Friday, May 15, 2009

Adam Smith on Defence

The Public Choice Capitalist (‘shifting your thought consumption’) HERE writes on:

“Rent Seeking during Wartime: A Smithian View of Military Action”

“Adam Smith believed that British Imperialism was bankrupting the country. He believed that most of the time the cost of the action was much higher than the benefit for the public. This is an area of research I have done a lot in. Scholars from Hobbes, Sumner, Cobden, and Schumpeter have all concluded at one time or another the companies that benefit from war either foreign or abroad will lobby the government for the exclusive contract. This is no different than domestic lobbying from teachers unions to Department of Education. The lobbying will allow the politicians who support more war actions to stay put in place. This is likely why the Democrats have not been as strong in their actions as they have been in their rhetoric.

A good start to the post (a bit exaggerated: he didn't suggest that Britain would be bankrupted - its rate of growth would be curtailed), but needs to go further to explain Smith’s views on ‘military action’.

Smith's first duty of government action was the defence of the country from invasion and violence of other societies (WN Book V, Chapter 1: apologies; my Smith library is in Edinburgh; I am in France; it would take too long to consult my 1818 edition of WN, given my other tasks this morning). This was not a trivial duty, especially on a shared continent, riddled with dynastic conflicts and ambitions. It was, however, a defensive stance, not an ambitious stance for the covetous.

Smith’s critique of mercantile political economy (WN Book IV) including those policies that were based on ‘jealousy of trade’, suspicion of neighbours, and what we call ‘zero-sum’ trade relationships.

Smith saw the dangers of colonial ventures, especially when accompanied by monopolistic measures beyond their initial role when setting up trading posts in distant countries (India and North America). However, for an island power, such as Britain, which was exposed to naval sanctions by foreign kingdoms, he saw the minimal commercial necessity for the Navigation Acts (to provide sufficient experienced naval personnel to man warships in defence emergencies), though he had severe reservations about their role in enforcing commercial monopolies of trade as they had become by the mid-18th century with the North American colonies.

Overall, for Smith, defence was of more importance than opulence (without the former, you would lose prospects for the latter). The implied question he posed was how much defence was enough? The slope from sufficient defence to sufficient war capacity to engage in interventions in the affairs of foreign countries was slippery. And Britain was too easily dragged into such conflicts (partly a product of the prevalence of dynastic kingdoms dominating Europe and their colonies).

Smith was not opposed to defence industries where necessary for the defence of the country. For the commercial defence industries their contribution to commerce was productive (they existed to make profits by paying for their costs, which included their owners’ profits; the government’s expenditure on the costs of defence supplies, including the wages of soldiers and seamen, was unproductive – they did not reproduce their costs).

Modern questions relating to ‘how much defence is enough’ are not much different now than in Smith’s time. Britain was projecting its interests with an increasing global reach; its colonies were showing evident signs of becoming major commercial players (held down by the UK Navigation Acts in Britain’s, not the colonies’, interests). The 18th century was a busy century for major, and expensive, wars, and just over the horizon was the even longer, and more expensive, Napoleonic wars (Smith complained at the expence of the 7-years war at £125 million – which could have gone into growth-inducing productive investment).

The crucial decision point was the loss of the British colonies in 1776-83 (itself no mean expense). Smith advised:

If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expence of defending those provinces in times of war, and of supporting any part of their civil or military establishments in times of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.’ (WN last paragraph, last page).

Smith’s principled advice was disregarded: Britain went on to build a second empire, bigger than the first, which with the smaller 19th-century wars, and the two much bigger world wars, was to cost unprecedented amounts of gross annual product. It many senses, Britain has still not reconciled herself to the ‘real mediocrity of her circumstances’, and still plays, or pretends to play a role as a world military and diplomatic player.

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