Monday, March 09, 2009

Adam Smith on Liberty

Doug Thorson writes The Freedom factory (‘life, liberty, and the Pursuit of Cash’) Here:

Adam Smith, who lived in the eighteenth century, provided the philosophical and most systematic arguments for the underpinnings of a laissez-faire economic system in his book “The Wealth of Nations.” Smith makes the argument that it was only the interference of government which disrupted the natural working of economic society and created poverty and decay rather than abundance and harmony.

As Smith explained:
The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred obstructions with which the folly of human laws too often encumbers its operations.

The drive for greater government regulation is the drive toward increased poverty, unemployment and the loss of liberty. With the Obama administration pushing an ever expanding federal government plan to take control of our financial institutions, health care system, the auto industry, and its attack on free speech, the time is now to clearly articulate the differences between free markets and free people, and government administered markets and government control of our lives

Smith was more ‘nuanced’ (as is the fashion in these matters) about the causes of wealth creation (poverty is not ‘caused’; it is a consequence of the absence of wealth). Smith did not ‘underpin’ laissez-faire as an economic system in Wealth Of Nations. That is an ideological myth.

He wrote a critique of the existing political economy of the British state and, by implication, of other European states. He did not dismiss all government actions and interventions; his critique focused on specific government policies, some in place since the 16th century, summarized as mercantile political economy, and which directly hindered the creation of wealth and thereby allowed poverty to continue for a segment of the population.

These mercantile policies included ‘jealousy of trade’ against neighbours (who were Britain’s customers), wars that projected political interferences in continental countries and not to promote legitimate defence interests of an island society, erroneous policies of hoarding gold and silver which led to tariffs and prohibitions on wealth creating trade, laws and statutes than inhibited capital and labour mobility (the Town Guilds, Corporate monopolies of wholesale and retain trades, Apprentices Statutes, and Settlements Acts, all of which were promoted by legislators and those who influenced them, and, the roles of Chartered Trading Monopolies (the East India Company) and the foundation of colonies in North America, which grossly distorted wealth creation through trade monopolies, excess profits, and expensive wars to maintain, well beyond any benefit to Britain.

In response to these inhibitions by government policies, Smith advocated a substantial role for government in funding the infrastructure investment across Britain in project to ‘facilitate commerce’, such as in a national road-building programme, the creation of safe harbours for trade and travel, canals between population centres, the paving of large towns, street lighting, sewage and waste disposal, and the proper administration of ‘police’ (a broader term than modern day usage, which included ensuring the appropriate supply and regular availability of subsistence for town populations.

He also advocated national education facilities in ‘little schools’ in every parish to educate every child to ‘read, write, and do account’, preferably with some geometry in place of Latin because such skills would be more suitable for young adults looking for work. He also made a little noticed case for government palliative care for people suffering leprosy and ‘other loathsome diseases’ (a provision with large future cost implications).

Smith saw competition as the major stimulus for commerce in place of monopoly and regarded many ‘merchants and manufacturers’ as a barrier to the growth of commerce from the attempts to lobby legislators and those who influenced them for trade protection and special privileges.

Doug Thorson may not appreciate the extent to which Adam Smith was not an advocate of laissez-faire as advanced by some the French économistes or Physiocrats. In 17th-18th-century France, local trade markets were highly regulated by central government and the inspectors appointed by Government interfered closely in the day-to-day running of businesses, large and small, to a degree unknown in Britain. Their cry for ‘laissez nous faire’ had a different basis to Smith’s advocacy of commercial markets where possible, government intervention where necessary.

The ‘folly of human laws’ was not advanced by Adam Smith as a case for no, or limited, laws. He insisted on instruments of justice as a foundation for human society, but he knew, as we do, that governments pass laws regularly, some of which are manifest follies in the consequences, and which are the faults of the use of political processes for sectional interests.

That is why Liberty, enshrined in law and practice, is a foundation for the creation of wealth.

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