Friday, November 23, 2012

Adam Smith on Government Intervention When Promoted by a “Public-Spirited Patriot”

Adam Smith:
“When a patriot exerts himself for the improvement of any part of the public police, his conduct does not always arise from pure sympathy with the happiness of those who are to reap the benefit of it. It is not commonly from a fellow–feeling with carriers and waggoners that a public–spirited man encourages the mending of high roads. When the legislature establishes premiums and other encouragements to advance the linen or woollen manufactures, its conduct seldom proceeds from pure sympathy with the wearer of cheap or fine cloth, and much less from that with the manufacturer or merchant. The perfection of police, the extension of trade and manufactures, are noble and magnificent objects. The contemplation of them pleases us, and we are interested in whatever can tend to advance them. They make part of the great system of government, and the wheels of the political machine seem to move with more harmony and ease by means of them. We take pleasure in beholding the perfection of so beautiful and grand a system, and we are uneasy till we remove any obstruction that can in the least disturb or encumber the regularity of its motions. All constitutions of government, however, are valued only in proportion as they tend to promote the happiness of those who live under them. This is their sole use and end. From a certain spirit of system, however, from a certain love of art and contrivance, we sometimes seem to value the means more than the end, and to be eager to promote the happiness of our fellow–creatures, rather from a view to perfect and improve a certain beautiful and orderly system, than from any immediate sense or feeling of what they either suffer or enjoy. There have been men of the greatest public spirit, who have shown themselves in other respects not very sensible to the feelings of humanity. And on the contrary, there have been men of the greatest humanity, who seem to have been entirely devoid of public spirit. Every man may find in the circle of his acquaintance instances both of the one kind and the other. ... Would you awaken the industry of the man who seems almost dead to ambition, it will often be to no purpose to describe to him the happiness of the rich and the great; to tell him that they are generally sheltered from the sun and the rain, that they are seldom hungry, that they are seldom cold, and that they are rarely exposed to weariness, or to want of any kind. The most eloquent exhortation of this kind will have little effect upon him. If you would hope to succeed, you must describe to him the conveniency and arrangement of the different apartments in their palaces; you must explain to him the propriety of their equipages, and point out to him the number, the order, and the different offices of all their attendants. If any thing is capable of making impression upon him, this will. Yet all these things tend only to keep off the sun and the rain, to save them from hunger and cold, from want and weariness. In the same manner, if you would implant public virtue in the breast of him who seems heedless of the interest of his country, it will often be to no purpose to tell him, what superior advantages the subjects of a well–governed state enjoy; that they are better lodged, that they are better clothed, that they are better fed. These considerations will commonly make no great impression. You will be more likely to persuade, if you describe the great system of public police which procures these advantages, if you explain the connexions and dependencies of its several parts, their mutual subordination to one another, and their general subserviency to the happiness of the society; if you show how this system might be introduced into his own country, what it is that hinders it from taking place there at present, how those obstructions might be removed, and all the several wheels of the machine of government be made to move with more harmony and smoothness, without grating upon one another, or mutually retarding one another’s motions. It is scarce possible that a man should listen to a discourse of this kind, and not feel himself animated to some degree of public spirit. He will, at least for the moment, feel some desire to remove those obstructions, and to put into motion so beautiful and so orderly a machine. Nothing tends so much to promote public spirit as the study of politics, of the several systems of civil government, their advantages and disadvantages, of the constitution of our own country, its situation, and interest with regard to foreign nations, its commerce, its defence, the disadvantages it labours under, the dangers to which it may be exposed, how to remove the one, and how to guard against the other. Upon this account political disquisitions, if just, and reasonable, and practicable, are of all the works of speculation the most useful. Even the weakest and the worst of them are not altogether without their utility. They serve at least to animate the public passions of men, and rouse them to seek out the means of promoting the happiness of the society (TMS IV.i.11: 185-6).
This passage, remarkably, is not often written about.   It deserves to be.  It is from the “invisible hand” chapter in Moral Sentiments. 
 It is specifically about a “public spirited patriot” who seeks to “improve” the “public police”, i.e., the provision of goods and services of benefit to the provision of necessary commodities for supply provisions and consumption among the community.
“The perfection of police, the extension of trade and manufactures, are noble and magnificent objects.”
“You will be more likely to persuade, if you describe the great system of public police which procures these advantages, if you explain the connexions and dependencies of its several parts, their mutual subordination to one another, and their general subserviency to the happiness of the society; if you show how this system might be introduced into his own country, what it is that hinders it from taking place there at present, how those obstructions might be removed, and all the several wheels of the machine of government be made to move with more harmony and smoothness, without grating upon one another, or mutually retarding one another’s motions.”
Any comments, welcome.


Blogger IJ said...

A similar theme was raised this month at the World Economic Forum's summit in Dubai. For the global economy though.

One former head of state wanting sustainable political/economy said the world must first be persuaded that changes to the world's economic model will provide them with a net benefit - they must have a buy-in. His state is benefitting hugely from trade with China, so any change in the rules will be a hard sell. Another former head of state was specific about the change needed: a global growth compact. On the other hand the US is currently negotiating a standards-based trade pact [TPP] with Asia that threatens the continued existence not least of the World Trade Oganisation. Asia seems to be countering with a similar trade pact, but with different standards.

A solution to global trade can't wait forever. Banks are sitting on tens of trillions of debt that will no doubt need to be written off. Austerity budgets and additional bank controls in the West seem of secondary importance nowadays.

12:55 pm  
Blogger Lee A. Arnold said...

That is a great passage. There are at least two reasons why such a response may be aroused in the public-spirited patriot. One reason has to do with the tenor of Smith's times; in other words, a description of an intellectual-historical passage as it were. The second reason is not evanescent, but integral to human beings, and it may well be of the essence of biological thought. If we can bring forward another description of what government does in an economic sense, we will see that Smith might have held such a thought in his deepest recesses.

The first reason, which we can put aside, is that people of the early Enlightenment were system-builders by predilection, within the rise of science. They started to think rationally about addressing everything, and we forget this historical inculcation of a new habit of mind, sometimes. As a proof by the negative, we also do not remember another sort of public-spirited patriot, who does not worry at all, about the "connections and dependencies" of "the great systems of public police" [which I presume includes policies]. An ancient Mayan priest counting heads in the temple of the sun-king, for example, was unlikely to be someone looking to extend his well-oiled machinery as a principle into new areas. He may not even have had an individual personality to be able to think in this way, but instead was absorbed, in intentions, into the body of god.

So the tendency to system-building could not be the primary reason for the modern rise of the public-spirited patriot, though we must allow that there are likely to be individual cases who have resorted to it, as an intellectual strategy to suppress or escape childhood trauma.

The second reason is far more likely to be the primary one, and it is set up by chapter 3 of The Wealth of Nations. "The division of labor is limited by the extent of the market." Smith discusses this axiom by presentation of its inverse: how we extend the market, by watercourses and cities. It is will thus be made easier to specialize and survive. Rivers make transport of goods and people easier. Cities bring people into closer proximity, for faster knowledge and trade.

These are both reductions of transaction costs, or let us use "trade costs" for short.

This is perhaps the very first adumbration of the basic definition of "institution" in economics, though I think that it wasn't fully expressed until Douglass North. But even North did not note that rivers and cities are institutions, in economics terms.

As an aside, there are thus two forms of economizing or efficiency. They are to be accounted for in EVERY transaction: (1) the gains to the trade caused by the comparative advantage of each participant, and (2) the trade-cost reduction caused by the institution(s) which cover the transaction: their common language, beliefs, goals, laws, watercourse, cities, government, etc. That is the basic message of Adam Smith, Wealth of Nations chapters one, two, three, almost in toto. Here is an animated flow-chart cartoon picture of the chapters:

To bring it to a close: the public-spirited patriot is rightly interested in all the wheels of the police, and will always be interested in them, for the SECOND reason: because in them, there is the promise of reducing the trade costs of society. It is a way to think about making things work better. It is a way perhaps of making it happen. Institutions and innovations are formally the same sort of thing, at two different levels.

10:16 pm  
Blogger Nicholas Gruen said...

Thanks for the reminder about this passage Gavin. You're right. People should take more interest in it. For me it's Smith commenting on the significance of aesthetics in motivating views about various things. Here, he's saying that the aesthetic sense can motivate even where pure sympathy is a weak force; an interesting and I think correct argument. When people debate the minimum wage or tariffs, are they really that concerned over something that might affect national income by (say) 0.5%.

Today we'd say that they're motivated by ideology - a word Smith didn't have. But I prefer Smith's terminology in any event because 'ideology' is such a loaded word. Ideology has its principal effect over us I think because of its aesthetic appeal - as a way of fitting things together. Smith gloms onto that and makes it an important aspect of his explanation of how people come to value good 'police'.

Though it can be a source of good, it can of course also tip over into harm, as he suggested in the 1790 version of the TMS with his comments about the 'man of system'.

In any event, I give the same Neo-Smithian advice when suggesting that (surprise, surprise) people are actually not that interested in increasing their incomes by 0.5% or whatever the figure is, but when they're shown an iPhone or something 'cool' they love it. They love the iPhone for the natty way things work on it and fit together. That's the same aesthetic sense that Smith is referencing. In any event, here's me dispensing this advice to modern economic conference goers.

The other thing this raises for me is that as the world becomes more complex, we require schema's with which to understand it. This is analogous to the way in which the division of labour makes a virtue of the complexity of the modern economy - by giving people an opportunity to specialise and get better at what they do. By the same token, ideologies or 'systems', summary appreciations of what it at issue in all the policies of one's time require some intermediation so that we can take them all in. I argued something analogous in this report, (pdf) regarding reputations (see p. 22).

"Reputation can be understood as a particularly important aspect of the division of labour. As the world becomes more complex and as our expertise grows so does the division of labour. As our expertise grows, new areas of specialism grow. The individual actor in the economy cannot realistically exercise ‘due diligence’ in all their choices. Instead they require access to expertise that is mediated."

10:50 am  
Blogger Gavin Kennedy said...

Thank you for your comment. I do not think there is any easy or agreed way to achieve what the speakers' suggest. Writing the debt off has enormous risks and who bares the loss?

2:47 pm  
Blogger Gavin Kennedy said...

Lee Arnold,
Thank you for your comment.
I do not think Smith though that "public spirited patriots" were common. He seems to be drawing attention to their likely involvement in undertaking such public spirited act was more likely to be sponsored by their admiration for the means selected than for the ends, much as the private spirited individual was prompted by the idea of the (unnecessary) contrivance he was induced to buy (see the earlier paragraphs about the arrangement of the chairs, or the marginally more accurate watch.
Several new buildings in Edinburgh were built recently by private subscriptions (e.g., the National Gallery of Art, etc.). Those who donated the most got their names sculpted on the walls - itself an inducement.
Your comments on WN on cities, etc., are most interesting, as is the iphone example. Also, perhaps the prospect of lowering trade costs from the development of cities.
I think the passage deserves wider use in teaching economics.

3:02 pm  
Blogger Gavin Kennedy said...

As always, it is a pleasure to hear from you. I found your attachment on reputation most interesting. Of course, some reputations are built on price - 'they must be the best because they charge more', etc. We see a downside in this in the market for MBAs. The 'top tier' providers have tended to 'grade inflation' to secure fee paying students because the failure rate became critical and therefore they tended to minimise it by looser exams, sight of questions, books allowed in the exam, projects written out of sight, marked higher to ensure no failures, or simply disregarded from students who pass safely, sight of questions before the exam, marks for attendance, asking/answering questions in class, and a host more.
All to ensure public pass rates near to 100 per cent. Grades increase with question scores with 99 per cent award marks, up from the norm of c. mid 60s, very few mid 70s, near zero in the mid-80s. Problem is the lower tiers on universities mimic the drift upwards of average pass marks.

3:42 pm  
Blogger IJ said...

Thanks for the helpful focus.

We're into untrodden territory. It's certainly a difficult but surely not impossible situation. The aim of any changes is to have a politically sustainable global economy.

Of course it's unlikely that WallStreet/savers would fall for a huge write-off a second time [big default by US in 1971] without demanding serious checks and balances on politics.

5:24 pm  

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