Saturday, December 13, 2008

A Senator Speaks...

Senator Fritz Hollings writes on “Economists and Free Trade” HERE:

The irony is that economists learn in their very first class in school that it was a trade war which brought us our initial freedom as a country, and that semi-protectionism later helped build the United States. England started a "trade war" with the Colonies by adopting the Navigation Act of 1651 that required all trade be carried in British vessels. Manufacturing was forbidden in the Colonies, even the printing of the Bible, and then the Townsend Acts drafted by Adam Smith placed heavy import duties on a wide range of items. All of this precipitated the Boston Tea Party that started the Revolution.”

I have no comments on the general tenor of the Senator’s article – follow the link and read for yourself his views on some important contemporary issues.

However, I think the Senator may be more than a little harsh on Adam Smith’s well-known association association with Charles Townshend; more a case of Smith’s guilt by association, than a smoking gun.

Quite a lot is known about Adam Smith’s relationship with Townshend and his more important and longer relationship with Townshend’s stepson, the Duke of Buccleugh.

True, Smith worked for Townshend after resigning his Glasgow Chair on 1764 and taking his stepson, the Duke of Buccleugh, then a minor, on the normal educational tour to France that sons of gentlemen in those days enjoyed/endured as their rite of passage. This occurred in 1764-66 (November).

True, Townshend was the British Chancellor of the Exchequer, and was fated to be the author of the British policies that triggered the ‘disturbances’ that morphed into the rebellion of the British colonies in North America, followed by the successful foundation of the United States of America.

True, Adam Smith from November 1766 to March 1767 was in London and was consulted by Townshend on taxation policies that might redress the enormous debts that Britain had incurred in the various wars with France (the seven-years war cost £120 millions in defence of the £20 million a year trade between the colonies and the mother-country).

But Adam Smith’s contributions to Townshend’s thinking were largely, if not totally, confined to the creation of a ‘sinking fund’ to pay down the national debt to more manageable proportions (see Townshend’s letter to Smith, December 1766, pp 328-34, Correspondence of Adam Smith, Liberty Fund, 1987).

True, Smith agreed with the principle that the colonies should contribute to British taxation (as did Benjamin Franklin) as equity suggested. The issue for the parties involved was what kind of taxation and how much, and who decided the details?

For Smith, there were certain maxims of an equitable taxation system that were relevant, accepting the principle that government must be funded to conduct their main duties, which Smith set out in Wealth Of Nations (defence of the people against invasions; defence of the people against neighbourly injustices; public works to facilitate commerce and public institutions to facilitate the education of the youth; and financial support for the ‘dignity of the sovereign’, or what today we call the legitimate expenses of government.

That he recommended the standard ‘maxims’ of taxation that were commonly known in his day, if not always practised, in his day (as set out in Book V of Wealth Of Nations). Townshend’s taxes that he imposed on the colonies did not conform to the maxims alluded to by Adam Smith; it is, therefore, most unlikely that Adam Smith agreed to support the imposition of Townshend’s tax plans, let alone that he ‘drafted’ them as the good Senator asserts.

But there is a more telling evidence, beyond speculation, of Smith’s hostility to legislators being the private beneficiaries of their legislation, such as was the case of Townshend’s imposed taxes in the colonies; the ‘tea taxes’, for instance, were imposed on the colonies on tea imported under the monopoly of the East India Company.

The history and contemporary behaviours of the East India Company, excoriated heatedly by Adam Smith in Books IV and V of Wealth Of Nations made absolutely no concessions to excuses from the officers and speculators associated with its management of India, which made it impossible that he would be associated with any such suggestions because Charles Townshend was one of the prominent speculators active in the shares and business of the East India Company, a fact well-known in public affairs and public comment.

Smith left London in March 1767 for Edinburgh; the Townshend taxes were introduced into Parliament in June 1767, and they evetually provoked rebellion. We know of Smith’s interest in American affairs and where his sympathies lay.

He accepted in Book IV of Wealth Of Nations the right of the colonists to representation in parliament if they were taxed by it (he discusses his recommendations of parliamentary union with the colonies at WN IV.viii.c.75: pp 622-34; Canaan 1937 edition, pp 587-8).

In effect, Smith reversed the colonists’ demand of ‘no taxation without representation’, into ‘no representation without taxation’.

But by the time that Wealth Of Nations was published in 1776, events had moved on from protest towards rebellion and, in my view (explained more fully in my Adam Smith: a moral philosopher and his political economy, 2008, Palgrave Macmillan), was a major reason why he carefully avoided writing on American affairs, particularly after its ‘revolutionary’ (for the 18th century) constitutional developments.

He went further; his promised book on how civil governments ‘ought’ to be directed or the ‘theory of jurisprudence’, which he constantly assured readers right up to his death in 1790, would be completed, never appeared and, in fact he had the manuscript burned a few days before he died.

Indeed, he deliberately sought and lobbied influential friends, including the Duke of Buccleugh, to use their ‘interest’ (influence) to persuade the Prime Minister to appoint him as a Scottish Commissioner of Customs in 1777-8 and then used the excuse of how busy this made him to avoid undertaking the necessary work to complete his manuscript.

The records, minute books, and correspondence of the Customs Commission show Smith intimately involved 4-days a week on this work from 1788 until a few weeks before he died in 1790.

To publish a major theory on jurisprudence without discussing the developments in the former British colonies was neither possible nor politic.

Smith was a moral philosopher who taught, wrote and observed the necessity for the maintenance of the distinction of ranks for stable societies, including constitutional monarchy. For him to publish anything that would allow legislators, and those who influenced them, on behalf of mercantile promotion of their monopolies, protectionism, ‘jealousy of trade’, and everything else he opposed in Wealth Of Nations (for they surely would, and did in 1793, after he died in 1790) would be to make it too easy for them continue their perfidious influence, which, in Smith’s often stated view, held back the spread of opulence to the poorest majority in British society. These were his lifetime objectives and not any allegedly abstract principle of 'laissez-faire' (which he never mentioned) and pure free trade, which qualified several times - Smith was not a 'man of system .. wise in his conceit' (see Moral Sentiments, TMS VI.ii.2.17: pp 233-4); he was not an ideologue.

Therefore, the unjust attack on Adam Smith’s authentic role in the run up to the rebellion of the British colonists in North America is cheap political rhetoric from a US Senator (‘Sir’) and it is contrary to the historical evidence.



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