Monday, August 03, 2009

"The Hesitant Hand" by Steven Medema: Review, Part One:

Steve Madema opens his book, The Hesitant Hand, with a Prologue that spells out where he is going with his main theme on the part played by self-interest in society as a whole and how philosophers like Adam Smith and those before him approached the question. With an economy of style he gets down to business quickly.

Smith was not the first, nor the only, philosopher to focus on self-interest. Decades before 1776 (Wealth Of Nations), others had made explicit reference to self-interest. My first slight concern occurs here because Steve associates these interests of others and Smith with laissez-faire, a uniquely French term, which was not mentioned by Adam Smith in any of his works or correspondence, though he was familiar with it from his contacts with the French Physiocrats and their publications.

There is today an assumption that Smith’s preference for competition and reduced interventions of the kind practised by European governments in their mercantile legislative policies was in essence a policy of laissez-faire, which, strictly, it was not. Not all Physiocrats advocated laissez-faire – in fact some of their policies were interventionist, as were some of Smith’s.

It could be argued that such quibbles were outwith the thematic realm of Steve’s book – he wants to get on with his narrative, absent such scholarly niceties – and ordinarily I would agree with him, but just as the term had specific meanings for Vincent de Gournay, who popularised the term in his debate with Colbert, the Finance Minister of Louse XIV (“laissez-faire, laissez- passer”), about freedom from the stifling regulations pertaining to the conduct of commerce in France, it has come to have specific meanings for modern economists of the extreme libertarian school – the absence of government - neither of which can be said to be particularly Smithian in content or application.

However, Steve's Prologue is a masterly entre to what follows, especially in Chapter 1, “Adam Smith and His Ancestors” (5-25). This opens with Adam Smith and “an invisible hand” which would tend to “harmonise individual and social interests” and “attempts by the state to interfere with this would run counter to the national interest”. “Competition”, says Steve, “was hampered on all sides” (5).

Much of the legal structure was inimical to economic growth and this structure was the creation of governments following, or initiating, assertions about appropriate economic policy, mixed with religious or contemporary moral philosophies, from the
Greeks onwards.

Steve marches through this history at a brisk, readable pace, which economists who read the chapter would do well to take on board (or be reminded of). Plato, Aristotle, Aquinas, and the Scholastics, are buried in continuing economic thinking, despite the best efforts of modern economists to purge anything that cannot be modelled mathematically.

Rulers prefer subjects who submit to their rule by identifying their self-interest with the Sovereign, and still today they seek enforcement of their writ where their subjects do not do what is wanted of them (in Britain and the US we have petty bureaucrats, in Iran we have black-clothed thugs on motor-cycles, in Pakistan, police with canes, and China their versions of the Gulag). Learn about the past and you understand the present.

Steve covers Scholastic thinking neatly, with comments on much Christian thinking (the will of God) and how it related to, then, contemporary problems of taxation, the sovereign’s appetite for expenditure, regal lifestyles, monuments to their greatness, and the morality of borrowing (usury debates). Into this mix the self-interest of commoners and crown conflicted (the king debased his currency and his subjects ‘clipped’ it), as they did in debates over private and public property (sound familiar in echoes of the tragedy of the commons?).

As the power of the state increased from the 16th century, Steve notes that the influence of theologians declined and that of merchants rose (11), the latter with a self-interested motive to try to influence government policy, based on the well-known (and perpetuating knack for presenting their otherwise blatant self-interest in terms that appealed to the ‘national interest’, which was of greater concern to the sovereign than the petty wishes of seedy merchants). It was, and still is, the way of the lobbyist.

A small quibble emerges for me in Steve’s assertion that the term ‘mercantilism’ was coined in the 1760s (11); I have always understood that it originated from the German word in late 19th century and transferred to English from the late 19th century.

Of no doubt though, the critique of mercantile policy emerged in the late 18th century, particularly in Smith’s Wealth Of Nations in Book IV. While often presented as a critique of bullion accumulation, it goes much deeper than that, summed as the policies associated with what Hume called ‘Jealousy of Trade’.

Steve’s account of the debate is another example of his masterly exposition style which makes the subject interesting (11-13).

The subject is a clear example of the self-interested actions of individual merchants, in alliance with legislators and those who influenced them, that were, in Smith’s and in others’ view, contrary to the national interest.

Self-interest, clearly, does not necessarily result in some way in the public interest (and it remains a mystery to me why proponents of such a view continue to attribute it to Adam Smith – presumably they have never read Book IV!).

If you are not sure what the issues were (and, regrettably still are today) in the mercantile policy debate, Steve’s exposition will remove all doubts and uncertainties. He quotes from the inimitable Jacob Viner to great effect (13) on the appeal of mercantile advocates to Providence for chauvinistic support for their doctrines.

Moving on to the Physiocrats and the economic policy regime of Jean Baptiste Colbert (1619-83), Steve uses 17th-century France as a case study in all that was wrong with mercantile interventionist policy. He discusses their strong points (identified by Adam Smith, who admired them personally) and their ‘errors’ - the superiority of agriculture (produit net) versus the ‘sterility’ of manufactures. They related their ideas to their version of ‘natural law’. (15) As Steve points out the Physiocratic programme required a strong state led by ‘experts’.

This brings Steve to Adam Smith and his works.
However, apologies (I am supposed to be on holiday, and family demands on my attention interrupt my section on Adam Smith - I shall finish it tomorrow and post it then.

Labels: , , , ,


Post a Comment

<< Home