Thursday, March 08, 2007

In Place of a Comment on a Previous Post

Gus (re: your comment on yesterday's post):

Apologies for intruding on a class discussion out of ignorance as to what the medium was about. Your piece showed up on my Google Alerts and as I am currently working on that section of Adam Smith's thinking about public expenditure and taxation, I was drawn to follow the statements made there.

I agree, I didn't consider your views absolutely wrong (a not uncommon feaure of statements about Smith); I considered them incomplete.

Smith was writing in the third quarter of the 18th century and capital accumulation was fairly primitive, as was individual ownership of capital.

In these circumstances he considered that public works and institutions had to be funded by the State, as the controller of the largest amount of capital, at least for erection, if not maintenance, if the necessary works for facilitating commerce were to be undertaken. He did not make this an absolute principle (Mill?). The amount and purpose of Public Works was related in his view to the annual product of land and labour, which funded them.

Should society become richer in savings and investment, the profitability of some public works would enable private sources of capital eventually to enter the field. J S Mill's contribution led this aspect off into a tangent.

Coase's lighthouse example is well taken; major shipping owners had much to lose if their ships were wrecked and where it was considered still worthwhile to club together to erect lighthouses, despite free riders, they would do so, as well as press the government to take on this function. The tolling of new roads proved to be inefficient and corrupt, and private canals appeared in the 19th century with a patchy econoimic performance. These events did not detract from Smith's point that infra-structure public works facilitated commerce. He did not solve the problem of ensuring they were erected consistent with the availability of resources and the expense of their maintenance, while limiting the role of public funding. But Smith did not write about the future; his vision was limited to the past and the present.

I make it a matter of policy to notify authors of anything I discuss that I have posted something. Apologies for not being able to do so to you on this occasion.


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