meet military threats. No business could compel taxes or command people to risk their lives in battle.
That was the citizen-dominated state's unique responsibility.

The state must also run the system of justice that made and enforced the law, Smith argued. The main purpose of the system of justice was to ensure the security of property and the person. Without state-enforced property rights, both in real property and in the property of one's body and mind, there could be no incentive for individuals to invent, risk wealth, save money, or build.
Simply put, the state must ensure external and internal security of a citizen's life, liberty, and property.

And, Smith held, the state must assume projects necessary to the advancement of society and the economy, which were costly beyond the ability of a company to afford or the time frame of investors to expect profits to repay.
The cost of education exceeded the ability of most to pay, Smith asserted. Given life expectancies in the Thirties, average family sizes of six or more children, and child mortality rates in the most advanced societies of well over a hundred out of every thousand born, no wonder so few got so little education before the state stepped in.

Public health in cities required water and sewer construction and maintenance far beyond the ability of individuals to afford. Nor could businesses expect payback for costs of these facilities in a time frame reasonable to investors as well as affordable to customers.

Small government does not Smithian government make.

This is where the economic laureates' preference for the phrase "positive non-intervention" comes in. It means government acts where business cannot and should not.

Business cannot run courts and incarcerate law-breakers. It cannot take on the full costs of providing education for all citizens, whatever their ability to pay. It cannot make infrastructural investments that require enormous initial outlays and/or take 30 years or more to repay.

But it also means government positively acts to remove barriers to and constraints upon markets. Government has the unique responsibility of protecting and extending market dynamics whenever possible, particularly as technologies and economies change.

What is affordable only to government may and does change.

Further, under positive non-interventionism a government does not substitute its own judgment for that of competitive markets. Regulations and taxes are fully vetted for their effect on markets.
Government positively seeks out impediments to markets which intervene in their functioning.

The objective is to ensure that market dynamics - producer supply and consumer demand - interact without one or the other having a government- conferred artificial advantage or disadvantage.

This is the essential meaning of justice, a responsibility Smith argued as solely government's. That is why comprehensive, enforceable competition legislation exemplifies true positive non-intervention.”

Good, eh? It's brilliant! Note his second sentence:

Adam Smith conducted an extensive study of how the concept, applied to trade and industry, led to growth while traditional forms of government- granted monopoly and industrial proscriptions bred economic stagnation.”

Absolutely right. ‘Wealth of Nations’ was not a textbook on economics per se; it was his report of his research into a specific topic, namely, how societies grew from primitive savagery to the revived commercial society of 18th-century Britain.

Its so-called ‘digressions’ that some critics read are the data in support of his evidence, a point completely missed by those who read, or rather attempt to read, his books too fast and who have not realised what he wrote about nor its context.

Michael DeGolyer has realized Smith’s project in proper perspective and gets close to his real views on the role of government.

A worthy winner of October’s prize from Lost Legacy!

I invite you to write to him (and The Standard, Hong Kong) to congratulate him for his excellent understanding of Adam Smith’s Legacy at: and mark for ‘the attention of Michael De Goyer’

Michael DeGolyer is associate professor, government and international studies, at Hong Kong Baptist University.


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