Posts tagged Smithian Political Economy
The Subtle Adam Smith

Over the past week, I was in Holland, MI attending a conference sponsored by the Liberty Fund called “Liberty and Responsibility in Adam Smith.” One topic that came up was the face that Smith will sometimes split his discussion of a topic into multiple parts, scattered throughout his book. This, of course, can make interpreting Smith difficult and can lead to some accidental cherry-picking of his writings to justify various things.

An interesting example of him splitting the discussion occurs in the Wealth of Nations. On page 83-84 of the Liberty Fund edition, Smith warns against political power of concentrated groups:

It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters [employers], being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, awhile it prohibits those of the workmen, We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, or merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long-run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.

From this passage, one might (reasonably) conclude that Smith would potentially support anti-trust legislation (broadly defined here to include things like trade groups which conspire to control prices of labor, such as cartels).

But Smith’s discussion doesn’t end there. He makes a very similar, but more descriptive, comment later on. On page 145, he writes (emphasis added):

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Notice what is going on: Smith is qualifying his statement and his discussion on page 83-84. Yes, people of the same trade will conspire against the public good. But that conspiracy does not in and of itself justify legislation against it! Indeed, such legislation would be unjust!

Smith is a very nuanced writer. He is hard to pigeonhole into pre-defined political categories. But one thing we see over and over with him is his caution on legislation. Smith certainly has a presumption of liberty and just because some event may justify a legislative response does not mean that legislative response is desirable.

For more on this, see my short piece at Adam Smith Works.

Today's Quote of the Day...

…is from Page 403 of the Liberty Fund’s 1982 edition of Adam Smith’s Lectures on Jurisprudence. When Smith writes here “an original contract,” he is referring to the idea of a social contract:

But again, upon the supposition of an original contract, by leaving the state you expressly declare that you will no longer continue a subject of it and are freed from the obligation which you owed it, yet every state claims it’s [sic] own subjects and punishes them for practices, which would be the highest injustice if their living in the country implies a consent to a former agreement. Again, if there be such a thing as an original contract, aliens who come into a country preferring it to others give the most express consent to it, yet a state always suspects aliens as retaining a prejudice in favor of their mother country, and they are never so much depended upon as freeborn subjects. So much is the English law influenced by this principle, that no alien can hold a place under the government, even tho’ he should be naturalized by Act of Parliament.

JMM: Of the more ridiculous statements to come out of popular political discourse is the phrase “If you don’t like living here, you should just get out!” It is employed often when demanding obedience to the current Administration and as a means of quashing objections to current policy.

But, given governments inherent tendency to be suspicious of immigrants (the current Trump Administration is not unique nor outside the bounds of normality in this respect), it implies that the challenge to leave is not given with any honesty. Further, given how many barriers prevent people from leaving, both internally (by the current government) and externally (by other governments), we see that not even governments truly believe in migration as consent.

Adam Smith spoke these words around 1763. Not much has changed here in 2019.

See also David Hume’s essay “Of the Original Contract.”

Of Baseball and Justice

Yesterday, Albert Pujols, outfielder for the Los Angeles Angels of Anaheim, hit a long home run in Detroit to notch his 2,000th RBI. 2,000 career RBIs is an amazing feat and the ball that Pujols hit would likely have been heading to Cooperstown in normal situations. But the situation is not normal. The fan who caught the ball, Ely Hydes, refused to give the ball back to Pujols. On Facebook, Ball State economist Steve Horwitz (friend of the blog) wrote of Ely:

And today's Asshole of the Day award goes to...

It's his right, but that don't make it right.

David Henderson (also friend of the blog) responded:

You really think he's an asshole for not transferring wealth from himself, who's probably not wealthy, to a very wealthy guy? Why?

Henderson expanded his point at EconLog.

Henderson and Horwitz are two dear people to me and I owe massive professional and personal debts to both. Whenever I find myself disagreeing with one or the other, I do so hesitantly. But I think, in this case, Henderson misses the point of Horwitz’s comment. And Adam Smith can help us see why.

In The Theory of Moral Sentiments, Adam Smith discusses the virtue of justice. Smith finds there are really three versions of justice: 1) Commutative Justice (simply put, not messing with other people’s stuff), 2) Distributive Justice (that is, properly deploying one’s resources), and 3) an unnamed justice which I will call by the term coined by my teacher Daniel Klein Estimative Justice. Estimative Justice is the proper estimating of an object (all this can be found on pages 269-270 of the Liberty Fund edition). The three justices are interrelated, but are different. And we can use this framework to consider the difference in opinion between Horwitz and Henderson.

Both Horwitz and Henderson acknowledge the property right of Mr. Hydes. The ball was hit out of the field of play. Mr. Hydes caught the ball. By normal property rights convention, Hydes owned the ball, not Pujols or Major League Baseball. Indeed, we can see this property right in action given that MLB had to ask that Mr. Hydes give the ball back. When Mr. Hydes refused to give the ball to MLB officials, he was well within his rights (as acknowledged by all parties involved and the commentators). In the terminology above, Hydes was being commutatively just. He was not messing with other people’s stuff.

But commutative justice is not the end of the story. We now ask whether or not his behavior was distributatively just. The ball was his property. What would constitute a “becoming use of his own [property]?” It would seem, again appealing to convention, that the becoming use of Mr. Hydes’ own would be to give the ball back to Pujols. It is common practice among sports fans to return historic or important-event balls to the players (such as a 1st career home run). Mr. Hydes’ behavior would seem to violate that norm. Thus, we can say his behavior, while commutatively just is distributively unjust. This is what Horwtiz means when he says “It’s his right [to not give up the ball], but that doesn’t make it right.” Mr. Hydes’ behavior, while well within the bounds of rules, would not be pleasing to an impartial spectator such as Horwitz.

But now we have Henderson who comes along, and he is also an impartial spectator, and see’s Horwtiz’s estimation of the action. Henderson is estimating Horwtiz’s estimation and finds it lacking. In our terminology, Henderson is saying Horwtiz is being estimatively unjust. Horwitz is failing to properly estimate the object/action in question. However, I, also an impartial spectator, judged Horwitz estimation to be just.

Why is there this disagreement? Neither Horwitz nor Henderson are dummies or unenlightened buffoons. They are both genuine people. I imagine they would agree largely with what I have written here, both as a description of events and they layout of Adam Smith’s discussion on justice. Why do they disagree?

They disagree because, unlike the rules of commutative justice, which are precise and accurate, the rules of distributive justice are loose, vague, and indeterminate. We cannot readily appeal to some guidebook of human behavior to determine whether something is distributively just or not. It will depend on a lot of things. Does the fact that Mr. Hydes is a law student with a child on the way matter for our DJ estimation? Does the fact that Mr. Pujols is wealthy, and thus could buy the ball from Hydes, matter? To what extent do they? If Horwtiz is more of a baseball fan than Henderson, would he have a different insight? These are not precise and the difference in opinion comes from Horwitz’s and Henderson’s different interpretations of these imprecise rules.

In closing, I do want to note that this process of estimating is a recursive process. Horwitz can estimate his earlier estimation in light of new knowledge and interpretation. Or Henderson can estimate his earlier estimation. Or another party can come in, etc etc. It is through this recursive nature that we better come to understand what truly are pleasing arrangements.

On the Presumption of Liberty

“[Harvey] Weinstein’s behavior is certainly dreadful, but even dreadful people have the right to a criminal defense. Indeed, probably most people who are charged with serious crimes, whether guilty or not, are not nice people, and many are moral reprobates. Yet forcing the government to prove guilt before tossing our fellow citizens in jail—even the reprobates among us—is the mark of a free people.”

This quote is taken from John McGinnis’ fine blog post The Campus Mob Comes for the Presumption of Innocence. A presumption of innocence permeates our justice system: the government has the burden of proof to convict. What’s more, this burden of proof is extremely high. The prosecution does not just need to produce some theory that the defendant might have committed the crime. Even a preponderance of evidence is not enough to take away a man’s liberty. What is necessary is the government needs to prove guilt beyond a reasonable doubt. Until that threshold is met in the eyes of a jury, the defendant is presumed innocent.

A presumption of innocence has a parallel in the presumption of liberty. The presumption of liberty holds that in assessing government policy we must meet a high burden of proof in order to endorse a reform that reduces liberty. There may be occasions where such intervention is desirable, sometimes even for overall liberty, but the mere possibility of such exceptions does not in and of itself justify the exception. A burden of proof must be met.

No liberal society can suffer the lack of a presumption of liberty. As McGinnis says above, the presumption of innocence, even to moral reprobates, is the mark of a free people. Likewise, the presumption of liberty, even if dealing with moral reprobates, is the mark of a free people. Exceptions can be made, such as the moral reprobate being thrown in prison after being shown beyond a reasonable doubt he committed a crime, but they must be exceptions rather than general rules.

Trade cannot be kept as free as it is without a presumption of liberty. The “free trade = fair trade” and “only reciprocal trade is free trade” claims are damaging to liberal society, because they weaken the presumption of liberty. Managed trade, where freedom to exchange is treated as an exception rather than a rule, spells illiberalism. The presumption of liberty must stand.

The Presumption of Liberty in Adam Smith

As I discussed the other day, Adam Smith had a presumption of liberty that permeates his “liberal system.” There were exceptions that could be made, naturally, but these exceptions mere existence did not in and of themselves justify the sovereign to act. Consider one such example discussed in the Wealth of Nations (emphasis added):

Were all nations to follow the liberal system of free exportation and free importation, the different states into which a great continent was divided would so far resemble the different provinces of a great empire. As among the different provinces of a great empire the freedom of the inland trade appears, both from reason and experience, not only the best palliative of a dearth, but the most effectual preventative of a famine; so would the freedom of the exportation and importation trade be among the different states into which a great continent was divided. The larger the continent, the easier the communication through all the different parts of it, both by land and by water, the less would any one particular part of it ever be exposed to either of these calamities, the scarcity of any one country being more likely to be relieved by the plenty of some other. But very few countries have entirely adopted this liberal system. The freedom of the corn trade is almost every-where more or less restrained, and, in many countries, is confined by such absurd regulations as frequently aggravate the unavoidable misfortune of a dearth into the dreadful calamity of a famine. The demand of such countries for corn may frequently become so great and so urgent that a small state in their neighbourhood, which happened at the same time to be labouring under some degree of dearth, could not venture to supply them without exposing itself to the like dreadful calamity. The very bad policy of one country may thus render it in some measure dangerous and imprudent to establish what would otherwise be the best policy in another. The unlimited freedom of exportation, however, would be much less dangerous in great states, in which the growth being much greater, the supply could seldom be much affected by any quantity of corn that was likely to be exported. In a Swiss canton, or in some of the little states of Italy, it may perhaps sometimes be necessary to restrain the exportation of corn. In such great countries as France or England it scarce ever can.

Page 539.39

In short, there may be good reason to limit exports of food to a neighboring country if they are so famished that they would draw away local food production due to higher prices. However, this potential exception does not in and of itself justify the prohibitions. Smith goes on to say (emphasis added):

To hinder, besides, the farmer from sending his goods at all times to the best market is evidently to sacrifice the ordinary laws of justice to an idea of public utility, to a sort of reasons of state; an act of legislative authority which ought to be exercised only, which can be pardoned only in cases of the most urgent necessity. 

Page 539.39

The act of interfering in trade is a sacrifice of the ordinary laws of justice, the laws the sovereign is sworn to uphold in the liberal system of Adam Smith (for the list of sovereign duties, see Pg. 687.51). Thus, Smith reasons, the sovereign should only undertake these exceptions, not when it is merely justified, but when it is “urgent[ly] necessary.”

Another example of this high burden of proof exists in his discussion of the national defense exception to free trade. Smith writes:

There seem, however, to be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry.

The first is, when some particular sort of industry is necessary for the defence of the country. The defence of Great Britain, for example, depends very much upon the number of its sailors and shipping. The act of navigation, therefore, very properly endeavours to give the sailors and shipping of Great Britain the monopoly of the trade of their own country in some cases by absolute prohibitions and in others by heavy burdens upon the shipping of foreign countries.

Pg. 463.23-24

However, Smith goes on to say this mere justification is not enough (emphasis added):

When the act of navigation was made, though England and Holland were not actually at war, the most violent animosity subsisted between the two nations. It had begun during the government of the Long Parliament, which first framed this act, and it broke out soon after in the Dutch wars during that of the Protector and of Charles the Second. It is not impossible, therefore, that some of the regulations of this famous act may have proceeded from national animosity. They are as wise, however, as if they had all been dictated by the most deliberate wisdom. National animosity at that particular time aimed at the very same object which the most deliberate wisdom would have recommended, the diminution of the naval power of Holland, the only naval power which could endanger the security of England.

Page 464.30

The acts of navigation, which were indeed a violation of the ordinary laws of justice, were justified and proper (note this word “properly” appears in his initial justification in paragraph 24) in this particular case because war with Holland was inevitable and imminent. National defense, then, is not a broad exception to the liberal system of free importation and free exportation, but rather a very specific exception in the face of imminent national danger.

The duties of the sovereign in Smith are threefold: defend the nation from outside invasion, enforce the rules of justice domestically, and provide public works that are necessary and proper for the nation. These actions imply a presumption of liberty within the liberal system. The sovereign certainly has the right as a sovereign to perform certain actions that may violate liberty, but this power is one that must be executed with propriety as it violates the role of the sovereign as administrator of justice. Violations of the most ordinary laws of justice should not be undertaken lightly, and as these above quotes show (and many others throughout the Wealth of Nations, Theory of Moral Sentiments, and Lectures on Jurisprudence, not to mention his own correspondences), mere justification for a sovereign act is not enough to authorize such an act.