One of the questions within economics is on whose behalf should it be assumed that a person acts, and with what motivation?
The answer was actually answered before economics really began when this was written:
HOW selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
This next quotation seems to me to be the perfect explanation of this text and follows shortly after the above sentence:
As we have no immediate experience of what other men feel, we can form no idea of the manner in which they are affected, but by conceiving what we ourselves should feel in the like situation.
For the record, the first quote is the first sentence of Adam Smith's Theory of Moral Sentiment, written in 1759, and to which The Wealth of Nations is usually considered a footnote. The second sentence is the one that opens the second paragraph. It was written to interpret the first.
Why does this matter? For three reasons.
It says that our wellbeing is dependent upon the happiness of others. We are not, in that case, ever able to ignore their situation.
It adds that the sufficiency of the wellbeing of others is enough to provide us with satisfaction: we do not need to directly benefit from it in turn
And it adds that because we cannot ever really know the position of another person it is our duty to imagine their position, however incompletely we might do so, to ensure that their wellbeing is best considered, and so improved, by us. That adds a massive amount of subjectivity into economics, which is, of course, exactly what it is about when so many decisions we make have direct consequences for others.
Does that sound like the Adam Smith projected to the world by the neoliberal era - where the supposed guiding hand of self-interest is what drives markets and economies, but is in fact only worthy of a single minor comment in the Wealth of Nations when the whole of Smith's greater work is devoted to the themes I note above? It does not sound like that caricature, of course, because that caricature is not in any sense a proper abstraction from what Smith really thought.
I would suggest that the above sentences, chosen by Smith to open what is his great treatise, are what really represent his thinking. I am confident in that opinion because they survived in the positions that they have despite Smith's notorious near-constant tinkering with his own work.
If that is the case, and if Smith did found economics, as is commonly said, what did he set out to make it achieve? It was, surely, an explanation of how the wellbeing of all might be improved, which might be done by imaging those ways that the discipline might achieve that goal that are necessarily impacted by the decisions that others make. Whatever theory, technique, observation or anecdote might be involved, this was the aim.
What does that mean now? I'd suggest that four questions need be asked whenever an economic activity is promoted. They are:
- Do I know what might improve the well being of others?
- Might what is proposed improve that well being?
- Would the proposed activity cause others to have a reasonable concern as to my wellbeing?
- Can the proposed activity, in the light of these answers, be justified?
It's a simple sequence of questions. They're pretty powerful. And they follow in the footsteps of Smith.
The ideas for this article came out of a discussion with Danny Blanchflower on the Mile End Road Economists agenda. Right now I am suggesting this as a methodological approach for its use.
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[…] Cross-posted from Tax Research UK […]
I’ve decided to try a financial transaction tax and run it through those 4 questions:
Yes (if adding ‘think I’)
Yes
No (if there is no feedback, such as blocks)
But I struggled with question 4: justification requires that something be just, that the ends justifies the means. For that reason I think that the Sowell triplet of questions are better “1. Compared to what? 2. At what cost? 3. What hard evidence do you have?”
Ok, so my questions at least identifies what should get in the mix
But let’s be clear, when most judgements are wholly subjective and evidence is assembled to support judgement they might beat your suggested version by recognising that fact
Interesting.
From what I’ve read of Smith, he saw the power of markets, business etc., as a way to benefit everyone. Everyone had the potential to live decently. This view however, depended on his view being used all of the time by all market actors.
Smith spoke a lot about greed too – he abhorred the greed of labour and guilds but also the greed of owners and finance in equal measure. He saw greed as a de-stabilising element in the potential function of an economy to meet the human needs of all involved in it.
Why? Because he saw with his own eyes, that’s why. Reading about him I get the feeling that he was a first rate observer.
Even the French liberal economist Frederic Bastiat knew of the malignant potential of greed in finance and business. Bastiat for me remains a fascinating character because his writing contains all the contradictions inherent in economics and which were never really fully resolved by liberal thinking.
The tension for example between self realisation and it’s impact on others. What liberalism like this actually curtails is the liberty of others (to live free of fear, poverty, etc).
Neo-liberalism has decided not to consider any consequences of self-realisation whatsoever. Just like Ayn Rand advocated in ‘Atlas Shrugged’.
I decided to read The Wealth of Nations a few years ago. Soon realised that Adam Smith had been subject to extreme abuse by the neo-libs.
The passage that struck me the most?
“No society can surely be happy and flourishing of which the far greater part of its members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged”
(p70 in the version I downloaded from Archive.org)
Precisely
Adam Smith was first and always, a philosopher (in the tradition of Francis Hutcheson’s – his mentor’s – moral philosophy). His economics are intended to be framed within his moral philosophy, and he reminds of this throughout the ‘Wealth of Nations’; although there are also curiously some serious and almost certainly deliberate omissions, which arise from some of the intellectual tensions he encounters.
Neoliberalism has re-imagined Smith wholly in terms of the omissions (like playing a piano solely on the gaps between the keys). Here the key culprit is Friedrich Hayek (1899-1982), a brilliant intellectual historian (but a better polemicist than economist) who knew better of Smith than his neoliberalism allows. In the ‘Road to Serfdom’ (1943), there are at least six references to Adam Smith, and every single one is highly misleading (a visitor from Mars, reading Hayek on Smith here for the first time, might easily assume that Smith was not a powerful critic of 18th century Mercantilism, but a well versed critic of twentieth century State Socialism!); but Hayek’s whole sorry book – the Biblical Text of Neoliberalism – is little more than a poorly argued, but manifestly enraged assault on a preposterous straw man; eclectically assembled from the ill-fitting political litter and dark detritus of the world, into a single crackpot object of Hayek’s personal hatred.
In my view, von Hayek was a reactionary – his was a reaction against Nazi fascism and he saw Government in those terms – it’s potential for harm.
And he has a point. Look at our Government!
But what we really get from von Hayek instead is fanaticism on the other foot – virulently anti-state to the point of of rendering it useless as well as a denial of or no recognition of human qualities such as altruism.
Yes – a true fanatic was our Fred von H!
economic well-being may well be seen by the electorate as contradictory themes . unfortunately
most peoples general economic thoughts are dictated by the amount available to them to get by over the following month
with a sentimental slosh to get the poor animals out of Kabul
In addition to being pleased at your recent increased focus on the extent to which the sustained capture of economic rents characterises and defines modern capitalism, I am even more pleased that you’ve gone back to the foundations of modern economic analysis presented in Adam Smith’s “Theory of Moral Sentiments” (TOMS). TOMS preceded “The Wealth of Nations” and, in Smith’s view, TOMS laid the foundations for the latter and was its equal, if not more important.
Smith was probably the first proper political economist as we would understand the term. The right, capitalists and the armies of professional functionaries and flunkies they retain have sought to maintain a selective, self-serving focus on the economics. But the politics is even more important.
However, capitalists and the right, via their control of much of the media, have been able to reduce politics to factional conflict, to the tyranny of faction and to a focus on personal, tribal and quasi-ideoloogical feuds that provide distraction and some entertainment value but mean absolutely nothing to the daily lives of most voters.
But politics is fundamentally about the “polis” – the governance of the people, by the people, for the people. However, capitalists and the right have been enormously successful in ensuring that governance is of those who exercise economic and organisational power, by them and for them. And the individual and collective interests of the mass of ordinary citizens have been trampled on and damaged to advance the interests of the capitalists and the right. US capitalism is probably more aggressive and acquistive than local variants. (We have seen the signal success of US capitalism and its military-industrial complex in Afghanistan.)
A simple example suffices. Where I live, the US pizza chain, Papa John’s, when establishing a local franchise, has, with the collusion of the local council, trampled on the interests of residents in a part of the town. These residents were denied due process – and continue to be denied due process. In the same part of the town, and affecting the same residents and many others, the retirement homes developer, McCarthy Stone, owned by and taken private by the US equity fund, Lone Star, is proposing to construct a retirement homes complex by demolishing a number of commercial properties. The site is on land in the middle of the key traffic gyratory system in the town. It would be difficult to conceive of a more inappropriate location for a retirement homes complex.
However, and presented as a total coincidence, the local council, as part of its town centre master plan, is planning to pedestrianise one arm of this gyratory system – and this runs along the frontage of the proposed retirement homes complex. This will require a complete reconfiguration of the gyratory system, will hugely damage its current functionality and will have major detrimental impacts on all traffic system users in that part of the town. However, this part-pedestrianisation and reconfiguration of the gyratory system will considerably reduce the current inappropriateness of the location of McCarthy Stone’s proposed retirement homes complex and hugely enhance its value – but at enormous cost to local people.
I am sure there are numerous examples like this in every town and city in the land. All politics is local, but nobody is joining up the dots and the forces of capitalism are adept at dividing and conquering and suborning local governance. If we don’t join up the dots and collectively resist we will be trampled on even more. In the US there is a long tradition and an effective practice of the statutory advocacy of the collective interests of citizens in their dealings with capitalism. We have no such tradition or practice. It’s long past time we established this. There are numerous reasons why US capitalists are aggressively buying up parts of our economy, but one ignored reason is the fact that, here, they can escape the statutory advocacy of the collective interests of citizens that disciplines them in the US.
Another Smith quote
“The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest of his own particular order of society” The Theory of Moral Sentiments, pt VI, sec ii, ch 3.1*
*Just in case anyone tries to argue that this book was superseded by The Wealth of Nations, TMS was both his first book and his last, as the 6th revised and final version of TMS was published in 1790, a year after the 5th and final edition of WN.
Sunak needs to consider why, if we could afford to fund the NHS in 1948 when we were so poor, we can’t afford to do so now?
Agreed, and thanks
I am regularly reminded by the latest gibberish from the Adam Smith Institute that none of them have read and understood Smith, be it Wealth of Nations, let alone Moral Sentiments. Smith clearly understood the weaknesses and dangers of unfettered capitalism and the need to reign it in.
As an antidote to the ‘freedom loving’ gang, Amartya Sen’s Development As Freedom is well worth reading. Without the basics of life – health, education, housing etc – people cannot be said to be free. It also helps distinguish the libertarians who think only of their own freedom regardless of the consequences for others, from the genuine liberals who care about the freedom of all. Beveridge was after all a liberal.
Hayek’s ‘The Road to Serfdom’ was actually written specifically as a neoliberal rebuttal of Beveridge’s social reform proposals for post-war Britain. In order to understand this fundamental point, read Bruce Caldwell’s Introduction to the ‘definitive’ edition of ‘The Road to Serfdom’ (University of Chicago Press, 2007), which carefully provides the publishing history.
In an Appendix to the text is Hayek’s memo to Beveridge of 1933 on ‘Nazi-Socialism’ (pp.245-248), where he first challenges Beveridge’s whole approach, as what proved a preliminary to the book. The memo’s assertions about the nature of Fascism does not stand the test of history and evidence well, notably suggesting to the non-ideological reader that Hayek in fact had little idea how capitalism actually works (rather than a pre-formed, abstract speculation of what he thought it ought to be). The fact that capitalists may work in alliance with the Nazi Party proved to Hayek only that they were either “mistaken” (but modern scholarship on the Third Reich rather shows it was Hayek who was mistaken about the capacity of Capital to consort with Fascism, to the end).
So far had Hayek sunk even by 1933 (understandably perhaps, at least in part, as a refugee from Fascism in Austria, but his personal emotions and predicament does not make his thought, ‘a priori’ sound); that Hayek goes on in the Beveridge memo, to claim that the defining characteristic of “modern” German Capitalism is that “many capitalists are themselves strongly influenced by socialistic ideas, and have not sufficient belief in capitalism to defend it with a clear conscience” (p.245). So far from this assertion establishing or still less making Hayek’s case, it rather reveals the depth of his ignorance of capitalism as a working economic system; a system which has demonstrated its power, time and again, no matter what, not just to survive but to prosper in almost any political climate, however apparently hostile: above all because of its virtually limitless plasticity confronted with almost any eventuality. Capitalism has the remarkable, open-ended capacity to adapt to, and eventually, over (and given) time, to capture any system with which it is confronted. Socialism is far more typically putty in its hands.
Oddly, I was discussing this theme with my son this afternoon, to whom I have lent a copy of The Road to Serfdom for him to read as part of his studies at university
There is an “either” in my comment that is entirely redundant. The “either” became the third paragraph instead. Apologies to readers.
A good choice for your son; after all ‘The Road to Serfdom’ remains the Biblical Text of Neoliberalism; although it really isn’t a well argued book, but a polemical rant. He may usefully read those writers who examine how capitalism actually works in a crisis. The test is evidence; look at Hayek’s sources in the book: always intellectuals, and theoretical texts; no empirical research. The antidote is someone like Minsky on the Great Crash of 1929 or Ponzi schemes; the Financial Instability Hypothesis. Minsky proves Vespasian was wrong; the money does smell: a ‘reality rush’.
Other readers may have other, perhaps more interesting suggestions of the appropriate, insightful Hayek antidote, where you do not require the nose of a dog to appreciate it.
I spent a fair chunk of my working life dealing with various City and financial organisations. When I came across Minsky, courtesy of Steve Keen, he made perfect sense to me having seen the people and their methods and models in action. How financial capitalism works in practice rather than the ideological theories of Hayek and co.
When Black Monday happened, I was in the middle of a months course at business school in Chicago, the home of so many neoliberal economic ‘gurus’. Some of the more questioning participants had a lot of fun pointing out how this had blown a rather large hole in what the economics professors had been trying to teach us. Mostly came from the very small group of Europeans.
As the old joke goes, ‘that’s fine in practice but it would never work in theory’. Applies to so much of classical and neoliberal economics.
🙂
@Robin Stafford,
Your observations are very perceptive and resonate. Thank you. But I expect you realise that you had the talent, ability, resources and opportunity to secure a ring-side seat. However, many of your peers, who were similarly advantaged, but unlike you, determinedly refused to accept the evidence of their eyes and ears – and simply took the money and ran.
Most citizens have no understanding of what you have grasped. Nor do they have any opportunity to secure even a limited understanding. But it impacts on their daily lives – and often in a brutal fashion. Most people who are engaged in the formal economy and whose main source of income is generated by offering their labour in return for pay are continuously impacted by this ugly variant of capitalism in their daily lives. But they literally have only a worm’s eye view. Most of the time their concerns are about work, local transport, local schools and hospitals and their homes within the local built environment. But this ugly variant of capitalism impacts on all these aspects of their daily lives – even if most are totally unaware of how it impacts.
In that sense, all politics – in so far as politics is fundamentally about governance – is local. That’s the key point I was trying to make in my earlier comment (above). There is an anecdote (which may be apocryphal) from some years ago when the Bank of England, feeling the need to secure some public understanding of, and public consent to, the exercise of its powers to develop and apply monetary policy, organised public meetings at various locations. At a public event in Newcastle when a Bank official was seeking to explain how the BoE applied monetary policy to stabilise the economy and to ensure steady sustainable growth in GDP a woman in the audience retorted: “That’s your GDP; it’s not our GDP”.
There is a massive requirement to raise public awareness of how this ugly variant of capitalism works and how it impacts in often very damaging ways on the very fine grain of people’s daily lives. There is very little point talking about high policy and academic concepts that sound absolutely wonderful to those uttering them; it all goes over most people’s heads. But when a real life example is presented of how the machinations of this ugly variant of capitalism are impacting detrimentally on their daily lives they’ll take notice.
That’s the challenge.