Adam Smith: Statism and Distributive Injustice in the Wealth of Nations

I’ll be giving a paper at a panel on Adam Smith I convened for the conference Pluralism and Conflict: Distributive Justice Beyond Rawls and Consensus, Fatih University, Istanbul, June 6th-8th 2013. Below is the abstract, which will appear in the conference booklet, as the final paragraph. Preceding paragraphs give the context of debate.

Discussion  of Adam Smith as a political and social thinker tends to be polarised between a minarchist view and a left-liberal/social democratic view. The minarchist view as in the minimal  state position according to which the only public goods the state provides are those of the defence of external frontiers and the maintenance of a criminal justice system to protect individuals against violence, theft and fraud, and in which the state leaves the private economy to distribute income and wealth.. The left-liberal/social democratic view as in the belief that the state can provide public goods of a kind which lead to around half  of national wealth going through state hands, and  the belief that the state should redistribute income and wealth from the richer to the poorer, to reach some predetermined ideal level. That could also be summed up as the difference between the political philosophy of Robert Nozick and that of John Rawls. No one could seriously claim that Smith was a strict minarchist, nevertheless there is a definite tendency for free market libertarians to talk as if Smith did have that view, and remarkably little contribution to the recent growth of interest in Smith as a social, ethical and legal philosopher (Craig Smith is a rare exception,and he is not the most influential Smith scholar around), with many other interests of a cultural, philosophical and scientific kind. Even in the field of institutional economics, the well known book by Daron Acemoglu and James Robinson, Why Nations Fail, which is a tribute to Smith’s most famous book, An Inquiry into the Nature and Causes of the Wealth of Nations, in its title and its approach, is centrist in approach rather than libertarian or classical liberal. At a more absurd level we have Ha-Joon Chang in a recent item in The Guardian associating Smith with Karl Marx or Noam Chomsky equally trying to make Smith out to be a very left socialist.

Chomsky and Chang are certainly not stupid, far from it, so more shame on them for talking in a such a misleading way on this issue. Smith like many free market libertarians now, just about everyone who sails under that banner as opposed to the conservative, or sometimes centrist, establishment types, who use market economics since Smith as a defence of the establishment. Smith was not completely an outside with regard to the British establishment (certainly not in the way he would have been if he had been a Chomsky-Chang type leftist, though as they are faculty at very famous universities they are a bit establishment themselves), but he had a very critical view of the way that the state, and the conservative forces allied with it, use it to protect economic privileges. The examples of economic privilege in Smith are very largely to do with state interference in the economy, with anti-competitive behaviour by colluding groups of merchants firmly linked with state power. Smith’s solution is very largely to withdraw state intervention, not expand it. He was not a strict minarchist, advocating for example state involvement in promoting education, though within what he thought should be largely a private education economy (as noted below). The influential economist and social philosopher Amartya Sen interprets this as justification for a ‘public option’ in United States heath care (which despite popular misunderstanding has long been heavily subsidised and regulated by the federal government) within the insurance options provided by ‘Obama Care’, or more properly the Affordable Care Act. Jumping from Smith’s position on education, which is to recommend far less state involvement in education than is now the case in any country, to a growing state role  in health care in the USA is a perverse argument.

There are perhaps some genuine difficulties in understanding how to apply the thought of an 18th century writer to the present day, but it is not a good procedure to insist that someone who preferred less state should be interpreted as demanding more state now. If we look at a very admirable Smith commentator like Samuel Fleischacker (A Third Concept of Liberty: Judgement and Freedom in Kant and Adam SmithOn Adam Smith’s Wealth of Nations: A Philosophical Companion), we see a tendency to say that Smith must have meant that in the societies of our time which have expanded various areas of state activity enormously since Smith’s time, the state should do more than it is in reducing inequality and other supposed ‘market failures’. Smith was concerned that some forms of inequality flow from manipulation of the political process by the privileged, and had related concerns about balance between geographical  and economic sectors. He was also rather scornful about the luxuries consumed by the rich. However, he never declares economic equality to be an end in itself, and argues for ‘natural liberty’ (liberty as it exists without the state, or maybe through the unplanned growth of institutions) as a basis for the growth of wealth. I can agree with some of the left Smithians that a concept of natural liberty is open to criticism, as if liberty as we know it, and desire it, could exist without any element of state design and sovereign political institutions. However, that is still no reason to say that Smith favoured state designed distributive justice beyond whatever is necessary to support the basics of life (as in the Poor Law of the time which Smith accepted though he did not argue for them), in a civilised society (such as public schemes to promote transport networks, preferably with tolls, as was happening in his time).

There is now a richer and growing ecology of political and social theory between Nozick and Rawls, of which left leaning commentary on Smith is an honourable part. However, for a away of thinking which is as close to Smith as is now possible, it is best to look at what has been labelled variously as Rawlsekiansim, liberaltarianism, Bleeding Heart libertarianism and Arizona libertarianism (various previous posts have explored these, please use search window to find them). That is the growing stream of thought which regards state provided public goods, beyond minarchism, and state action to maintain the living conditions of the poorest, as allowable and desirable, within an overall pattern of economic distribution which comes from the market rather than the state, and where civil society is clearly bigger than the state, and which is suspicious of attempts to always look to the state as the first solution to economic and social problems. Relevant figures here include Jerry Gaus, David Schmidtz, John Tomasi, and  Jacob Levy.

In An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith has much to say about distributive injustice. This has two aspects: injustice towards the poor and injustice between sectors of society. In both cases, the cause is largely the activity of the state rather than the results of markets being left free of state legislation and public schemes. Smith sees injustice as resulting from collaboration between merchants in the same sector, but sees this as more the consequence of state intervention than of free commerce. The state enabling, encouraging and even requiring enterprises to form  corporate bodies in the same sector is the biggest reason for merchants conspiring against the public. The great injustices that Smith mentions to the poor come from the way the Poor Law tends to tie those under suspicion that they might apply for public funds to the Parish of birth only, and the way that requirements for seven years of apprenticeship, before practising a craft, limits the chances to the poor to improve their economic situation. Another source of injustice to the poor is the application of taxes on the necessities of life. Smith’s favours taxing luxuries rather than necessities, but he nowhere calls for progressive (graduated) taxes, and only a tortuous interpretation of his work can support such an idea. Public debt results in a distributive injustice for Smith, which rests on the assumption that ‘natural liberty’ is a better basis for political economy than state interventions. Public debt leads to a forced transfer of income from the productive sectors of the economy to creditors, that is the financial sector of the economy. The solution that Smith advocates is reducing debt, which includes reducing public expenditure, particularly on war. There is a welfare, or ethical, aspect to Smith’s political economy which includes a bias towards the interests of the poor, and against wealth that arises from the less productive parts of the economy. However, these aspects of his thought do not lead him to state designed schemes for distributive justice. Rather he demands an end to those state activities which harm the poor, and the most productive parts of the economy. The assumption is that state action is to very limited, and beyond education, which Smith still  believes should be largely private, he does not suggest expanded state activity.

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