Thursday, August 21, 2008

Adam Smith On Government Spending From Taxation and Borrowing

Another misuse of Adam Smith's actual stance, this time on the size of government expenditure. (New York) carries a punchy Editorial (HERE:)

When Adam Smith wrote the book on economics, he didn’t trust corporations, unions, lobbyists, interest groups, governments, or anyone else. Smith knew that in an untrustworthy world, more competition was always better than less competition.

Government should be used sparingly, deftly, and narrowly focused. It has a limited purpose: Protect citizens from others and from each other, maintain courts, and minimally help people between jobs. Everything else is your business, because government doesn’t create jobs; people do. Adam Smith explained this 230 years ago.”

That’s a stripped down version of Adam Smith’s critique of the mercantile economics system prevalent in 18th-century Britain; so stripped down it’s missed a lot of the detail in pursuit of a political view.

Not that I against cutting the size of most 21st-century governments, especially the government of the UK. But I do not think anytime soon the UK, nor the USA; and certainly not Russia or China, are going to reduce the government’s share of GDP going to government legislated expenditures.

Smith’s approved programme for government expenditures was quite extensive, well beyond the editorial writer’s list on Rome Sentenial list.

Smith’s infra-structure programme to ‘facilitate commerce’ would cost tens of millions (good highways linking the main, and growing, cities; harbours; canals; bridges; paving and street lights), all mentioned in Book V of Wealth Of Nations.

The taxpayers’ money plus borrowing to fund the 7-years war at £172 million would have been better spent on british domestic infra-structure, which, of course would incur annual operating, maintenance, and repair costs, part funded by user-tolls, and Smith was pragmatic about whether they were managed by public or private commissioner.

To this you could add a national school system (a ‘little school in every parish – all 60,000 of them), partly funded by local taxes and small fees from families whose children attended them to better prepare them for productive work to supplement their family’s earnings.

He even advocated public funding for palliative care for victims of ‘loathsome diseases’ like leprosy (an agenda of expenditure in the disease-ridden towns that were to grow bigger in the next century).

Smith was not in favour of a ‘night-watchman state, an accusation often levied about him by some of today’s libertarian right. It was a sarcastic remark by a 19th-century socialist called Ferdinand Lassell (1825-64), who was trying to out-left the British left who were not robust enough politically for him; somehow, the Right picked this up as a ‘badge of pride’ and passed it on to their accounts of Smith’s government duties programme.

Smith certainly favoured a small state by today’s standards, but not as small by a long way as some would claim for him. It would make it easier to join these debates if more people read Adam Smith beyond the ‘rent-a-misquote’ efforts of those who don’t read him.



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