Thursday, May 31, 2007

Adam Smith Should be Quoted in Context

When affluent and educated people in the richest country of the world start looking at income distribution in America and compare it with their own income status, they are often led (by angst, envy, or concern for the really poor?) to find their place in the scale of things unsettling, and while not quite saying they want to dismantle the economic system that has created the wealth they enjoy, though as always they could do better, they give encouragement to those who will make that case.

The China, a more equal country under Mao compared to America (though. don't forget the communist 'elite' did very well, thank you very much), has dropped its state-imposed equality for all economics in favour of their version of commercial markets, says a lot about which system will raise the poverty of China's people on an upward track most surely.

Gary Olson wrote on Znet (1 May) in piece entitled: “ ’The very rich are different from you and me’ F. Scott Fitzgerald”:

What should we make of these iniquitous numbers? I can't quarrel with Adam Smith, the oft misquoted and misunderstood moral philosopher and economist, who wrote in his monumental book The Wealth of Nations,

"Whenever there is great property, there is great inequality. For one very rich man, there must be at least five hundred of the poor, and the affluence of the few supposes the indigence of the many...”

And Peter McCormick on 30 May posts this (with credit to Gary Olson): “The Life styles of the Great and Fortunate”, repeats Olson’s words verbatim, adding: “There’s an Adam Smith doozy you don’t hear too often.”

The quotation is from Wealth Of Nations, Book V, though the context goes some way to explain what Smith was talking about. It is the chapter ‘Of the Expence of Justice’, the second duty of the sovereign.

As both Gary Olson and Peter McCormick inform us correctly, Adam Smith is ‘oft misquoted and misunderstood moral philosopher and economist’, I think it incumbent to quote his words more extensively to see his meaning:

Among nations of hunters, as there is scarce any property, or at least none that exceeds the value of two or three days labour; so there is seldom any established magistrate or any regular administration of justice. Men who have no property can injure one another only in their persons or reputations. But when one man kill, wounds, beats, or defames another, though he to whom the injury is done suffers, he who doe sit receives no benefit. It is otherwise with the injuries to property. The benefit of the person who does the injury is equal to the loss of him who suffers it. Envy, malice, or resentment, are the only passions which can prompt one man to injure another in his person or reputation. But the greater part of men are not frequently under the influence of those passions; and the very worst men are so only occasionally. As their gratification too, how agreeable so ever it may be to certain characters, is not attended with any real or permanent advantage, it is in the greater part of men commonly restrained by prudential considerations. Men may live together in society with some degree of security, though there is no civil magistrate to protect them from the injustice of those passions. But avarice and ambition in the rich, in the poor the hatred of labour and the love of present ease and enjoyment, are th passions which prompt and invade property, passions much more steady in their operation, and much more universal in their influence. Wherever there is great property, there is great inequality. For one very rich man, there must be five hundred poor, and the influence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of valuable property, which is acquired by the labour of many years, or perhaps of many generations, can sleep a single night in security. He is all the time surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from the whose injustice he can be protected only by the powerful arm of the civil magistrate continually held up to chastise it. The acquisition of valuable and extensive property, therefore, necessarily requires the establishment of civil government.’ (WN V.i.b.2, pp 709-10)

Wrenching the words quoted, as done by Gary and Peter, is more than a trifle disingenuous. Smith is writing about the foundation of justice in a society, without which Smith declaims in another place, society ‘would crumble to atoms’.

Such a state would not be a pretty way to live. In the rudest of ‘savage’ society, before property existed beyond the Natural Rights of property in one’s own body, violations of ‘person and reputation’ were all that could be done to an individual (though, be clear that is not a minor transgression for the person killed or defiled).

At that time, and for most of the time that humans have existed (about 200,000 years) humans lived in small bands dispersed in the wilderness of the entire earth. At the time of the dispersal from East Africa (from 100,000 years ago) the human population was tiny, say, from 1,500 to perhaps 50,000. The bands in the dispersal seldom made contact and they lived off the land at were at the mercies of regular global warming and ice ages. Everyone was more or less equal, except compared to the alpha male or female, in what Gary and Peter would regard as abject poverty, if tney were forced to live like that, in possessions, medicines and knowledge, and life spans were short.

Once humans moved from ‘rude’ society to shepherding and agriculture, the innovation of property began to change all that. The bands grew larger and contact was more frequent, with all that that implies about the human condition. ‘Envy, malice, or resentment, are the only passions which can prompt one man to injure another in his person or reputation’, but there is a leap from how one individual treats another within band and how one band treats another band. There, the passions have free reign until the innovation of exchange, reciprocity and trade, and even then the choice of plunder versus trade was not always benign.

Gary and Peter look at the few lines they quote and think they justify how they feel reading the statistics their pieces go on to quote. But suppose they stop for a second and consider that for the millennia from about 11,000 or 8,000 years ago, when agriculture as a mode of subsistence spread across Europe and the near East to about the 15th century, although there were very great inequalities in living standards for the majority of the people, compared to the elites that run those societies, the living standards of the people were truly basic, at subsistence levels only.

There was an almost invariant regime of universal poverty, beyond the imagination of the casual quotations of today’s media people, living, incidentally, in the richest country the world has ever known, that has lasted as long as history was ever written and much further into pre-history. The ‘rich’ princes who ran those societies were very ‘rich’ compared to the people, but their ‘wealth’ amounted to very little compared to the poor today.

The difference after the 15th century was that living standards, and longevity, and knowledge, began to move, slowly but gradually, on an upward track. This was the result of the commercial age, which led to capitalism in the 19th century. Across the world the gap between rich and poor is uneven and the situation is not static; it is continually changing with average welfare improving perceptibly as the division of labour, traded exchange, growing knowledge, and the protection of justice spread and deepen.

Gary and Peter should read the whole quotation again, preferably in Smith’s context, and judge where they are in the among those where the ‘affluence of the rich excites the indignation of the poor (neither of whom are by any standards poor) and to what extent those ‘who are often driven by want, and prompted by envy’ would be better off from invading the ‘possessions’ of the ultra rich.


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