Message from discussion
To David Friedman: Antitrust
From: "Vincent Cook" <Use-Author-Address-Header@[127.1]>
Subject: Re: To David Friedman: Antitrust
Date: 1998/05/08
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David Friedman wrote:
>>What Smith really did was import a few French theories (but
>>unfortunately not some of the more advanced conceptions of value)
>>into the Scottish context, and thus introduce the English-speaking
>>world to some laissez-faire ideas in a watered-down form. Of
>>particular importance was Smith's advocacy of free trade in
>>international commerce, which has become a sort of holy grail of
>>British political economy (even in its more collectivist variants)
>>ever since.
>>
>>However, unlike some of the French,
>>Smith's pro-capitalist stands
>>were not integrated in a coherent fashion to offer a rigorous
>>defense of laissez-faire,
>
>You are arguing that Turgot's physiocratic theory was "integrated in a
>coherent fashion?"
Turgot did not make the sorts of mistakes that Quesnay and other
Physiocrats did, and Smith in fact was more prone to embracing
Physiocratic errors. Turgot's relationship to the Physiocrats was
more of a personal and political one than an intellectual one.
>Putting aside the question of influences, what do you find in Cantillon or
>Turgot that is correct, and that Smith got wrong?
The most fundamental problem with Smith is that in the _Wealth of
Nations_ he sunders price formation from consumer utility. Whereas
the French economists had understood (albeit without the benefit of
marginalism) that scarcity was a factor in price formation and had
worked out a rough understanding of how subjective utility affects
price formation and opportunity costs, Smith's articulation of the
diamond/water paradox presaged his slide into an incoherent
real-costs theory of exchange-value.
Some other key ideas one can find in Cantillon and Turgot but not
Smith (or stated much better than in Smith) are:
(1) a clear statement of an Austrian-like methodology (Cantillon),
(2) market prices derived from subjective utlities (Cantillon with
some qualifications and Turgot more consistently and in great
detail),
(3) uncertainty and a division of knowledge as the basis for
entrepreneurship (Cantillon and Turgot),
(4) a sophisticated theory of spatial economics (Cantillon),
(5) a sophisticated commodity theory of money (Cantillon),
(6) specie-flow mechanism for monetary equilibrium (Cantillon and
Turgot),
(7) the law of optimum returns (Turgot), and
(8) the time-preference theory of capital (Turgot).
All in all, a pretty impressive list. The good points
about Smith (his understanding of the benefits of a division of
labor and the freedom of international trade) can be found also in
Cantillon and Turgot.
>>so he wound up advocating a long list of
>>interventionist measures instead - specifically banking regulation,
>>a government monopoly of money,
>
>What government monopoly of money? Smith supported the Scottish system of
>private banks issuing their own currency. Do you mean his support for a
>government monopoly over small notes?
I'm talking about the minting of coins, not the issuance of
paper currency. The world used gold and silver
coins as the standard money back in those days.
>> public works, a government postal
>>monopoly,
>
>Where does Smith say that the post should be a monopoly? Indeed, where
>does he discuss a post office in our (rather than the 18th century) sense
>of the term?
>
>>agricultural export restrictions,
>
>Where does he support agricultural export restrictions?
>
>>mandates for certain
>>aspects of real estate (fire walls, mortgage registration), and
>>prohibition of wages-in-kind.
>
>Actually, Smith favored a slightly higher tax on wages in kind--a mistake,
>but not the mistake you attribute to him, unless you are thinking of a
>passage I don't know.
I don't have references to the original sources handy, since I'm
relying on a secondary source for my bill of particulars (Murray
Rothbard's _Economic Thought before Adam Smith_). I neglected to
mention that public education and usury laws should be on this list
also. Even his commitment to free trade was not consistent, since he
argued that Navigation Acts were o.k. if justified by considerations
of national defense.
I do have a quote from the _Wealth of Nations_ regarding his
support of public education:
"An instructed and intelligent people besides are always more decent
and orderly than an ignorant and stupid one. They feel themselves,
each individuallly, more respectable, and more likely to obtain the
respect of their lawful superiors, and they are therefore more
disposed to respect those superiors. They are . . . less apt to be
misled into any wanton or unnecessary opposition to the measures of
government."
That's hardly the sort of rhetoric one would expect from a champion
of individualism. I guess we can be thankful that public education
has failed so badly that wanton opposition to the measures of
government is still alive and well.
>>Smith also was in favor of many kinds
>>of taxes.
>
>And Turgot and Cantillon (and Menger and ...) were in favor of having no
>taxes? News to me.
The point I'm getting at here is that Smith is a sort of Laffer-like figure
who is more interested in generating revenues in the most efficient manner
for the state than in minimizing the state's take. The French
economists, on the other hand, thought of tax reforms in terms of
getting rid of most of the extant taxes (in fact, all but one tax in
the case of the Physiocrats and Turgot).
Turgot's hard-core libertarian attitudes can be discerned from this
passage from _Plan for a Paper on Taxation in General_:
"It seems that Public Finance, like a greedy monster, has been lying
in wait for the entire wealth of the people."
Contrast that to Smith's insipid canons of justice in taxation,
especially his advocacy of the unlovable income tax we have to suffer
with today:
"The subjects of every state ought to contribute towards the support
of the government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which
they respectively enjoy under the protection of the state. The
expense of government to the individuals of a great nation, is like
the expense of a great estate, who are all obliged in proportion to
respective interests to the estate."
I think that a "greedy monster" is a more accurate description of
the state than a "great estate," don't you?
It may also be germane to the tax question that Adam Smith's
so-called laissez-faire principles didn't stop him from spending
the last twelve years of his life as a commissioner of Scottish
customs. How could it be that the foremost champion of free trade
turned into an enforcer of the mercantilist order?
In December of 1785, Smith wrote this in a letter to another customs
official, George Chalmers:
"it may, perhaps, give the Gentleman pleasure to be informed that the
net revenue arising from the Customs in Scotland is at least four
times greater than it was seven or eight years ago. It has been
increasing rapidly these four or five years past; and the revenue of
this year has overleaped by at least one half the revenue of the
greatest former year. I flatter myself it is likely to increase
still further."
Smith's early works may have had a lot going for them, but from the
_Wealth of Nations_ on it was all downhill, and judging from the
sentiments expressed here he had sunk very low indeed.
>>Most economists today are still largely unaware of the ideas of the
>>early Austrians and of the pre-Smithian body of economic theory. The
>>Smith-as-founder myth became entrenched because the post-Revolution
>>French economists, starting with J.B. Say, found it politically
>>expedient to distance themselves from their 18th Century predecessors
>>(who were pro-royalist reformers, with Turgot even being Minister of
>>Finance briefly) and portray themselves as Smithians instead.
>
>Or, alternatively, because they found Smith (and Ricardo) to have a more
>nearly correct and consistent theory.
That wouldn't account for the persistence of the non-Smithian elements in
continental economics.
--
Vincent Cook <xyzepicu...@xyzcreative.net> Remove the xyz's
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