Michael Fry Speaks Truth to Politics

Michael Fry writes in The Scotsman (“Scotland’s national newspaper”, 18 April 2013  HERE

“Money and morality an issue for us all”

“ADAM Smith would not have been a fan of a government making its citizens’ moral judgments for them, writes Michael Fry.

In the time of Adam Smith, just like today, Scotland had a problem with its fishing industry. There was not much money for investment in that period, and the fleet was out of date – in particular, it was no match for the European boats, usually from Holland, which made a habit of coming into Scottish waters to catch the fish from under our lads’ noses. Sound familiar?

Then, as now, the British government considered that if Scotland had a grievance, the best thing was to throw money at it. So the Treasury provided a subsidy (a bounty in contemporary language) for building bigger and better Scottish boats to match the Dutch ones. Smith was living in Kirkcaldy, so he knew all about these things from the fishermen of Fife, and he wrote: “It has, I am afraid, been too common for vessels to fit out for the sole purpose of catching not the fish but the bounty.”

I thought of this when I read a speech given by Alex Salmond {Scotland’s First Minister in the Scottish Parliament] during his visit to the US for Tartan Day last week. He was addressing an audience at Princeton University, so the thoughts were suitably learned. They drew a distinction between the Smith of The Wealth of Nations, with its advocacy of capitalism (or something very like it), and the Smith of his earlier book, The Theory of Moral Sentiments, which recommends altruism and benevolence – or, as the First Minister horribly put it, “empathy”.

Salmond will always be a politician more than anything else and, before closing his remarks, he drew some conclusions from all this theory for the burning issues of today. One subject he turned to was climate change and his government’s policies to deal with it.

The most controversial part of that programme is wind farms. Even as I read Salmond’s speech, the Highland Council was nodding through a proposal for a wind farm with 83 turbines to be built above Fort Augustus, and so ruin another stretch of rugged scenery.

But hang on a minute, is it not possible to discern a certain similarity between the fishing boats of the 18th century and the wind farms of the 21st? In both cases, government decides they are a Good Thing, not only in Scotland but “worldwide”. So it subsidises them.

The interesting thing is where the subsidy goes. It goes not to the consumers of fish, nor to the consumers of energy. It goes to the producers, to the builders of fishing boats or of wind farms – both groups that then make large profits at public expense. It is in the end a transfer of money from the powerless us to the powerful them, with government the arbiter of this redistribution.

For all its reputation as a handbook of capitalism, The Wealth of Nations is full of such examples of what today we have come to call rip-offs. “People of the same trade seldom meet together,” Smith writes, “even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” …

... Smith is a psychologist as much as an economist, and for me the uncanniest part of his genius is to tell us, in every case, what is actually going on. He was a cautious fellow, but his very caution allowed him to read the reality of motives. And once he had read them, he was always on the side of the small man likely to suffer from the presumption of the rich and powerful. When he called for liberty, as he constantly did, it was to secure the rights of the small man against the rich and powerful. …

… How did Smith propose to deal with the abuse of liberty? To answer the question we must turn from The Wealth of Nations to The Theory of Moral Sentiments, and there we can learn that morality is not secured by the multiplication of laws, nor by the interventions of government, which are both inevitably corruptible. It is secured not at a public level but at a private level, in each person through the cultivation of his or her own moral sensibilities.

Comment

[Disclosure: until my retirement in 2005, I was a member of the SNP and I still am a donor (of small not large sums post retirement!) and I regularly vote for its candidates. I can therefore address political problems in conformity with my self-denying ordinance on Lost Legacy of not discussing politics in any country except the one I vote in.  In this respect, I shall vote ‘Yes’ in Scotland’s Independence Referendum in August 2014.

I have been an academic associate of Michael Fry for 40 years.  I do not know his politics, but I share with him membership of the Tuesday Club in Edinburgh, a slightly right-of-centre dinner club with members close to the social-democratic centre left to the more conservative centre right, and those, like me, who straddle both trends as a moderate Libertarians.]

Fry writes:

“For all its reputation as a handbook of capitalism, The Wealth of Nations is full of such examples of what today we have come to call rip-offs.” 

How right he is.  Wealth of Nations is as wildly misread (usually from selective collections of quotations from it) and it remains as widely unread.  Add to this unhappy situation the awesome fact that Smith’s “Theory of Moral Sentiments’ (1759) is even more widely unread than Wealth of Nations and we have a recipe for quite astonishing degrees of ignorance about Adam Smith’s legacy.

Take the quotation about “People of the same trade seldom meet together even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

This often quoted passage is an apt description of the baser habits of businessmen in commercial markets even today.

In Smith’s 18^th-century Scotland, he alluded to the behaviours of the Town Guilds, which shared, under legislation, legal rights to engage in powerful monopolistic practices whereby under the Statute of Apprentices (from Elizabethan times in the 16^th century) master tradesmen were restricted to two apprentices enduring 7-years of training and the further restriction that to practise their trade as fully-fledged tradesmen they had to be approved by the local Trade Guilds or move somewhere else.  These laws were a license for the local Guilds to exercise a perpetual monopoly, or, in modern terms, a “closed shop”.  Monopolies raise prices and restrict competition, which were common before Margaret Thatcher’s governments abolished them in trades unions in the 1980s.

I liked the analogy Michael Fry develops between the herring boat “bounty” and today’s wind-farm “subsidy”. I remain a sceptic of 1990s “global warming”, recently changed to “climate change”, and soon, I suspect in view of the extraordinary cold winter here in Scotland, to become “global cooling”.  Nevertheless, Fry’s analogy deserves consideration.

I commend Fry for spotting the important point Smith made on Liberty: “When [Smith] called for liberty, as he constantly did, it was to secure the rights of the small man against the rich and powerful.”

This is absolutely right!  Those who read into Smith a passion for laissez-faire (leave alone) misunderstand him. 

Firstly, Smith never used the French words,  rightly in my view as a cry on behalf of merchants, not their consumers.  M. Le Gendre, “a plain spoken” merchant, in 1690 answered dirigiste French Minister, M. Colbert, when asked what he wanted, replied ‘Laissez-nous faire”.  At the time, the French administration tightly controlled by hosts of regulations everything that merchants could do in practice.  They wanted freedom to run their business affairs entirely themselves.  Their customers were not asked what they thought.

Secondly, English mill and mine-owners supported ‘laissez-faire” for themselves, not their employees or ocmpetitors, when they supported campaigns for the Repeal of the Corn Laws (to reduce high food prices and thereby industrial wages) and the early Factory Acts that restricted hours of work and the introduction of modest safety measures, especially for women and children.

From these misleading associations, classical economists promoted “laissez-faire” in their textbooks and sank its roots into their political economy, including spreading the general and false view that Adam Smith advocated laissez-faire.  Even today, in neoclassical economics, the identification of Adam Smith with laissez-faire is commonplace

I recommend that you follow the link to read Michael Fry’s full article.