It's a Matter of Balance, not Ideology

Georg Thomas posts on Red State Eclectic (HERE)

“Adam Smith's Advice for Obama"

"What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

Comment
As always we must be careful in simply translating to the 21st century a well-expressed 18th century view of Adam Smith, which I am inclined to agree with if by it the ‘statesman’ is to directly micro-manage the business of individuals in matters which they would know better than others.

But Smith’s point was not absolutely applicable in all its elements. Governments in the 18th century directly interfered in some decisions normally left to individuals in their private affairs. That’s what laws do – they interfere in what individuals are free to do. Without such laws – indeed all laws –society would be at the mercy of whatever all individuals decide privately to do. Think of the warning from Smith about ‘entering a den of lions’ in the absence of justice.

As always it comes down to specific cases, and any sensible reading of Adam Smith supports this restriction.

For instance, individuals may adulterate food or medicine; they may undertake debts which they cannot realistically cover with their resources now or in the future; they may allow waste pipes to disgorge effluent that pollutes the downstream environment to cut costs to stay in business; they may mislead investors in order to access financial resources otherwise denied them, which bankrupts those they mislead. And so on across a modern society.

It is all down to balance. Each case may call for different responses. Even when governments try to encourage people or businesses to do what they have not done or do not want to do with various incentives, the efficacy of such conduct is not pre-determined by a quotation.

‘Backing winners’ is seductive but seldom successful; appeals for special aids are likewise dubious. Special protections are notoriously suspicious, and Wealth Of Nations is full of examples identifying the ‘merchants and manufacturers’ making such claims. Of course, they know their businesses, but they also know that narrowing the market to themselves means higher prices and more certain profits. It is not a case that the businessmen are innocent actors in these dramas. They hire legislators and those who influence them to slant legislation in their favour, and governments collude in such deceptions.

The problem with government intervention is that governments are too big, and businesses are well organised with professional lobbyists. It’s not just intervening governments which are the problem; it’s also lobbying businesses which are complicit.

Somehow, I don’t think Red Slate Blog is sympathetic to these points. We can be sure that Adam Smith had no such illusions about ‘statesmen’ or about ‘merchants and manufacturers’.

I know nothing of Obama’s views nor of his degree of credulity on these matters (and it’s none of my business; I vote in Scotland, not the USA), but I am suspicious of Georg Thomas’s sense of balance in selecting this quotation from Smith.