Tuesday, June 24, 2008

Adam Smith Revisited

Two recent and noteworthy posts on Adam Smith.

First, "did Adam Smith hate businesspeople?" (Market Based Management) - a reminder that while progress can be achieved within capitalism through both altruistic and rather base motives, not only is the result the same but it is the latter motivation that Adam Smith believed to be more pervasive:

Despite his disdain for businesspeople, Smith noticed that once deprived of their government-granted privileges, the still-contemptible merchants and manufacturers could only profit by serving their fellow humans. This is Smith’s lasting legacy. He did not appear to have a high opinion of his fellow man but observed that free markets forced even the worst people to provide for others—even those who might hate one another. The real Adam Smith was no ideologue, but a careful observer of human beings. Incidentally, he also gave away most of his money to the needy, which remains a little known fact—probably because he didn’t tell anyone. I like to think that Smith might have a different opinion of today’s businesspeople, but he would probably tell us not to kid ourselves. The many cheap and high quality products we enjoy today are not there because human beings are any better than they were in Smith’s day, but because the invisible hand forces them into what is best described as public service.
And the second exploring the nature of poverty and Adam Smith's view that poverty was as much a social and emotional issue as a material one. The argument is that in order to reduce poverty then, financial subsidies and grants may have a negative effect as the mere effect of qualifying for these subsidies and grants results in a "signal" and reinforcement of poverty without necessarily the development of tools in order for the poor to climb into wealth (Club Troppo):

For Adam Smith poverty meant having visibly less than others. But it’s not obvious that Smith’s problem of poverty could be solved simply by handing out food, housing and health care to those at the bottom of the income distribution. Smith argued that people have social as well as physical needs. In our society, working-age adults meet many of these needs through paid employment. Work is not just a source of income, it can also be a source of status, belonging and approval from others.

This view of well-being helps explain why income redistribution on its own will never be enough to guarantee that the needs of the least advantaged are met. When income support payments are linked to tests of employability (as with disability payments) or job search effort (as with unemployment payments), eligibility for the payments is itself a signal (whether we like it or not).

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