Tuesday, March 28, 2006

Smith on Relative Poverty

Mark Thoma raises an interesting point against certain ‘fans’ of Adam Smith, by which he appears to certain mean people of a ‘rightwing’ disposition in the US who quote extracts from his works, or more commonly, make attributions about what he said or meant that bear a slim connection with what he clearly intended.

To this end Mark Thoma quotes from an article in The New Yorker by John Cassidy on Mollie Orshansky's development of poverty statistics (long, but worth it): 'Relatively Deprived: how poor is poor?'

The perennial issue is whether poverty should be measured in relative or absolute terms. Broadly, the Right prefer absolute measures because these show considerable income improvements over time in affluent, thriving capitalist economies, and the Left prefer relative measures because these show smaller improvements through time because the poverty threshold constantly rises as average living standards rise ahead of the income levels of the poorer section of even thriving economies.

Mark Thoma quotes Cassidy who quotes Smith (I have corrected minor inaccuracies in transcription and punctuation in the text as Cassidy quotes it):

The concept of relative deprivation was first described by Adam Smith in “The Wealth of Nations,” in a passage on the “necessaries” of daily life:
‘By necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without. A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably, though they had no linen. But in the present times, through the greater part of Europe, a creditable day-laborer would be ashamed to appear in publick without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty, which, it is presumed, no body can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England.’
For decades, economists overlooked Smith’s analysis, and it was left to sociologists and anthropologists to study the impact of relative deprivation.”
You will find this quote in ‘Wealth of Nations’
(WN V.ii.k.5: pages 869-70; Glasgow Edition 1976).

Comment
I make no comments on the issues separating Right and Left on the important conceptual issue of absolute v. relative poverty on this occasion, except to acknowledge the importance of always knowing to which concept a contemporary refers.

There are two points I should make. First, Smith goes on to say, immediately after his reference to shoes being a ‘necessary of life in England’:

The poorest creditable person of either sex would be ashamed to appear in publick without them. In Scotland, custom has rendered them a necessary of life to the lowest order of men; but not to the same order of women, who may, without any discredit, walk about bare-footed. In France, they are necessaries neither necessaries neither to men nor to women; the lowest rank of both sexes appear there publickly, without any discredit, sometimes in wooden shoes, and sometimes bare-footed. Under necessaries, I comprehend, not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people. All other things I shall call luxuries; without meaning by this appellation, to throw the smallest degree of reproach upon the temperate use of them. Beer and ale, for example, in Great Britain, and wine, even in the wine countries, I call luxuries. A man of any rank may, without any reproach, abstain totally from tasting such liquors. Nature does not render them necessary for the support of life; and custom no where renders it indecent to live without them.’ (WN V.ii.k.3K pages 870-71).

This second paragraph suggests that the poverty line varies within and between countries. What is regarded as part of the necessaries of life in the 18th century for the very poor in England is different from what is regarded as such in Scotland, even though given the climates of both countries within Great Britain one might think that shoes for everybody in Scotland would be more necessary than in the slightly warmer climate of England.

I have seen photographs of 19th century women, and children playing, in Edinburgh’s streets without shoes on; an English observer would have thought their absence signified a deeper degree of poverty (relative and absolute) obtained in Scotland, yet on Smith’s judgement such a conclusion would be problematical, apparently because Scottish observers would have disregarded a lack of shoes among women and children as evidence.

Apparently, the relative poverty boundary shifted according to the perceptions of observers who would judge where the boundary between necessaries and luxuries happened to settle at any moment in time. So, if a low income family in the USA did not have a colour tv set, the boundary would rise above those poor who had them. As more consumer goods of that ilk spread throughout a population poverty levels judged relatively constantly rise as a society became more affluent. It is this type of consideration that causes problems for critics of relative poverty measures in economics (leaving out the politics).

A similar problem exists, perhaps, with inter-generational comparisons of relative poverty. Children of affluent parents express their discontent with their parents by deliberately dressing down, living scruffily, repelling consumer aids to more comfortable life styles and also indulging in what their parent’s generation consider to be ‘indecent’, including illegal drugs. Just a thought.


Read Mark Thoma at:
http://economistsview.typepad.com/economistsview/2006/03/adam_smith_on_r.html

Read John Cassidy in The New Yorker at:
http://www.newyorker.com/fact/content/articles/060403fa_fact

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