If you have read BFN you will know that I am motivated to reform India not because I care much for India’s so-called “greatness” (which is a good thing to have, no doubt) but because I care a lot for the poor of India (and of the world).
I don’t want to have to experience the sight of any child standing inside a mound of rubbish to salvage something to sell – or worse: something to eat. If socialism merely meant deep concern for the poor then both Adam Smith and I are socialists.
The great difference between me and Nehru is that I demonstrate care for the poor not by stealing money from your pocket or stopping you from becoming rich, but by asking you to help bring about the conditions by which these poor can be empowered to bootstrap themselves into prosperity. These conditions go by the common term (often mistakenly used), CAPITALISM.
People forget that Adam Smith was primarily a philosopher, not economist. Economics is all fine as a tool, but we must be clear about our moral philosophy, first.
Smith's concern for the poor came out in many ways. For instance, his view on taxation was basically progressive. The first such expression, perhaps (well before Marx):
"it is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion" [Wealth of Nations]
The poor must therefore not be asked to shoulder the bulk of the costs of running the state (during his time all taxes were regressive: it was only Milton Friedman who first brought about the progressive income tax in the West). (See also: http://sabhlokcity.com/2011/05/discovery-of-similarities-between-adam-smiths-views-on-taxation-and-mine/)
Smith objected to sheer (reckless, arrogant) greed: "All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind…"
It is but equity, besides, that they who feed, cloathe 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, cloathed and lodged. [WN, 79]
Note that (as is the case with the arguments I make): "However, only the direst poverty was of concern to Smith, who thought that, thanks to the 'invisible hand,' it was a rare phenomenon" [Source].
And no natural right accrues to our charity: "A beggar is an object of our charity and may be said to have a right to demand it; but when we use the word right in this way it is not in a proper but in a metaphorical sense". Unlike Marx who thought that violent theft from the rich was acceptable, Smith was totally opposed to violent means. Adam Smith's is therefore DEFINITELY not a concept of positive liberty (which leads to socialism and to the destruction of wealth and freedom).
And so Sandy Baum concludes:
While he never explicitly stated that the government should intervene in favor of the oppressed to facilitate the workings of unbiased market forces, such a conclusion is consistent with Smith's writings [Source].
This understanding is important, particularly in relation to a distorted version of "laissez faire" that was apparently taught to British civil servants of India – which allegedly led them to ignore mass deaths in the many famines that afflicted British India.
I'll briefly comment on these famines presently.
During my doctoral studies I did a lot of mathematical economics but choose also to do a course by Dr John Elliott in Political Economy. His brilliance (despite his inclination to social liberalism, even socialism) was sufficient motivation for me to request him to be a member of my dissertation committee.
Dr Elliott unfortunately died in 2002 (see a tribute by Richard Day here and here). But why I bring him into this discussion is because he knew every word that Adam Smith (and many other thinkers) had written. For instance, in his lectures on Adam Smith he would summarise massive sections of the book and then illustrate through some fascinating extracts – which he would find in an instant by flicking through his heavily dog-eared and annotated copy of The Wealth of Nations . And of course, we had homework – I did manage to read up considerable quantities of the original works of Smith and many other economists (including Marx, the delusional anti-economist).
I never could finish the entire Smith, though. But these were fascinating times for me. It was my first serious introduction to thinkers like Marx, Mill, and Smith (apart from Nozick, Rawls, and many others), having never learnt the history of economic thought before. A key book we used was by Mark Blaug, another socialist. It was of great interest, then, to discover that Blaug had finally started not only to appreciate but even advocate capitalism. I haven't read Blaug recently, but it would be worthwhile reading him now. A brilliant scholar, he would be able to best summarise why capitalism beats socialism hands down.
Either way, in my mind Adam Smith had already won hands down. No competitor came even close.
In my spare moments (and particularly when my eyes are not hurting too much these days – I'm reading up desperately and trying different remedies, to figure out a cure – and will see a specialist on 17 February), I try to catch up with Adam Smith's work. A lifelong occupation.
Each time I read Smith, I discover some new, extremely modern idea. For instance, the extract below pre-dates Hayek by over 150 years but in this he outlines succinctly the importance of local knowledge.
Although Smith's work, The Wealth of Nations is huge, his expression is often exquisite, even poetic. Flick though it as if you would the Bible (say), and you are sure to find something of great significance each time!
In this very short extract, below, Smith outlines some of the most powerful ideas of classical liberalism, and the most direct attack on socialism – which had not yet been invented. Hayek merely clarified Smith. Smith was the original thinker. All others were mere copycats, or elaborators.
If any country follows ONLY these three paragraphs below, it is GUARANTEED GREAT SUCCESS! I personally guarantee that!
In fact if Nehru had read ONLY THE FIRST PARAGRAPH, below, he would have created unbelievable wealth in India. Unfortunately, Nehru perhaps never cared to read Smith.
What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
To give the monopoly of the home market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful. It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for.
What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage.
I came across an outstanding review of a new book on Adam Smith, entitled Adam Smith: An Enlightened Life by Nicholas Phillipson.
The review, by Adam Gopnik,originally published in The New Yorker on 18 October 2010 is extremely well written and throws vital light on Adam Smith the great classical liberal.
How to read the review?
I'd like to commend the review to you, which, however, is available at New Yorker only through subscription. If you don't subscribe to the New Yorker, you can read it on Synchrospace (here). (I don't know how the copyright system works in this case!) So go ahead and read it (here).
Just a short extract to stoke your interest:
[T]he idea that people live in groups, and that a shared sense of well-being is essential to an individual’s sense of himself, is at the heart of what Smith learned from him [David Hume]. “Man, born in a family, is compelled to maintain society, from necessity, from natural inclination, and from habit,” Hume wrote. Smith pressed harder at the question of how we do live together. Policing, force, plays a role, but people mostly get along well enough even when the cops are far away. “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,” Smith wrote.
The key leap between Hume’s thoughts on sympathy and Smith’s thoughts on money took place in the lectures on moral philosophy that Smith gave in the seventeen-fifties, and then turned into “The Theory of Moral Sentiments,” which he published in 1759. For Smith, social sympathy rests on that “principle to persuade which so much prevails in human nature.” His key concept is the idea of an impartial observer who lives within us, and whom we invent to judge our own actions. Sympathy alone, Smith makes plain, isn’t enough to make us good. If we saw our brother or our best friend being tortured on the rack, could we truly sympathize? Not unless we could imagine what it felt like ourselves; it is our own mind that makes us kind. Sympathy isn’t a reflex or a serene internal search; it’s work. Smith’s witness is the imaginary other we install inside ourselves to watch our own behavior.
It was this connection – between the work of being a social being and the work that social beings do – that began to rule Smith’s meditations on the market. For Smith, the market is imaginative sympathy on speed. “Man continually standing in need of the assistance of others, must fall upon some means to procure their help,” a student’s s lecture notes record Smith as saying. “This he does not merely by coaxing and courting; he does not expect it unless he can turn it to your advantage or make it appear to be so. Mere love is not sufficient for it, till he applies in some way to your self love. A bargain does this in the easiest manner.”
That last sentence is the really explosive one. A bargain does this in the easiest manner. Where can you find a sympathetic community, people working in uncanny harmony, each aware of the desires of the other and responding to them with grace and reciprocal charm? Forget the shepherds in Arcadia. Ignore the poets in Parnassus. Visit a mall. For Smith the plain-seeing Scot, the market may not be the most elegant instance of human sympathy, but it’s the most insistent: everybody has skin in the game. It can proceed peaceably only because of all those moral sentiments, those imaginary internal judges. That’s what keeps the mob from rushing the Victoria’s Secret and stealing knives from the Hoffritz and looting the Gap. Shopping, which for the church moralist is a straight path to sin, is for Smith a shortcut to sympathy. Money is the surest medium of exchange.
Ayn Rand was a truly bold writer, venturing deep into the crevices of concepts of which most mortals had merely skimmed the surface. The idea of self-interest has a long history, starting perhaps with the writings of Machiavelli and expanding into scientific politics with Hobbes. But Adam Smith was its finest proponent. Through his Theory of Moral Sentiments and The Wealth of Nations he wrote about almost the same things that Ayn Rand wrote about, but he was reserved: he did not provoke nor taunt; he did not rip apart opposing ideas of collectivism and flaunt the morality of self-interest.
Thus, in his Wealth of Nations he politely wrote: "It is not from the benevolence of the butcher, the brewer, or the baker, that we canIt is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love." We read this brilliant insight and nod in agreement, unable to realise how deep is this concept's underlying morality. It is almost as if someone has told us something about self-interest in a very circuitous and round-about way. We barely see a fraction of the meaning of this concept through his writings.
But Ayn Rand was never circumspect nor reserved. She was a gladiator for freedom and would not pull her punches.
So read this extract from the introduction to her book, The Virtue of Selfishness. If nothing else this challenging piece will make you think. Her reasoning is sharper than the sharpest knife. It tears apart all hypocrisy and pretence. No collectivism can possibly survive Ayn Rand's direct attack. Note how she goes on the attack from almost the very beginning of this essay. No wonder she polarised people: either they loved her or hated her. Above all those who hated her could not stomach her guts, for in her writings she remained aloof and didn't care about what anyone thought about her. She brought into this world a bold self-confidence that has put a spring into mankind's step. She showed us that politely offering one's views doesn't help when we are defending ideas as important as morality and freedom. The claims of freedom have to be boldly and vigorously asserted. Her boldness definitely had genius, power, and magic in it!
But note carefully at her great caution. Selfishness is not about whimsy. It is all about freedom WITH RESPONSIBILITY.
=== EXTRACT ===
The title of this book may evoke the kind of question that I hear once in a while: "Why do you use the word 'selfishness' to denote virtuous qualities of character, when that word antagonizes so many people to whom it does not mean the things you mean?" To those who ask it, my answer is: "For the reason that makes you afraid of it." But there are others, who would not ask that question, sensing the moral cowardice it implies, yet who are unable to formulate my actual reason or to identify the profound moral issue involved. It is to them that I will give a more explicit answer.
(a) that any concern with one's own interests is evil, regardless of what these interests might be, and(b) that the brute's activities are in fact to one's own interest (which altruism enjoins man to renounce for the sake of his neighbors).
(1) What are values?(2) Who should be the beneficiary of values? Altruism substitutes the second for the first; it evades the task of defining a code of moral values, thus leaving man, in fact, without moral guidance.
I accidentally came across this article (available in PDF here) entitled "The Continuing Relevance of F.A. Hayek’s Political Economy" by Peter J. Boettke, Christopher J. Coyne and Peter T. Leeson (published in Advances in Austrian Economics, Vol. 11, 2008).
It reminded me of how important Hayek has become to the world's intellectual foundations. His methodology of looking at knowledge as localised information underpins a dramatically improved understanding of the economy and society (do read his article on the use of knowledge in society – if you haven't read it yet).
New Institutional Economics
"In his review of the state of New Institutional Economics (NIE), Oliver Williamson (2000) highlights Hayek as a critical precursor to NIE. As such, the NIE research program should be seen as building on the Hayek’s political economy."
"Vernon Smith (2005) has noted that his work in experimental economics was originally inspired by Austrian economics, and specifically the work of Hayek. Indeed, Smith sees his research as contributing to key questions asked by Hayek long ago: how do individuals utilize human knowledge that is dispersed and can never be possessed by a single individual? Under what conditions will individuals partake in mutually beneficial exchanges without any influence from a central planner? Moreover, Smith emphasizes that laboratory experiments allow for the observance of the emergence of spontaneous orders in the form of rules governing the market and market exchanges. In this regard, the field of experimental economics should be seen as a direct descendent of Hayek’s political economy."
"Hayek’s The Sensory Order (1952) will continue to play a role in the development of this sub-field."
The authors conclude: "F.A. Hayek’s political economy is as relevant today as when it was first written. Modern scholars of political economy would do well to go back to Hayek for untapped ideas and for a deeper understanding of the issues relevant to this area of study. … Hayek’s political economy can generate fruitful empirical analysis. "
In my view, Hayek operated at the highest intellectual plane in relation to political philosophy and not only showed us how economies actually work but using his immense knowledge of public choice and the limitations of government, warned against statist solutions.
Hayek stature has risen with time, equally as Keyenes's stature has fallen (Marx is long buried and forgotten).
Hayek will be remembered on par with Adam Smith and J.S.Mill as among the handful of thinkers who changed the world.
Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and tolerable administration of justice; all the rest being brought about by the natural course of things. – Adam Smith
We have it within us to work hard and achieve our goals. All we really need is security and freedom, and equal opportunity. As Tao Te Ching said, kings should let things be, for then things would get done “on their own”. The implication being: give people a modestly good government and they will do the rest themselves. That’s it! Just ensure a “tolerable administration of justice” and easy taxes, and a society will become wealthy and successful in every way.
To lead a society to success, the government must not extract excessive taxes to spoon-feed people (welfare state), nor dabble in business (socialism). A government is not a businessman. These classical liberal ideas can help a government regulate optimally by enforcing property rights and ensuring justice, thus neither stifling enterprise nor letting deceit and corruption flourish. Well-designed free societies are highly successful. Empirical studies show that even a modicum of freedom and justice can lead a society to great success.
Liberalism has in many ways become a science now, a far cry from the early days of Machiavelli, Hobbes and Locke. Principles of good governance flow naturally if we study human nature carefully (which is both good and bad, opportunistic and strategic). The free society must aim to maximise everyone’s equal freedom subject to everyone being accountable. Democracy, equal opportunity, social insurance, and individual justice: all form part of the free society social contract.
If we have the theory and we have the evidence to prove that liberty works, then why has it been so difficult for India to deliver a successful society? Because India continues to studiously ignore the imperatives of liberty and the findings of economics and public administration. In doing so, we have created a total mess: a corrupt socialist society, where no one is really safe, and justice not an option.
The Freedom Team of India (FTI), the seed of a political movement for freedom, aims to lead India in the coming years to greatness through good governance. Apart from assembling good leaders, FTI has started designing policies for free India. It has recently released its draft policy on religious freedom and tolerance (also published in this magazine). Religious freedom is at the heart of the modern non-denominational free society. “Members of FTI believe that religion is a purely personal matter, not a matter for government policy”. And “FTI advocates the complete and total separation of the state and religion”. These powerful sentiments demarcate our private and public spaces and clarify the role of the state and religion. In brief, the state must not dabble in religion (and vice versa!). We invite you to provide the Team with your valuable thoughts on our draft policies. Together we can, and will, change India!
[This was my editorial in Towards a Great India, May 2009]