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.

How Locke uses Money to Solve the Land Problem

In chapter 5 of his Essay on Civil Government, ‘Of Property’ Locke famously refers to property as emerging from the land mingled with labour. Presumably he would have been rather startled to find that one line of interpretation of that remark leads to Marx’s labour theory of value. What he says about property is certainly very influential. In one aspect, it is an early sketch for political economy, some of what he says anticipates Adam Smith, particularly with regard to currency and trade, and that would be because Smith had read Locke, though he had other sources for those ideas as well.

A major issue is the way land is turned into property, beyond that moment of labouring on the land. At first Locke seems to be relying on the idea that land is infinitely available, and there’s no need to worry about someone having a lot because there’s always more land somewhere. In the end, that somewhere is America, Locke being sadly careless about the rights of existing inhabitants, but he was far from the only one. America made a deep impression on Locke, he did remember Native Americans when claiming that their political structures confirmed his idea of a compact (i.e. contract) at the foundation of political society. The emptiness comes back when he refers to the right to withdraw from a political society and to go elsewhere to help form a new political society with better rules, he is certainly thinking of the New World as the place for that.

Land clearly has some limits. How have those who claim to be heirs of Locke reacted to that in recent years? The most famous ‘libertarian’ would be heir to Locke was Robert Nozick, in his book Anarchy, State and Utopia. As far as Nozick is concerned, land running out is not a problem. The only issues are to do with freedom of contract and markets. Nozick refers to a ‘Lockean proviso’ that taking land should not harm anyone and comes to the conclusion that no harm is done by accumulating land of everyone is still free to buy and sell in an open market, and presuming we are not in some highly unusual situation like a small desert island where one person controls the only fresh water supply. The Lockean proviso is therefore irrelevant outside such peculiar circumstances.

There is a ‘left-libertarian’ response from Michael Sandel in Libertarianism without Inequality, which is that Nozick’s ‘Lockean proviso’ is to weak to capture what is in Locke’s original intuition. This leads Sandel to argue that property should be distributed, and redistributed, so that everyone starts with an equal amount at birth, and that would largely eliminate the need for a complex tax and benefit system administered by a large state apparatus to achieve egalitarian goals. A variation on that is the argument stemming from Henry George for a land value tax, which would be a rent on the collective good of land, and which would pay for basic public goods (things everyone benefits from like freely provided police services). These are attempts to have libertarianism, a minimal state, combined with economic equality.

Strangely both sides of the argument have overlooked the way Locke develops the argument from paragraph 37 onwards in Chapter V. Locke refers to the emergence of money as a way in which everyone can benefit from everyone’s production by having a convenient instrument for swapping the product of my labour with the product of anyone else’s labour. What Locke gets out of this, in relation to the land problem, is that money means that unequal land appropriation is not a problem. So long as the proprietor sells the products of the land, then everyone benefits because the range of things that can be bought has increased and everyone has gained.

What Nozick is essentially doing is appealing to the idea that in Essay on Civil Government, the right to have and increase property is such an over-riding idea that it must override the problem of land running out. There is a more immediate argument to hand which suggests that the land problem is only a problem in a non-money economy. Just the willingness of the proprietor to barter the products of the land is enough for Locke.

That looks like victory for Nozick over Otsuka, though we really should not use exegetical arguments as a substitute for arguments of principle. In these exegetical terms, I think Otsuka does have an advantage overNozick, which is that Nozick underestimates the degree to which there is ‘public good’ in Locke, which is decided by a representative assembly. How far public good can override property rights in Locke is a tricky question from an internal point of view. So let’s introduce an external point of view. Where is Locke coming from politically? Support for the Whigs who where dominant at the time that the Essay on Civil Government was published (1689). Was there a system of the kind proposed by Nozick where the state is purely an agency for enforcing contracts and punishing violence? No, in many ways, and accordingly taxes were much higher than would be acceptable from the perspective of a Nozickian absoluteness about property rights. I would say, we need to interpret Locke as allowing a lot of latitude to ‘public good’, certainly enough to impinge on property rights though not enough to undermine the right to have property and keep it. Locke, and Nozick, are right to believe that in a free trading economy with money everyone benefits from the use landowners make of land.

Primary version of this post at Barry Stocker’s Weblog, with visual content!

I said that we should not confuse exegetical arguments with arguments from principle. I will nevertheless say that Locke’s text, with the hermeneutic aid of the political settlement he supported, is against both

restricting the right to acquire property

the notion that property is outside regulation and taxes which benefit the public good.

I presume that from a Lockean perspective that the amount of regulation and taxation should be very modest, and that those proposing such measures need to demonstrate their benefits very clearly. This all seems correct to me, something I would take up in my political perspective, and that this is the right way of taking most taxes in Classical Liberalism, despite what endless numbers of (mostly American) ‘libertarian’ keep claiming about Classical Liberalism leading to almost no state and little idea, or culture, of a public good. I don’t think their readings are worse than Rawls, but I have already addressed that a few times.

Nozick Alone Among the Libertarians

I’ve been researching Nozick and his commentators for the MA course I’m giving next semester on Contemporary Political Theory (details on my university web page, see right hand column). The most vicious critics of Nozick are certainly his fellow Libertarians, including Murray Rothbard who Nozick refers to as important in converting him to a Libertarian point of view. Libertarian in this context means the capitalist version in which if the state exists at all, it should only exist to uphold property rights based on voluntary contract, and protect individuals from violence. In the Anarchist, or near Anarchist version, of which Rothbard is the best example, these laws emerge in a voluntary way without any need for a state.

Though I was already acquainted with the idea that Capitalist Libertarians/Anarcho-Capitalists are a quarrelsome lot and that most of them are on the fringe of the academic world, I was startled by the response of Libertarians to Nozick. Nozick is by some way the most distinguished representative of that point of view in academic philosophy. No one has replaced him in that role since his death, and Nozick may himself have stopped filling that role. Though he did not say much about political philosophy after his Libertarian masterpiece Anarchy, State and Utopia, there are indications he pulled back from his claims in that book to a softer form of Libertarianism (presumably heading towards the kind of welfarist liberal/capitalist libertarian crossover I favour). The Libertarian response is to sneer that he turned into a social democrat. Anyway they did not like his book in the first place, and were probably relieved that he could be later labelled as an apostate .

Murray Rothbard, and his followers, express great jealousy of Nozick’s success, claiming that Rothbard’s Ethics of Liberty (click for pdf download) is a more important book. The book can be found via as can a great deal of other relevant material. I certainly don’t fault the Misess Insittute people for failure to use the Internet properly. Anyone who compares Rothbard’s book with Nozick really ought to feel embarrassed for Rothbard, and his followers, that they could be so self-deceiving and foolish as to think Rothbard’s book is better. His method of argument is constant restatement of the view that the state is unnecessary, and that left to themselves, people will create better voluntary arrangements. His method of dealing with different points of view is to insult them and to fall back on an analogy between the state and a supplier of goods or services in a market economy based on rules of a kind which have always been enforced by the state. Just like Anarcho-Communists, Rothbard relies on natural intuitions of Natural Law to substitute for the role of the state. Again the universality of these intuitions is asserted rather than argued for. The fact that Nozick’s book is composed from a variety of detailed arguments for his position is used against him by the Rothbardians, apparently people just read those arguments separately which is supposedly easier than reading Rothbard’s book through. There is nothing difficult about Rothbard’s book apart from the boredom resulting from his constant under argued assertions.

Other criticisms of Nozick from team Rothbard, and other Libertarian crews, include outrage that Nozick finds paradoxes at the foundations of Libertarianism he has to try to answer, essentailly the classic paradox of explaining how people consent to a common set of rules without force. In their zeal Libertarians are shocked by the possibility of paradox in the foundations of their ideal system, though one might think the whole point of political philosophy is to deal with the paradoxes that human reason throws up and which every inquiry into the heart of a subject always throw up.

Jealousy is never far from the surface. The feeling that famous universities are dominated by cliques of elite left-liberal academics excluding the knights of Libertarianism is a constant theme. It is not possible that the left-liberals (also Neo-Conservatives and Conservative Paternalists) could be doing honest work of high quality. The fact that Rothbard never had a job at a famous institution clearly embittered him and his followers. Rothbard appears to have been a generous and inspiring person in some respects, but somewhat lacking in a sense of proportion about his importance and the quality of his essentially polemical work. Nozick was a professor at Harvard, and even worse is very generous about the work of his famous left-liberal colleague John Rawls. Generosity to non-Libertarians is not widespread in Libertarian culture; they find it hard enough to be generous to each other. Nozick appears to have been a sensitive, understanding and well rounded individual who did not try to dominate other people or establish a clique of loyal followers. He was certainly a misfit on Planet Libertarian