Thursday, March 04, 2010

What Adam Smith Actually Identified as the Appropriate Roles for 18-century Governments

Andrew B. Busch writes (3 March) in the CNBC Guest Blog HERE

“Busch: Following The Father of Modern Economics”

The father of modern economics supported a limited role for government. Mark Skousen writes in "The Making of Modern Economics", Adam Smith believed that, "Government should limit its activities to administer justice, enforcing private property rights, and defending the nation against aggression." The point is that the farther a government gets away from this limited role, the more that government strays from the ideal path that will ensure the fastest path towards the creation of "universal opulence" or wealth for workers.

How this issue is handled will decide whether the country can more closely follow Adam Smith's prescription for growth and wealth creation or move farther away from it

Jacob Viner addressed the laissez-faire attribution to Adam Smith in 1928 in his “Adam Smith and Laissez-Faire” in the collection of essays published to commemorate the Sesquicentennial of the Publication of the Wealth Of Nations, reproduced by Augustus M. Kelly, Fairfield, New Jersey in 1968.

Here is a list of appropriate activities for government, which goes way, way beyond Mark Skousen’s extremely limited – and vague – 'ideal' government. That in itself is fair enough, if it is issued under Skousen’s name (everybody has a right to express an opinion), but he goes on to attribute his ‘ideal’ list to Adam Smith, which is not alright.

In fact, its downright deceitful, for which there is no excuse of ignorance (before attributing the limited ideal to Adam Smith we assume, as scholars must, that Skousen read Wealth Of Nations and noted what Smith actually identified as the appropriate roles of government in the mid-18th century.

But even if Skousen was in a hurry and without time to check through Smith’s two-volume tome (or the massive one-volume tome if he consulted the 1937 edition of Wealth Of Nations from Random House, New York, edited by Edwin Canaan), he, surely, was familiar with Viner’s 1928 essay, conveniently reprinted and widely available from Augustus Kelly from 1968?

No? Shame.

Here is a list extracted from Wealth Of Nations:

• the Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’ (WN464);
• Sterling marks on plate and stamps on linen and woollen cloth (WN138–9);
• enforcement of contracts by a system of justice (WN720);
• wages to be paid in money, not goods;
• regulations of paper money in banking (WN437);
• obligations to build party walls to prevent the spread of fire (WN324);
• rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’) (WN539);
• ‘Premiums and other encouragements to advance the linen and woollen industries’ (TMS185);
• ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
• ensuring the ‘cheapness or plenty [of provisions]’ (LJ6; 331);
• patrols by town guards and fire fighters to watch for hazardous accidents (LJ331–2);
• erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours) (WN723);
• coinage and the mint (WN478; 1724);
• post office (WN724);
• regulation of institutions, such as company structures (joint- stock companies, co-partneries, regulated companies and so on) (WN731–58);
• temporary monopolies, including copyright and patents, of fixed duration (WN754);
• education of youth (‘village schools’, curriculum design and so on) (WN758–89);
• education of people of all ages (tythes or land tax) (WN788);
• encouragement of ‘the frequency and gaiety of publick diversions’(WN796);
• the prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population (WN787–88);
• encouragement of martial exercises (WN786);
• registration of mortgages for land, houses and boats over two tons (WN861, 863);
• government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’ (WN356–7);
• laws against banks issuing low-denomination promissory notes (WN324);
• natural liberty may be breached if individuals ‘endanger the security of the whole society’ (WN324);
• limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’) (WN539); and
• moderate export taxes on wool exports for government revenue (WN879).

"Viner concluded, unsurprisingly, that ‘Adam Smith was not a doctrinaire advocate of laissez-faire’.

That [Viner] needed to write this 150 years after Wealth of Nations to remind 20th-century readers conclusively that it contained detailed and specific evidence of advocacy of breaches of laissez-faire, popularly attributed to him, suggests that a substantial drift away from important elements of Smith’s legacy had taken place among early-20th-century economists.

How could Smith be so closely linked with laissez-faire policies when he so clearly and explicitly was not?”

[The list and the comment is reproduced from my “Adam Smith: a moral philosopher and his political economy”, 2008, Palgrave-Macmillan.]

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Blogger IJ said...

What should a national government be responsible for?

This question is also being asked in the US. Rethinking US grand strategy and foreign policy is a seminar series being run at John Hopkins University in the US.

The latest public presentation was 18 February and explored US national interest. Alliances are emphasised.

In practice? It provides useful background to the comments this week from the US secretary of state to leaders of Brazil and Argentina.

The US is suggesting publicly that Britain negotiates with Argentina about the ownership of the Falklands; US relations with South America are said elsewhere to be in need of attention. The major inconsistency however, again on the subject of national interest, is that Taiwan is one of the principal unresolved thorns in global politics.

12:38 pm  
Blogger david said...

Your list pretty-much represents my idea of laissez-faire -- the government supplies essential services such as public infrastructure, defense, (health,) and education, services that it would not make sense for the private sector to provide.

Otherwise, the government limits its role to that of referee, regulating business but not funding or running it, except in extreme situations like war or famine.

I'm guessing that the debate down there in the U.S. has become pretty polarized, if people have trouble reconciling a list like yours with free-market economics. Note that Smith's list does not provide any justification for wrong-headed policies like farm subsidies (is there a potential famine every year?), auto-industry bailouts, or Fannie Mae/Freddie Mac, all of which blur the line between government-as-referee and government as player.

2:37 pm  
Blogger Gavin Kennedy said...

Markets where possible, government where necessary. We are not starting de novo.

Big governments are now too big and rolling them back faces many problems, not least the resistance of government functionaries, lobbyists seeking the objects of their lobbying, and beneficiaries of its spending (rich and poor alike).

Many of the problems of 18th-century governments remain - 'jealousy of trade', protectionism, wars for trivial ends, suspicions of neighbours, vast patronage, spending money belonging to private citizens at no risk to their own funds.

I shall dodge the Falkland issue - it being a bit rich for the descendants who cleared the indigenous people from their lands to raise grievances about who rules the Falklands!

4:37 pm  
Blogger Gavin Kennedy said...

That's the problem with categories like "laissez-faire - each can define what they mean by the words and produce a range of incompatible definitions.

Even M. Gendre, the merchant believed to have uttered the words first to Colbert, the Minister of France, in 1697, viewed laissez-faire as being about freedom for him and his fellow merchants (no mention about consumers!). Libertarians can include anarchists - no government whatsoever - among their number.

Smith was not providing a definition - he was observing what the government actually did. There is no reason to suppose that he would observe the same areas later, as he separated out from what governments did to what was appropriate to 'facilitate commerce'.

Moreover, in these debates of state versus private, the role of the third sector (voluntary associations) tends to be forgotten. Also, even in clear government role (defence, say) there is a role for the private sector in supply defence goods to the armed services (as there was in Smith's time).

Smith seemed to limit state provision to that of the funds and left the choice of whether state resources, including personnel, were provided by the private sector (toll roads) to pragmatic criteria - which worked best.


4:53 pm  
Blogger IJ said...

The appropriate role of government?

Thanks for the response.

Whether some national governments, as stewards, are spending too much is difficult to assess; no doubt the global bond markets will be allowed to decide sooner or later.

Whether public money has been spent effectively, we are unlikely ever to discover; an audit of the circumstances that led to bailouts of billions of pounds is not taking place.

Interestingly Ecuador and Iceland are two countries I know of that are seriously challenging big decisions of their governments. The way things are going in some areas this might catch on.

8:41 pm  
Blogger David Friedman said...

On the issue of government support for schooling, Smith's position is more complicated than your comment suggests. He runs though a variety of arguments for and against government involvement and concludes that while some government funding would not be wrong, it would also not be wrong, and might be more prudent, to leave schooling entirely private.

By modern standards that puts him in a pretty extreme laissez-faire position--more extreme than the position of modern libertarians who argue for a voucher system but, in most cases, are not willing to seriously consider getting the government entirely out of the schooling business.

1:21 pm  
Blogger David Friedman said...

Your list of appropriate government activities includes "encouragement of ‘the frequency and gaiety of publick diversions."

Which demonstrates the risk of quoting something without actually reading it. The full quote is:

"The second of those remedies is the frequency and gaiety of public diversions. The state, by encouraging, that is by giving entire liberty to all those who for their own interest would attempt without scandal or indecency, to amuse and divert the people by painting, poetry, music, dancing; by all sorts of dramatic representations and exhibitions, would easily dissipate, in the greater part of them, that melancholy and gloomy humour which is almost always the nurse of popular superstition and enthusiasm."

Note "by encouraging, that is by giving entire liberty to all those who for their own interest would .."

I don't know of any supporters of laissez-faire who would object to giving people the liberty to put on public diversions. Do you?

1:29 pm  
Blogger Gavin Kennedy said...

David Friedman
Many thanks for your useful comments and observations. They are much appreciated.

I respond as follows:

“On the issue of government support for schooling, Smith's position is more complicated than your comment suggests. He runs though a variety of arguments for and against government involvement and concludes that while some government funding would not be wrong, it would also not be wrong, and might be more prudent, to leave schooling entirely private.”


From Viner’s list:
“• education of youth (‘village schools’, curriculum design and so on) (WN758–89);
• education of people of all ages (tythes or land tax) (WN788)”

In a sentence, it is difficult to capture the subtlety and wholeness of Smith’s multiple points, as David Friedman notes. In a populated country such as 18th-century Britain there was room for many variations of education provision, and in practice this was evident in the local provision of schooling, for some, but not all children by a long way (girls included).

In the main, Smith’s point was that the results were patchy – total private provision (including charity schools, often ecclesiastically motivated in their foundation) was thinly represented when spread across the age cohorts of youth who were relatively uneducated, especially in England, though better provided for in Scotland under its ‘little schools’ in every parish regime, operated since the 16th century.

His proposal for a large-scale education provision was addressed to the better-off orders, and was supported by a colourful, if dire, warning of the effect on social stability if the absence of education of the lower orders, mainly destined to work in intensely divided labour in factories or in ignorance in farming, which would make them more susceptible to civil disorder, if not attended to as a matter of some urgency (WN V.i.f.61: 788).

To the extent that this would require the better-off orders to pay for this provision, the politics of fear and a social conscience were appropriate.

The Scottish system was his model, a combination of local tythes, individual parental contributions scaled to income and usage, and charity (specially in sending local ‘lads o’parts’ to college at 14) had a relatively respectable recent history. Bearing in mind there were 60,000 parishes in Britain, it was also a most ambitious undertaking, if implemented. It wasn’t, of course, and universal education had to await the 1870s. I do not find a clear-cut, fully-costed element in Smith’s proposals and suggest there is no comfort for libertarian, laissez-faire schema, or for fully state-funded provision common to today’s debates.

That fully-private provision did not emerge spontaneously or otherwise, left the only option in state-funded provision a hundred years later. In the absence of spontaneous laissez-faire, and the dire consequences of the latter public monopoly, it suggests the funding of educational provision is still in debateable contention.


9:03 am  
Blogger Gavin Kennedy said...

David Friedman

• encouragement of ‘the frequency and gaiety of publick diversions’ (WN796);”

I agree that context is of prime importance on reading Adam Smith; as is always the avoidance of drawing conclusions from isolated paragraphs. On its own, your point about the isolated sentence quoted above in well made and for which I thank you.

Smith is discussing ‘systems of morality’ (WN V.i.g.10: 794): ‘the liberal or loose’ (‘people of fashion’) system v the ‘austere system’ (the ‘common people’).

He discusses the activities of ‘religious sects’ which arise from within the common people (WN V.i.g.11: 794-5) and he contrasts how the ‘man or rank and fortune’ behaves either ‘liberal’ or austere’ because he is a public figure with a reputation to preserve, whereas the ‘man of low condition’ in the settled countryside also ‘attends’ to his public reputation.

But once such a labourer moves to the city (a not uncommon event in Smith’s time) he is ‘attended to by nobody and ‘he is therefore very likely to neglect it [his public standing] and abandon himself to every sort of low profligacy and vice’.

However, he ‘never emerges so effectually from this obscurity, as by becoming a member of a small religious sect”.

However, “the morals of these little sects, indeed, have frequently been rather disagreeably rigorous and unsocial” (WN V.i.g.12: 795). Smith then goes on to address this problem:

“There are two very easy and effectual remedies, however, by whose joint operation THE STATE might, without violence, correct whatever was unsocial or disagreeably rigorous in the morals of all the little sects into which the country was divided” (emphasis added; WN V.i.g.13: 796).

David Friedman may have missed the preceding paragraphs in the section from which he quotes, and, in particular the overall role for the remedy Smith selects as “from the state”.

Briefly, Smith suggests the study and teaching of “science and philosophy which The State might render almost universal among all the people” by a sort of state instituted “probation” to be “undergone by every person before he is permitted to exercise any liberal profession”. Science, says Smith, is “the great antidote to the poison of enthusiasm and superstition” (WN V.i.g.14: 796).

He then comes to the second “remedy” of “giving entire liberty” to “painting, poetry, musick, dancing, by all sorts of dramatic representation and exhibitions”. In 18th-century Britain, this proposal was radical in the extreme.

Censorship at that time was severe in public assemblies, especially in the arts. And because these freedoms were to be “without scandal or indecency” it would inevitably fall on the local state authorities (town council, churches, and inspectors, perhaps even public licensors) to monitor such public events.

In the context of both proposals for “very easy and effectual remedies” by “whose joint operation the STATE might” engender the outcome suggested by Smith, it was inevitable that the state would devolve such monitoring roles to local state institutions.

I do not see this as a ‘laissez-faire’ proposition at all. It was step to increased liberty but not to unbridled license. The British Lord Chamberlain's office of censorship continued right through to the 1970s.

9:03 am  

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