Monday, August 8, 2011

Who's misreading Adam Smith?

So in an attempt to open my mind to different viewpoints (applause, please), I've been following Think Progress for a while, only to find out what I already knew: bloggers tend to be really biased. It's okay to have certain principles, of course. Some people refer to having an opinion as "bias;" I don't. What I mean by bias is simply the ability to take information and use it solely for your own purposes, rather than seeking to modify those purposes. Take, for instance, this post about "John Bolton's Misreading Of Adam Smith." In it, Ali Gharib criticizes John Bolton for taking a single quote from Wealth of Nations and using it to drum up support for the conservative cause. Bolton is quoted as saying this:
Adam Smith wrote in The Wealth of Nations that “the first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force.” Today, failing to protect our national security inevitably endangers our economic prosperity by making us vulnerable to global adversaries.

It is clear that President Obama does not agree with Smith’s wisdom. Obama’s policies are jeopardizing not only our national security and economy, but our constitutional sovereignty too.

That is why I have been considering running for President.
Gharib, in turn, uses Smith in the following way:
Other than providing for defense and a robust justice system, Smith wrote that the duties of the sovereign also include setting up “public institutions and public works” for:
facilitating the commerce of the society, and those for promoting the instruction of the people. The institutions for instruction are of two kinds: those for the education of youth, and those for the instruction of people of all ages.
Smith clearly indicates that other duties of the sovereign include educating the populace — possibly up through the university level — and paying for infrastructure projects that keep commerce strong, “such as good roads, bridges, navigable canals, harbours, etc.”

In short, Smith believed not only that governments should shoulder responsibility for the first duty of defense, but for other public projects as well. And how should governments pay for all of this, according to Smith? Well, with a progressive tax:
It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in that proportion.
So, which side is misreading Adam Smith?

Note that Smith also said that things like roads and schools could be paid for by those who use them. Quoting a little further down from where Gharib did:
It does not seem necessary that the expense of those public works should be defrayed from that public revenue, as it is commonly called, of which the collection and application is in most countries assigned to the executive power. The greater part of such public works may easily be so managed as to afford a particular revenue sufficient for defraying their own expense, without bringing any burden upon the general revenue of society. A highway, a bridge, a navigable canal, for example, may in most cases be both made and maintained by a small toll upon the carriages which make us of them....
And later,
The institutions for the education of the youth may, in the same manner, furnish a revenue sufficient for defraying their own expense. The fee or honorary which the scholar pays to the master naturally constitutes a revenue of this kind.
Also, Gharib's "progressive tax" quote is taken majorly out of context. In that quote Smith was justifying the use of a tax on rents, despite the consideration that this may disproportionately affect the rich:
The inequality with which a tax of this kind might fall upon the owners of different ground-rents would arise altogether from the accidental inequality of this division. But the inequality with which it might fall upon the inhabitants of different houses would arise not only from this, but from another cause. The proportion of the expence of house-rent to the whole expence of living is different in the different degrees of fortune. It is perhaps highest in the highest degree, and it diminishes gradually through the inferior degrees, so as in general to be lowest in the lowest degree. The necessaries of life occasion the great expence of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expence of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in that proportion.
Nowhere does Smith ever remotely suggest that public expenses should, in general, be paid for out of a progressive income tax. Of course he thought that the rich should not be shown favoritism, as anyone ought to agree. If the rich are today shown favoritism, it is not through current tax codes; it is more likely through the many laws which create barriers to entry in all sorts of markets. That is how the poor are prevented from the improving their situation.

Let me now add that I see no reason to support Bolton's militarism, either. Smith never addresses the issue in Wealth of Nations, but we can address it quite simply be asking, what is the meaning of "defense"? Our national "defense" has for so many years been on the attack that it is difficult to tell the difference between defense and offense. Is it wise to use the military to engage in nation-building in the Middle East? In my opinion, probably not. In any case Adam Smith is far from offering support for the Bush doctrine or for Bolton's view that military spending must not decrease. Gharib, ironically, is right to say that one quote from a treatise on economics should not be taken as justification for a military doctrine.

So who's misreading Adam Smith? The more I encounter popular references to this man's great work, the more I feel the answer is, quite simply, everybody. The great thinkers of the past may still be influential, but in what way? It seems tragic to me that they end up being mere figureheads to be held up in defense of this or that ideology. Listen to Smith's ideas--they're really pretty good.

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