Thoughts on economics and liberty

Author: Sanjeev Sabhlok

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Could Adam Smith Get a Grant?

Richard Ebeling shared this amusing piece, which is actually quite educational as well. Unfortunately, the image has a low resolution, so I dictated the text and am putting it out here, below the image.

 

Hidden hands and scant footnotes. Samuel Brittan

[To Prof. Sargent, etc.]

Dear Dick:

In view of the delicacy of the matter I’m writing you a personal letter before sending my formal report on Dr A Smith’s project. The man escaped is presumptuously titled, An Inquiry into the Nature and Causes of The Wealth of Nations ( although the word “nation” does not even appear in the index).

The most rudimentary requirements of scholarship are absent. Even if we bend the rules and consider Dr Smith at his own evaluation as an old-fashioned economist without claims to statistical sophistication, his worker does not pass muster. Scant footnotes, referencing to books with titles such as xxxxx [French] scarcely increase one’s confidence the Dr Smith’s work will be rich in testable propositions.

The first chapter propose to be an empirical account of how productivity depends on the division of labour. The main example is that of a pin factory in which ten people, each specializing in a small number of operations, produce 48,000 pins a day  –  4,800 per head. Where is this pin factory?

The assertion is made that if all the workers had “wrought separately and independently and without having been educated in this particular business they certainly would not have made twenty pins – perhaps not one pin – a day.” Where is the evidence for this?

Worse still is to come. There is not even a pretense of analysing data in Chapter Two. We are simply furnished with speculations on the propensity in human nature “to truck, barter, and exchange one thing for another,” and the absence of such a propensity in animals such as dogs which are never seen to exchange bones. Forgive my using rude words, but this is sheer sociology.

Yet that is not the end of it. Instead of settling down the equations of exchange and conditions for an optimum Dr Smith speculates about motives. He warns against dependence on the benevolence of others and suggests that we and list other people’s self love in our favour. 

There follows another Smith aphorism: “It 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 self interest”.

These speculations bring Dr Smith to postulate the kind of hypothetical entity that gives social science a bad name: an “invisible hand”, no less. This is supposed to lead each individual to promote an end that promotes the interests of society more effectively than if he had said about to do so.

I’m going to be absolutely frank. Given the Thatcherite temper of the times and distrust of rigorous social science in high places, I considered dropping all standards and suggesting that we promote a work with free enterprise flavour.

But, unfortunately, Dr Smith is not merely in unrigorous. He is not even a good Tory. He suggests that the difference “between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom, and education. … A philosopher is not in genius and disposition half so different from a street porter as a mastiff from a greyhound”. Sociological zoology will not go over with the Education Secretary.

Despite the 18th century prose style affected by the author, there is a purple passage which I cite from memory (the so-called index being no guide to this sprawling manuscript) about those engaged in a common trade seldom meeting “even for merriment or diversion” without some conspiracy to defraud the public. This will hardly help the Research Council attract support from the private sector.

There is no mention of the research methodology. In the most charitable interpretation he has conducted a one man survey. This man’s evidence is unreliable, and his opinions are offensive to all parts of the political spectrum.

Yours ever

David

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In 1848 JS Mill demolished the policy that Trump is now following – and this had long previously also been demolished.

From JS Mill’s Principles of Political Economy.

Of these false theories, the most notable is the doctrine of Protection to Native Industry—a phrase meaning the prohibition, or the discouragement by heavy duties, of such foreign commodities as are capable of being produced at home. If the theory involved in this system had been correct, the practical conclusions grounded on it would not have been unreasonable. The theory was that, to buy things produced at home was a national benefit, and the introduction of foreign commodities generally a national loss. It being at the same time evident that the interest of the consumer is to buy foreign commodities in preference to domestic whenever they are either cheaper or better, the interest of the consumer appeared in this respect to be contrary to the public interest; he was certain, if left to his own inclinations, to do what according to the theory was injurious to the public.

It was shown, however, in our analysis of the effects of international trade, as it had been often shown by former writers, that the importation of foreign commodities, in the common course of traffic, never takes place except when it is, economically speaking, a national good, by causing the same amount of commodities to be obtained at a smaller cost of labor and capital to the country. To prohibit, therefore, this importation, or impose duties which prevent it, is to render the labor and capital of the country less efficient in production than they would otherwise be, and compel a waste of the difference between the labor and capital necessary for the home production of the commodity and that which is required for producing the things with which it can be purchased from abroad. The amount of national loss thus occasioned is measured by the excess of the price at which the commodity is produced over that at which it could be imported. In the case of manufactured goods the whole difference between the two prices is absorbed in indemnifying the producers for waste of labor, or of the capital which supports that labor. Those who are supposed to be benefited, namely, the makers of the protected articles (unless they form an exclusive company, and have a monopoly against their own countrymen as well as against foreigners), do not obtain higher profits than other people. All is sheer loss to the country as well as to the consumer.

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