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Sirico Parables book

Religion & Liberty: Volume 33, Number 4

Adam Smith and the Poor

    Adam Smith did not seem to think that riches were requisite to happiness: “the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for” (The Theory of Moral Sentiments). But he did not recommend beggary. The beggar here is not any beggar, but Diogenes the Cynic, who asked of Alexander the Great only to step back so as not to cast a shadow upon Diogenes as he reclined alongside the highway.

    The oft-regarded “father of capitalism” had a lot to say about the poor, such that even the left has tried to claim him. Let’s just say he was anything but fatalistic.

    That Diogenes possessed a security Alexander was fighting for is a fitting finish to Smith’s parable of the poor man’s son, “whom heaven in its anger visited with ambition.” In old age and “splenetic” humor, the now-rich poor man’s son possesses “enormous and operose machines, which must be kept in order with the most anxious attention, and which in spite of all our care are ready every moment to burst into pieces, and to crush in their ruins their unfortunate possessor.” Business, career, and estate are projects that require “the labour of a life to raise,” yet leave us “as much and sometimes more exposed than before to anxiety, to fear, and to sorrow; to diseases, to danger, and to death.”

    Smith taught that a man in a “permanent situation,” whatever it be, settles, psychically, into “the natural and ordinary state of mankind.” Once one has settled into that psychic state, there is little scope for movement upward. Never are we long or much happier than we are in “the natural and ordinary state of mankind”—and when someone pretends otherwise, others do not believe him. But downward the fall may be, “immense and prodigious.” Smith emphasized great asymmetry about “the natural and ordinary state of mankind.”

    Why work to build and maintain operose machines if a cushier or chicer “permanent situation” only returns us to the natural and ordinary state? “What can be added to the happiness of the man who is in health, who is out of debt, and has a clear conscience?” Smith asked. Good health depends somewhat on wealth, as does staying out of financial debt, yet those are attainable with modesty and frugality.

    ‘What can be added to the happiness of the man who is in health, who is out of debt, and has a clear conscience?’ Smith asked.

    What about a clear conscience? Is it conscionable to shrug off the business of accumulating wealth? After describing the now-rich poor man’s son’s splenetic regrets about his lifelong ambitions, Smith looks “in better humour” at the good achieved by pursuing honest income, and that good is substantial. It includes enlarged support for “a greater multitude of inhabitants,” “the multiplication of the species.”

    We read Smith’s words and we know that others may read them as well. We may imagine that the poor man’s son has a child—a daughter, say. She learns from Smith the virtue in pursuing honest income. She sees in Smith’s words what J.G.A. Pocock in Virtue, Commerce, and History called commercial humanism. She knows Dad’s bouts of splenetic regret. We may imagine that, with eyes wide open, she sets about to build operose machines, cognizant of the good she thereby does, and of how ambition can grow splenetic. With a different attitude, a wiser, more virtuous one, she embraces operose responsibilities. Call it the invisible parable of the poor man’s son’s daughter.

    One thing to say, then, about Smith on poverty is that, beyond material basics, happiness depends principally on moral condition, and that material condition matters principally only through moral condition. Spiritual poverty is the fundamental problem, not material privation. At one point in The Wealth of Nations, Smith represents the inner substance of the wealth of nations as “the good cheer of private families”—though he himself never married.

    Government Policy for Universal Opulence

    Smith may have doubted that a man would make himself much happier by accumulating greater wealth, yet he wrote of “the uniform, constant, and uninterrupted effort of every man to better his condition.” From the first page of The Wealth of Nations, Smith teaches that the drive for betterment would, under liberal arrangements, produce a rising opulence, lifting all boats. A few pages later he says the division of labor, the extension of markets, “occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people.”

    However, Smith does see a force that, even under liberal arrangements, has a tendency to push down wages. That force is competition among laborers, which comes about notably from population growth. Smith suggests that the downward pressure on wages from population growth could lead to a “stationary” economy, and he references China in that regard, saying it has “acquired that full complement of riches which the nature of its laws and institutions permits it to acquire.”

    Alexander the Great visits Diogenes in Corinth (1696)

    But China’s laws and institutions were not liberal, and Smith expressed considerable optimism about escaping any Malthusian trap, provided that laws and institutions sufficiently “allow every man to pursue his own interest his own way, upon the liberal plan of equality, liberty and justice.” Smith expounded economies of scale explicitly in the first chapter and, less conspicuously, indicated technical improvement and ongoing discovery, factors that would continually shift cost curves downward and prompt people to think of improvements previously unthought of. Like Julian Simon two centuries later, Smith wrote of the ultimate resource:

    What takes place among the labourers in a particular workhouse, takes place, for the same reason, among those of a great society. The greater their number, the more they naturally divide themselves into different classes and subdivisions of employment. More heads are occupied in inventing the most proper machinery for executing the work of each, and it is, therefore, more likely to be invented. [italics added]

    The effects of all such dynamic forces are to ease production, increase supply, multiply products, and reduce prices. Smith was pro-human and optimistic about the feasibility of ever-growing numbers of human beings. Yes, all else equal, population growth reduced wages, but, in Smith’s dynamic vision of the free economy, all else does not remain equal; possibilities are continually pushed outward. The countervailing economic dynamics could more than make up for population’s downward pressure on wages.

    In short, Smith’s recommendation for poverty reduction would be freedom. The first object of political economy is “to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves” (italics added).

    Poverty and Particular Policy Issues

    What about particular policies? Does Smith reference the poor when discussing certain policies?

    Portrait of Adam Smith by John Kay (1790)

    Yes, he does. In advocating specific liberalizations, Smith sometimes references the plight of the “poor,” of “labourers,” “workmen,” “artificers,” “inferior ranks,” or the “great body of the people.” I will remark on some of those topics. Afterward, I will remark on two other particular areas of public policy—namely, redistribution (the Poor Law and progressive taxation, in particular) and schooling.

    Standing up for the poor and labor

    In traditional Christian society—say, in 1400—all souls may have been understood, equally, in terms of imago Dei, but people also understood that each soul was affixed to a distinct person, and in this world persons were situated differently, and always would be. Poor persons seemed fated to their station. Some doubted whether it was proper that poor people should rise in material condition, or hope to. Some suggested that poverty was useful, for it impelled poor people to overcome the indolence natural to man—the so-called utility of poverty doctrine. Latter-day economists call it the backward-bending supply curve of labor. The poor were to inherit the earth but not anytime soon.

    Smith was an outspoken and striking opponent of any fatalistic view of poverty and of the class supremacism that sometimes accompanied it. Not only souls in the eyes of God but persons in this world count equally, ethically. The equality of “the liberal plan of equality, liberty and justice” is equal standing in the supreme spectacle. More importantly, the right to pursue one’s own interest in one’s own way goes equally for the poor.

    And equality of freedom usually serves—as in this case—the supreme spectacle: “It is but equity, besides, that they who feed, cloath [sic] and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.” After all, “no society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” Smith taught aristocrats to take pride, not in the flourishing of their estate, but in that of their society. Smith taught aristocrats to embrace the liberal plan.

    The rubber hits the road, for example, on guild restrictions—analogous to occupational licensing restrictions today. Consider these excerpts from The Wealth of Nations:

    The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour is a plain violation of this most sacred property.

    The consumer-protection rationale is a sham:

    To judge whether he is fit to be employed, may surely be trusted to the discretion of the employers [or customers] whose interest it so much concerns. The affected anxiety of the law-giver lest they should employ an improper person is evidently as impertinent as it is oppressive.

    Smith rarely called loudly in his policy espousal, but when he did, it was in objecting to encroachments on liberty. Another such moment is Smith’s condemnation of restrictions on settling in a town or parish—restrictions that were rationalized as preventives against poor people moving in to take advantage of local poor relief. Smith writes:

    To remove a man who has committed no misdemeanour from the parish where he chuses [sic] to reside is an evident violation of natural liberty and justice. … There is scarce a poor man in England of forty years of age, I will venture to say, who has not in some part of his life felt himself most cruelly oppressed by this ill-contrived law of settlements.

    In labor markets today, governments impose many violations of liberty, supposedly for the benefit of laborers, especially those earning low wages. What about Smith? Is there no labor-market issue for which he makes an exception to the liberty principle?

    Smith was pro-human and optimistic about the feasibility of ever-growing numbers of human beings.

    There is but one judgment on a labor-market issue that might qualify as an exception. In The Wealth of Nations, Smith references a law without citing the law he means: “the law which obliges the masters in several different trades to pay their workmen in money and not in goods is quite just and equitable.” He adds: “It imposes no real hardship upon the masters. It only obliges them to pay that value in money, which they pretended to pay, but did not always really pay, in goods.” I have not looked deeply into the matter, but the law Smith alludes to sounds like one that reinforces contracts rather than restricts liberty. Furthermore, if the law did restrict in-kind payment contracting, in the event that such contracts were, quietly, nonetheless made, and kept, would anyone squawk? My point is that the only possible exception that Smith makes to liberty on labor-market issues seems insignificant.

    Redistribution (the Poor Law and progressive taxation)

    Although Smith discussed and objected to the restrictions on local settlement, which came about because of the poor relief administered and financed locally under what was known as the Poor Law, Smith never weighs in on the Poor Law directly. That silence is curious, given Smith’s striking regard for the condition of the poor and the comprehensiveness of The Wealth of Nations. What should we make of the silence?

    Some scholars claim Smith for the political left. To claim Smith for the left, they naturally have to say that Smith favored—or would favor today—progressive taxation and welfare-state redistribution directed especially to the less well-off. These scholars have sometimes noted Smith’s silence on the Poor Law and suggested: See, he wasn’t against it, since he didn’t attack it.

    But one could likewise say that he wasn’t in favor of it, since he didn’t endorse it. A couple of points support that side of the matter.

    First, since Smith makes clear that the settlement restrictions ramified from the Poor Law, his condemnation of those restrictions would seem to militate against the root from which they stem. Smith never says how parishes should cope with the problem of attracting relief-seeking settlers. It is natural for the reader to wonder whether the problem ought to be dealt with at the root. Smith, after all, was an economist, and an economist might figure that one way to reduce poverty is to stop paying people to be poor.

    More importantly, Smith in The Wealth of Nations announces that he shall, in Book 5, “show…what are the necessary expences [sic] of the sovereign, or commonwealth.” He says this at the very start of the book and repeats it at the end of Book 4 as he describes what lies ahead. Smith’s presentation of the necessary expenses of the sovereign or commonwealth makes no mention of poor relief. It is absent. Should we not conclude, then, that poor relief is not a necessary expense of the sovereign or commonwealth?

    As for progressivity in taxation, left Smithians have often claimed that Smith supports it. There are two passages they usually cite, one that suggests that the turnpike trusts charge higher tolls on luxury carriages and one that acknowledges that “house-rent” taxation (like a property tax), though attractive in other respects, falls disproportionately on the wealthy.

    Smith commences his lengthy discussion of taxation by expositing four central maxims of taxation, maxims of “evident justice and utility.” The first is proportionality, that is, subjects’ overall tax burden should be “in proportion to the revenue which they respectively enjoy under the protection of the state.” Income taxes did not exist in Smith’s day, and he is not proposing an income tax. But he is saying that the incidence of taxes, however implemented, should work out to proportionality with income (“revenue”). In other words, Smith thought along the lines of a flat or proportional distribution of the tax load—not a progressive one.

    Starting with proportionality as a maxim, we understand that, regarding the house-rent tax, Smith is noting that its disproportional burden on the rich is not a feature but rather a bug. Smith is saying that, despite that bug, house-rent taxation remains worthwhile: “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.” Smith does not welcome the disproportionality, but he can live with it, all things considered. For criticism of left Smithianism, see the excellent piece in Reason magazine by David Friedman, “Adam Smith Wasn’t a Progressive.”

    A 1799 caricature of William Pitt the Younger collecting a newly introduced income tax from John Bull, published by S. W. Fores

    Smith on the government’s role in education

    In discussing the “necessary expences” of the sovereign or commonwealth, Smith considers at length what role, if any, government should play in “the Institutions for the Education of Youth.” Smith’s treatment has been a matter of ongoing interpretation and contention.

    I read the flow of Smith’s article on the topic in The Wealth of Nations as follows: during the first 75% of the article, Smith develops a series of points and historical matters that, in terms of our framing here, militate against government involvement in education. At that 75% point, Smith then poses questions prompted by his preceding 24 pages:

    Ought the publick, therefore, to give no attention, it may be asked to the education of the people? Or if it ought to give any, what are the different parts of education which it ought to attend to in the different orders of the people? and in what manner ought it to attend to them?

    Smith motivates the questions by describing how someone who knows only the routine of narrow factory work “becomes as stupid and ignorant as it is possible for a human creature to become” and the social hazards arising from that stupidity and ignorance. Smith goes on to consider some ways that government policy might mitigate such tendency toward stupidity by either stimulating a demand for education or subsidizing access to education. He considers a number of ideas. He reflects on the menu of options (a menu, by the way, that does not include compulsory school attendance). What he does not do is come out with a definite recommendation. Yes, it is significant that Smith considers some government interventions and partial school financing without definitely rejecting those options. But many scholars have jumped to interventionist conclusions about what Smith recommends. In a word, Smith is equivocal on the topic.

    Smith’s final words on the topic of the funding of schools for youth come in the conclusion of the chapter in which the article resides. Those final words return to the drift of the first 75% of the article, against government involvement:

    This expence [of schooling of youth], however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.

    Here Smith is suggesting that there might be advantage in leaving the financing of schooling entirely to voluntary participation, of the families of the youngsters educated but also properly beneficent fellow citizens who might pledge subscription to any of the charity schools of Smith’s time.

    During the critical 75% of the article, Smith describes how awry educational institutions can go. If Smith were to see today’s school systems, and the results for children of low-income families, he would surely support reform in the direction of school choice and deregulation.

    Poverty and the Good of the Whole

    In conclusion, Smith’s views on poverty are part and parcel of his views on the common good. He is concerned about the whole—the whole of the community, of the country, of humankind—and most especially the moral character of the people, of the public culture and the body politic. For him, poverty is not a special problem calling for special projects or programs. Beyond the material basics, ensured best by the rising tide of the liberal plan, well-being is principally a matter of moral condition, not material condition. If magistrates concern themselves with improving the moral condition of the governed, let them remember that moral condition rises with moral responsibility. One’s wealth, one’s poverty, is, first and foremost, one’s own business.

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    Daniel B. Klein is professor of economics and JIN Chair at the Mercatus Center at George Mason University, where he and Erik Matson lead a program in Adam Smith. Klein is the author of Smithian Morals and Central Notions of Smithian Liberalism.



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