Logic and rhetoric at the heart of Smith's ideas
Today (22 April) is the date when, in 1751, Adam Smith was appointed Professor of Logic and Rhetoric at the University of Glasgow. Though only 28, he was already well known as a gifted scholar. He had given a very successful series of public lectures on philosophy, in Edinburgh. The intelligentsia of Scotland’s capital were impressed.
Before the year was out, the young Smith was promoted to the prestigious Chair of Moral Philosophy — a post he held until 1764. In the meantime, he served as Dean of Faculties, Quaestor of the University Library (i.e. in charge of management and accounts — he was a very meticulous person), and Rector.
Today, we remember him as a pioneering economist. But he was really more of a philosopher and social psychologist — he saw economics, politics, ethics and aesthetics as merely different parts of the human mind. Among the subject he taught at Glasgow were logic, ethics, rhetoric and belles-lettres (the arts of using language effectively and finely), and jurisprudence (what today we would call politics). A polymath, he even wrote a long essay on Newton and the philosophy of science.
He was familiar with the Classical Greek and Roman authors, having largely educated himself in Balliol College’s outstanding library, having found that: “In Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching.”
His real fame began in 1759 with the publication of his Theory Of Moral Sentiments, which analyzed the social psychology of morality. A century before Darwin's 1859 Origin of Species, it took a remarkably modern evolutionary view that our morality persists because it is useful and helps our species to prosper. Human beings, he said, are social creatures, needing the reinforcement of others; and their values are modified by the praise or disapproval of others.
It struck a chord with many who were not convinced by the contemporary ideas on where morality came from. The book brought him a generous offer to become personal tutor to the Duke of Buccleuch, still in his early teens, and to take him on the Grand Tour of Europe. On that journey, Smith met and talked with other the other leading European intellectuals of the time. In France, he wrote to his friend David Hume, back in Edinburgh, that he had started mapping out ideas for a new book. Those ideas would become An Inquiry into the Nature and Causes of the Wealth of Nations — a book that Smith referred to as his Inquiry, but which we know as The Wealth of Nations. It turned out to be one of those books that changed history.
Learn more about Adam Smith here. Download a condensed version of Smith’s two great books here: Adam Smith – A Primer; Condensed Wealth of Nations.
To our surprise, another thing that Polly Toynbee doesn't understand
That we’re not great fans of the logical or observational qualities of Polly Toynbee merely makes us rational and capable of logic and observation ourselves. But it does still come as a surprise to find another thing that Polly manages to entirely misunderstand:
Britain’s birthrate is plummeting. The already fast-falling rate has sunk into yet steeper decline during the pandemic, as people stop having babies when times are hard – and there may not be a bounceback.
No, people stop having babies when times are good.
All the reasons for this are depressing, signifying hardship, insecurity and anxiety. It tells of a society where bringing up children is too heavy a burden on women, with too many obstacles to earning while parenting.
Again, no, the opposite is true. The global and historical data is here. As a place, society or country gets richer then fertility rates decline. As the economic liberation of women proceeds then fertility rates decline. As the opportunity costs of having children rise - as there are more and other things to do with a life than pump out children - the fertility rate declines.
To the extent that a declining fertility rate is a problem - we can’t see it as being such, it is the aggregate of personal choices in a world that newly allows them and so is emergent from the liberal ideal - it’s a problem of wealth, not poverty.
As we’ve been known to note over the years it is impossible to craft a solution to a perceived problem unless we correctly identify what the cause is.
Absolutely every country that has empowered women, raised the general income much above subsistence level, has a fertility rate below replacement level. There are no exceptions whatever the levels of maternity leave, child care arrangements, schooling, even religious arrangements.
This is just what people do when given the freedom to make the choice - have fewer children. And?
The sad misunderstanding of what is an economic resource that we should be sparing with our use of
That we wish to be efficient, even miserly, with our uses of economic resources is obvious enough. By definition economic resources are scarce so using fewer of them to do any one thing allows us to have more things within our resource limits.
So far so good - but it is then necessary to define what is an economic resource whose use we desire to be efficient with our use of, even miserly in how we apply it. This being exactly the thing which is not currently done:
The extraction and processing of resources to make consumer products is responsible for over half of global carbon emissions and 90% of the destruction of nature – yet the prime minister’s 10-point plan for a green industrial revolution missed a crucial 11th point on reducing resource use. The “whack-a-mole” strategy of targeting only some types of waste, such as plastic straws and stirrers, is so far short of what is needed and doesn’t do anything to prevent extraction in the first place. Our dependence on ever-increasing consumption can’t be tackled without a clear plan. A legally binding UK target to halve resource use by 2050 would focus minds in the same way climate targets are doing.
We can hear the sneer there about using up things to produce mere “consumer products” as if that’s not the aim of all economies - to produce for the consumption of the people what the people desire to consume. But leave that aside, what is necessary here is to define what is a resource that we should be sparing in our use of:
For a successful transition to a resource efficient, circular economy
That’s not correct. It is what many are asserting but it’s still not correct. For a circular economy can - in some instances and activities either does or will - consume more resources than a non-circular one.
A stimulus programme focused on green and digital infrastructure, research and development, energy and care work could create more than 1.2m jobs within two years and more than 2.7m jobs during the next decade, according to research.
Human labour is an economic resource, a scarce resource. So, this plan insists upon using the labour of 2.7 million people. That’s the use of a scarce resource to achieve it.
Yes, we’re fully aware of the fact that there can be and even are externalities and so on. But it is still true that “resource” is not just what is dug out of the ground. Thus that is not the thing or things that we desire to optimise our use of. We need to optimise the use of all resources - land, labour, capital, knowledge, and on and on.
We also have a system to work this out for us, the price system. Sure, we need to ensure that externalities are implanted into it but once that’s done we have our calculating machine for what does require more resource use. If it’s more expensive then it’s using more resources.
The circular economy often enough is more expensive than the linear. Therefore we should not be being circular in order to reduce our use of resources. For that very expense is telling us that the circularity isn’t necessarily resource saving.
There is an easier way of putting this too. If, once externalities are included, you are making a profit doing something then you are reducing resource use against the alternative methods of doing that thing, also against the alternative uses of those resources. Therefore the circular economy is not something that requires government action nor a plan - it’s something we can leave to that greed and grift of capitalism. Or the enlightened self-interest as a preferred formulation.
That is, the environmental work required isn’t to build a new economy, nor to force a specific mode of production, it’s to build the right price system, the one that includes those externalities. Once that’s achieved then we can just stand back and let the system itself chew through the information that directs it.
Can we take it that public choice economics is now proven?
Public choice economics is one of those observations that is truly hated by those who believe in the purity of government. For it is the observation that those who rule us are motivated, at least in part, by their own economic self-interest. Just like everyone else that is, simply because those who govern are indeed humans just like everyone else.
In modeling the behavior of individuals as driven by the goal of utility maximization—economics jargon for a personal sense of well-being—economists do not deny that people care about their families, friends, and community. But public choice, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests and, more important, that the motivations of people in the political process are no different from those of people in the steak, housing, or car market. They are the same human beings, after all. As such, voters “vote their pocketbooks,” supporting candidates and ballot propositions they think will make them personally better off; bureaucrats strive to advance their own careers; and politicians seek election or reelection to office. Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics.
There is no special set of angels without said self-interest, no political faction free of it. That’s the claim at least.
But the true scandal is about the corruption of public service for private gain. It is about how public servants appear to have made decisions because of the prospect of personal advantage. It is about how private interests have been allowed into the heart of government as they pretended to be motivated by public service. And it is about an attitude towards public assets – including even NHS employment data and the wages of public sector workers – that sees those assets reduced to a commodity that can be bought and sold, at a profit, and not just without public benefit but at the cost of the taxpayer.
We seem to have proven the claim, in the sense of tested it, and we’re not finding the evidence to refute it.
It’s not necessary to go quite as far as Mancur Olsen here and insist that government is mere predation upon the populace. We can just observe that not all that is done by government is going to be motivated by our, the citizenry’s, self-interest, there will be at least some influence of that of those doing the governing.
Which then leads to the question of what we should do about it. Given that no grouping in power is going to be free of the temptations the answer has to be to limit what they may do. To reduce the areas of our lives over which they may exercise their, rather than our, self-interest.
The solution, as so often, is minarchy. We must insist that their droits de seigneur is only exercisable when we truly must lie back and think of England. The violation may be the same but it’ll be markedly less frequent.
In which we accuse Liam Halligan of a lack of ambition
Liam Halligan tells us that there are economic rents being made in the housing market:
The problem, says Morton, is that planning permissions are “a one-way gift which boosts the value of the land from say £20,000 a hectare to £2-£3 million, in return for no obligation to do anything beyond breaking ground”. As a result, “housebuilding is largely in the hands of a few large builders and a cottage industry of land promoters, pushing up the value of land with permissions and meaning permissions don’t necessarily translate into homes”.
Well, yes, something we’ve been saying - at least in part - for a long time now. The granting of planning permission to land increases the value of that land. If we’re unhappy with that bureaucratic apportionment of new wealth then we should do something about it:
What’s needed is a reversal of the 1961 Land Compensation Act, so when land gets planning permission and valuations surge, often several-hundred-fold, this massive “planning uplift” is shared with local authorities – an idea backed by successive Parliamentary inquiries. That would dampen land speculation, making building plots – and ultimately housing – more affordable. It would also fund new infrastructure as new housing appears, revolutionising the local politics of planning.
That, to us, significantly lacks ambition. For that is the allocation of those economic rents. We prefer the idea of ceasing to create them in the first place. For if they don’t exist then we’ll not get the catfights over who should get them, will we?
The method of destroying those rents is to create a massive oversupply of those planning permissions. Possibly create some 5 million of them - why not 10 million? Or even make it a must issue permission. Some small fee for filing the paperwork to show that a building isn’t going to be put in the middle of the M1 perhaps, but other than that yes, that’s a piece of land, you may build upon it.
We do know, after all, that government issuing many more pieces of paper does bring down the value of each piece of paper - what does anyone think has been done to the money supply over the decades?
We agree, there are political problems with this. But if the price of land with planning permission is a problem then why not just create more of it in order to lower that price? It might even be true, as Halligan complains, that the current large building companies attempt to monopolise those newly created legitimate building plots. But then we know how to deal with monopolies - flood the market with supply.
Or, as we’ve been saying for some time now, don’t change the 1961 Land Compensation Act, just blow up the Town and Country Planning Act 1947 and successors. Job done, problem solved. After all, the only reason for the Planning Act is to stop people building housing folks would like to live in where people would like to live - and why do we want to do that? Why they want to do that to us is obvious but why do we?
The British Gas hire and fire extravaganza
British Gas is offering new contracts to its service engineers. Those who don’t accept the longer contractual hours, plus a marked absence of overtime for weekend etc work, won’t have a contract nor a job. This is being called “hire and fire”.
There’s a specific point we’re interested in here and it’s not that Owen Jones has climbed on the soapbox over this - that is so usual as to be not worth noting. It’s also not about the details of the case, rather about the deeper background.
It is entirely usual that highly profitable companies pay all their workers more - more than less profitable ones. It is equally usual that highly profitable sectors pay their workers more than less profitable ones. Secretaries in banking get more than those in publishing, this is not something anyone is unaware of.
Much of the inequality of pay across the country is caused by this very factor, wages differing in profitable companies and sectors from those in un- and less so.
Why this is so is that highly profitable companies tend to share that good fortune with the workforce. Similar to, although of course not exactly the same as, a worker’s cooperative like John Lewis sharing the profits that good fortune, or good work, good management, whatever, brings in. A bigger pie seems to bring with it more generosity in cutting the slices if we like.
All of which we’re fine with. We of course want workers to go where profits - the value added from their activity - are higher. We’re entirely delighted with labour incomes rising from that same factor as well.
Which brings us to the deeper point. Imagine this has been true in a place, sector or company for some time. Then it changes. The business itself, or perhaps the occupation, becomes less profitable. There is less value being added by the activity that is. So, what should happen to compensation of the workers? Defined properly here, as that mixture of income and working conditions that make up the total payment for doing the job?
If, in the good times, compensation increases, as it does, then shouldn’t this all go into reverse in the bad? If the workers do get that share of higher profits then why not of lower?
Or, as this gets cast in public politics, why is it a scandal that profitable companies don’t raise wages but equally a scandal that unprofitable cut them?
We can, of course we can, insist that wages are the payment due to labour and shouldn’t be reliant upon profits at all. But if that’s true then why is it that high profits are seen as the reason why wages should rise in the first place?
That is, there’s more than a little cakeism on display here.
A recommendation for Will Hutton in his new job
Quite why Will Hutton does keep falling, Widmerpool-like, upwards is beyond our ken. His latest new job is as the incoming President of the Academy of Social Sciences. We have a recommendation for him in this new post:
Social science studies society in all its manifestations – where and how we live, economic activity, the dynamics of health, education, management, law, the wellsprings of wellbeing and humanity’s interactions with nature – backed by the careful marshalling of data and rigorous attempts to establish causation rather than correlation. Quantitative analysis is supported by case studies and oral witness, adding to the depth of research.
That’s what we all desire should happen, certainly. So, let us set out to do this properly. For example, in our considerations of inequality.
Currently, with income inequality, we measure it as, obviously, income. This after the influence of the tax and benefit systems. This is not enough to understand actual inequality. We need further to adjust for the variance of the price level over geography. Earning the average national income of some £25,000 a year is a very different experience in London from in Leicester. The only form of inequality that could, potentially, actually matter is inequality of consumption possibilities. Which means we should be adjusting for those local price levels.
We should also be adjusting for the value of state provided goods and services as well. This alone would make a considerable difference to our measures. One TUC report had the 90/10 ratio as 12:1 for market incomes for households and 4:1 for consumption after those government provisions - and before adjusting for geography.
With our measurements of wealth inequality matters are even worse:
Our definition of wealth includes all pension wealth—whether held in individual retirement accounts, or through pension funds and life insurance companies—with the exception of Social Security and unfunded defined benefit pensions. Although Social Security matters for saving decisions, the same is true for all promises of future government transfers. Including Social Security in wealth would thus call for including the present value of future Medicare benefits, future government education spending for one’s children, etc., net of future taxes.
Clearly that’s American but the British estimates use the same method. We do not include even taxes and benefits, let alone all the other myriad things done to alter the wealth distribution. A below market rent for life is wealth, the existence of free at the point of use medical treatment for life is wealth, free education for all children is wealth.
So, in our considerations of inequality let us start measuring it properly. Of course, we know why this will be resisted, for accounting for what we already do to reduce it will weaken the force of any insistence that it must be reduced further. But the President of an Academy has the right sort of soapbox to override such political considerations.
There will be one further benefit of properly understanding the world around us. Which is that by measuring the effects of what is done we shall be able to test the effects of what is proposed. Currently the system of not including the state pension in our wealth calculations means that there is, by our measures, no effect of a change upon the wealth distribution of a change in the state pension. Counting properly would mean that we would be capturing the effects of any such change.
At which point of course this proposal will gain the support of all involved in working against inequality. For they do all want to actually reduce it, do want to measure the success of the varied suggestions.
Don’t they?
The OECD makes sense this time
This not being something we can always say, that the OECD’s economic prescriptions make sense. But - horrendous no doubt - cynicism about international economic bureaucracies aside, this does indeed make sense:
Stamp duty should be cut permanently as part of a radical post-Covid overhaul to boost investment and make it easier for people to move to new jobs, according to the Organisation for Economic Co-operation and Development (OECD).
Transactions taxes are always contra-indicated given their high deadweights. A tax upon the geographic mobility of the population will increase the unemployment rate, as much research has proven.
Another point that we have made in the past:
Britain has the highest property taxes in the developed world, raking in £91bn in the pre-pandemic year of 2019. It means 12pc of government revenues come from hitting residential and business property owners, roughly twice the average of the OECD’s 37 member countries.
The UK does gain a large portion of revenue from property taxation already. Property being a very good place to get revenue from but just not through the medium of a transactions tax.
But it is this which is the big lesson, rather than just the technical detail:
The group wants all rich economies to become more flexible to encourage a stronger rebound as industries are reshaped by Covid and lockdowns. This could include making it easier for workers to find new jobs, and for entrepreneurs to set up new businesses.
This is the free market, even laissez faire, argument. If and when factors in the economy change then the economy itself must. We currently face significant change - working from home, online instead of physical retailing, many face to face services are at least disrupted now if not likely to have difficulty coming back. Such changes in what is possible, what is desired, mean that we must have flexibility to explore how best to accommodate those changes. Factors of production must be mobile across sectors, companies and yes, geography.
Entrepreneurs must be able to set up to test those new ideas. Equally, it must be simple to close down the experiments that don’t work - which will be many to most of them. All of this needs to be free of permission seeking from a hidebound and sluggish bureaucracy or other permit gaining system. We also don’t need national conversations about a plan for all to follow - we face far too much uncertainty for planning to be possible, we must experiment.
It is precisely during periods of change that the free market system comes into its own. An entirely static universe could, potentially at least, be planned and administered. One where what we can do, what we want to do, is in flux cannot be.
Of course, the laissez faire argument goes on to point out that the world is always in flux, technology does march on, tastes change. Therefore it is always necessary to have that freedom to experiment. It is just more true now given that we’ve that significant bolus of change thrust upon us by Covid, lockdowns and the acceleration of underlying changes.
Today's proof that beating climate change will make us poorer
Or if you prefer, today’s proof that some insist we must become poorer to beat climate change:
Nevertheless, the French bill still compares favourably with the efforts of the UK government when it comes to aviation emissions, by virtue of this key distinction: the ban recognises that we can’t tackle climate change without some actual curbs on air travel. Up until now, the idea that there might be hard limits to consumption in a carbon-constrained world has been anathema to politicians everywhere. This ban is an important step towards accepting that curbing consumption is essential for driving down emissions. Finding fair ways to impose these limits in practice will be difficult. But banning unnecessary domestic flights should be the easiest place to start.
By definition we are richer if we are able to consume more of what we wish to consume. This is true whether our desired consumption is digging in allotments, enjoying slow food, greater leisure or being able to fly from Manchester to London. Sating more desires is being richer.
Thus to insist that climate change can only be beaten by curbing consumption is to insist that we must be poorer.
There is also that “Kto, Ktogo?” point. Who is it that decides that domestic flights are unnecessary for whom? It being a cornerstone of any form of liberal society - not just liberal or neoliberal economics - that the utility to be maximised is defined by the person doing the maximising, not by some bureaucrat in an office elsewhere.
But the thing that has always confused us in these insistences about air travel is that of course climate change can be beaten without changing flying habits in the slightest. Currently aviation is some 2% of global emissions. This is a rounding error in the scheme of things - especially since zero emissions is not in fact necessary to turn the problem into some mild annoyance rather than a civilisational disaster.
Further, even if we do talk about net zero the net there is important and there are plenty of carbon negative processes out there. Iron fertilisation of the Southern Ocean - that alone would cover global aviation emissions - , building up the carbon content of pasture soils and so on. It may well be - and we would insist that it will be - true that people would prefer to carry the costs of those carbon negative technologies and still be able to fly. It being - because we’re liberals - our insistence that the decision is up to those people, not the bureaucrats in some office.
All of this before we get to the most obvious point, which is that if this green hydrogen revolution is really to come to pass then the manufacturing of net zero carbon avgas becomes rather simple.
This is possibly unkind but it is the only logic which seems to make sense to us. Which is that some people just don’t want others to be able to fly, insist that people should be made poorer by not being allowed to do so. Climate change is the excuse, not the reason.
It's not wholly and entirely obvious that this is beneficial
Some changes in the waste management industry:
Carswell is a driver with 35 years’ experience working for Andersons, a large fallen-stock operator. Or rather, he is a knackerman, knackering being the old name for a role that, over the past 50 years, has been entirely modernised. His job and the way he conducts it are unrecognisable from the profession he originally came into. Now, there are forms, procedures, trucks, lifters, legislation. Since 2001, testing for BSE (bovine spongiform encephalopathy, a neurodegenerative disease in cattle which in variant form can be transmissible to humans) has been mandatory on any animal over the age of 48 months, and new drivers coming to the role have to be fully licensed and certified. A business that was once a byword for the wrecked and smelly ends of animal life is now as antiseptic as modern biosecurity regulations can make it.
Each of these additions, every form, every certification, has been a well meaning addition to the mountain of such already extant. It’s not though, in the end, entirely obvious that the system as a whole has ended in a net benefit. As with restrictions on other forms of waste disposal leading to more flytipping, or those new regulations - new a couple of decades back - on lead battery recycling leading to a fall in lead battery recycling, it is possible to make the system too complex to actually operate effectively.
We have heard - scurrilous rumours no doubt - of an increase in the illegal burial of fallen stock in odd corners of farms for example…..