Wednesday, February 06, 2008

Irwin Seltzer Misues Adam Smith Again

Tim Worstall (here) invites me to comment on a piece he found in The Times (London) by Irwin Setlzer dragging in Adam Smith, writing in the 18th century, to bolster Seltzer’s case for Gordon Brown to relax about the general free trade principle for international relations.

Tim asks:

Is Gavin Kennedy about?

Brown won’t be able to rely on Adam Smith for intellectual support of unrestricted free trade. His townsman, faced with Chinese currency manipulation and artificial barriers to imports imposed by Japan, would say "There may be good policy in retaliations" if they force changes in the policy of trading partners.

"The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for such [imported] goods." [Irwin Seltzer’s statement].

Did Smith really say that it could be a good idea to raise tariffs in order to get another to drop theirs?

Even if he did I suspect the advice is countered by the later writings of Ricardo, but it would be interesting to know the context in which Smith said this

My Answer in Tim’s comments:

Yes, Adam Smith did say something like this in Book IV of Wealth Of Nations. He discussed the prohibition of English woolen goods by the Spanish government in 1697, then in control of Flanders, in which the Spanish tariff was removed ‘upon condition that the importation of English woolens into Flanders should be put on the same footing as before’. This was accompanied by mutual prohibitions and tariffs between French and English trade. In short, a prolonged and increasingly bitter trade dispute, a regular feature of mercantile political economy across Europe at the time.

Book IV of Wealth Of Nations included his detailed criticism – he called it a ‘very violent attack’ on the commercial system – and he discussed and described many aspects of it. Smith states:

There may be a good policy in retaliations of this kind, when there is a probability that they may procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally compensate the transitory inconveniency of paying dear during a short time for some sorts of goods.

He goes on, however: ‘To judge whether such retaliations are likely to produce such an effect, does not perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skills of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by such momentary fluctuations of affairs. When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to certain classes, but to almost all other classes of them. (WN IV.ii.39: p 468)

Adam Smith’s pragmatic point about mercantile political economy favouring retaliation, places a judgment standard on whether it would succeed, and he was very well aware of the unevenly shared burden of such policies. He clearly preferred free trade as a general principle, suited to the ‘science of the legislator’, but living in mercantile Britain, he was also aware how such retaliations worsened the living standards of those affected, and risked spreading through the ‘jealousy of trade, prejudices of vulgar politicians to hostilities and expensive wars.

Once again, Irwin Seltzer misuses Adam Smith (last time on Lost Legacy was in the matter of extra taxation on the rich, which Seltzer misused in defence of modern inheritance tax (see Lost Legacy Archives). He is beginning to discredit his resort to Wealth Of Nations to make his case in modern politics.


Post a Comment

<< Home