ADAM Smith would not have been a fan of a government making its citizens’ moral judgments for them, writes Michael Fry
In the time of Adam Smith, just like today, Scotland had a problem with its fishing industry. There was not much money for investment in that period, and the fleet was out of date – in particular, it was no match for the European boats, usually from Holland, which made a habit of coming into Scottish waters to catch the fish from under our lads’ noses. Sound familiar?
Then, as now, the British government considered that if Scotland had a grievance, the best thing was to throw money at it. So the Treasury provided a subsidy (a bounty in contemporary language) for building bigger and better Scottish boats to match the Dutch ones. Smith was living in Kirkcaldy, so he knew all about these things from the fishermen of Fife, and he wrote: “It has, I am afraid, been too common for vessels to fit out for the sole purpose of catching not the fish but the bounty.”
I thought of this when I read a speech given by Alex Salmond during his visit to the US for Tartan Day last week. He was addressing an audience at Princeton University, so the thoughts were suitably learned. They drew a distinction between the Smith of The Wealth of Nations, with its advocacy of capitalism (or something very like it), and the Smith of his earlier book, The Theory of Moral Sentiments, which recommends altruism and benevolence – or, as the First Minister horribly put it, “empathy”.
Salmond will always be a politician more than anything else and, before closing his remarks, he drew some conclusions from all this theory for the burning issues of today. One subject he turned to was climate change and his government’s policies to deal with it.
The most controversial part of that programme is wind farms. Even as I read Salmond’s speech, the Highland Council was nodding through a proposal for a wind farm with 83 turbines to be built above Fort Augustus, and so ruin another stretch of rugged scenery.
But hang on a minute, is it not possible to discern a certain similarity between the fishing boats of the 18th century and the wind farms of the 21st? In both cases, government decides they are a Good Thing, not only in Scotland but “worldwide”. So it subsidises them.
The interesting thing is where the subsidy goes. It goes not to the consumers of fish, nor to the consumers of energy. It goes to the producers, to the builders of fishing boats or of wind farms – both groups that then make large profits at public expense. It is in the end a transfer of money from the powerless us to the powerful them, with government the arbiter of this redistribution.
For all its reputation as a handbook of capitalism, The Wealth of Nations is full of such examples of what today we have come to call rip-offs. “People of the same trade seldom meet together,” Smith writes, “even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
Smith did not live in the age of the lobbyist, but he had already got the general idea. When businessmen put to government some wonderful new proposal of overwhelming benefit to the public, then “it comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it”.
Smith is a psychologist as much as an economist, and for me the uncanniest part of his genius is to tell us, in every case, what is actually going on. He was a cautious fellow, but his very caution allowed him to read the reality of motives. And once he had read them, he was always on the side of the small man likely to suffer from the presumption of the rich and powerful. When he called for liberty, as he constantly did, it was to secure the rights of the small man against the rich and powerful.
Of course, the rich and powerful retain their liberty too, and the scope to abuse it. In the week when Margaret Thatcher’s funeral took place, we do well to recall how the freedom to advance himself that she gave to the second-hand car dealer in Basildon turned, perhaps through his hedge-fund manager son, into the sharp practice and finally the crimes of casino capitalism under Tony Blair and Gordon Brown.
How did Smith propose to deal with the abuse of liberty? To answer the question we must turn from The Wealth of Nations to The Theory of Moral Sentiments, and there we can learn that morality is not secured by the multiplication of laws, nor by the interventions of government, which are both inevitably corruptible. It is secured not at a public level but at a private level, in each person through the cultivation of his or her own moral sensibilities.
We can develop our morality just by being normal, moderate, sensible members of society. The very first sentence of Smith’s earlier book says this: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”
In my view, Alex Salmond is right to assert that The Wealth of Nations should always be read in the light of The Theory of Moral Sentiments. Where he is wrong is to assert that government can and should be the maker of morality and form its citizens’ personal moral judgments for them – a trait that unfortunately has become a hallmark of his own government. That is certainly not what Adam Smith says. His two books form part of a whole, and demonstrate that moral distortion will lead to economic blunder.