18th Century Economics: Morality and Perversity

November 2, 2014 in Resources and Research, Uncategorized by M C

Over 15 million people have viewed the info graphic by  Michael Norton and Dan Ariely, professors of the business schools of Harvard and Duke, titled Wealth Inequality in America.  If you’re not one of them.. here ’tis:

If you’re looking for someone to blame for this don’t blame Adam Smith. Famous for his Wealth of Nations published in 1776, instead he should be remembered for his thoughtful philosophical work The Theory of Moral Sentiments published in 1759.  In it Smith recognizes the temptations of self-deception, and the inhumanity of a relentless pursuit of wealth and power.  To Smith greed was not good.  Greed was a corrupting influence:

“The great source of both the misery and disorders of human life, seems to arise from over-rating the difference between one permanent situation and another. Avarice over-rates the difference between poverty and riches: ambition, that between a private and a public station: vain-glory, that between obscurity and extensive reputation. The person under the influence of any of those extravagant passions, is not only miserable in his actual situation, but is often disposed to disturb the peace of society, in order to arrive at that which he so foolishly admires.”

Instead look no further than the 18th century’s Thomas Robert Malthus, and the English clergyman of the same era, one Joseph Townsend.  Malthus and Townsend were advocates of exposing the poor to the full weight of market forces, it is they who wrapped greed and accumulated wealth into a pretty little bundle of high morality and deserving grace.

It was Malthus, not Smith, who gave us the perversity thesis, which claims that any assistance to the poor and unemployed always creates more poverty because receiving unearned resources incentivizes the unemployed to remain unemployed for as long as the dole holds out.

The perversity thesis hinges on the assumption that hunger and want alone drive the unemployed and poor to seek work (and control reproduction).  Remove the scarcity, with food aide, housing assistance, or a decent living wage, and the incentive to work also disappears.  The wealthy, Malthus insisted, exercise “moral restraint” and “prudence” in the face of sexual opportunities, thus raising their standard of living by having fewer children to care for, while the undeserving poor can’t control their base urges.. which is why there are so many of them… but worse.. why it is acceptable for poor children to be left to starve.  Because if their parents can’t care for them, and society doesn’t need them..

“A man who….cannot get subsistence from his parents on whom he has a just demand, and if the society do not want his labour, has no claim of right to the smallest portion of food… At nature’s mighty feast there is no vacant cover [no place setting] for him. She tells him to be gone, and will quickly execute her own orders.”  Malthus

This is the language used to blame the poor for their condition in 1798, even though huge numbers were being displaced from the land and their trades by changes in agriculture and traditional crafts.  That language was heard to justify letting 1 million Irish starve to death during the potato famine, and forcing another million to emigrate.. a loss of 20-25% of that nation’s population.  It had nothing to do with the market for Irish goods collapsing and Britain’s institution of trade barriers.. oh no.. it was the laziness of the Irish who’d rather starve to death than find work that didn’t exist.

I’d like to think we’d progressed a bit in our thinking, but the idea that “cruelty is the key to prosperity” is alive and well today, and could be heard during Mitt Romney’s 2012 election campaign, in the claim that 47% of Americans are “takers,” with food stamps turning the cities into a “culture of dependence.”  While the deserving rich have a strong work ethic and are motivated by a higher calling to productivity, they, the undeserving poor, will only get off their lazy butts when they are dressed in rags and starving.

But implicit in this is Malthus’s idea that if your family can’t, or won’t, care for for the young and the aged.. neither does society have any obligation to provide care.

This is not the efficiencies of production and trade envisioned by Adam Smith, the father of economics.  While he viewed it as the height of foolishness to produce goods at great expense which could be produced cheaply elsewhere, his marketplace efficiencies did not include starving excess labor, or their children. “We are but one of the multitude, in no respect better than any other in it.”  -Adam Smith,  The Theory of Moral Sentiments

There are several problems with the perversity thesis, but the most obvious is in the nature of an economic transaction. It is made up of two parts: the buyer, and the seller.  Suppose, for argument sake, the poor decided to indeed get perverse.  To adopt it, seize upon it, make a venerable religion out of it.  To take being perverse to new and happy heights of moral restraint and prudence.  To save everything and consume nothing.  After all, this is what we’re asking the poor to do, isn’t it?  To restrain themselves, and, if they are unemployed, to consume nothing.

What would happen to our economy if everyone adopted make do, and starve, as the new way of doing?  If those unable to feed their children without help dumped them into ditches? Society would implode, that’s what would happen.  A productive capitalist economy is predicated on two things: sufficient investment capital, and consumer demand.  Create circumstances where one or the other (or both) don’t exist and economic activity implodes. This is why every downturn since the Great Depression has been followed immediately by governments doing everything they can to shove money into the hands of consumers through tax cuts or social spending programs, and monetary policy designed to encourage investment.  Because if people aren’t buying, then nobody is selling, and if nobody is selling, nobody is producing.. and the whole thing grinds to a screeching, metal on metal, nails on chalkboards.. halt.

Only a planned economy can be certain of providing work for everyone.  And history doesn’t favor the planned economy.  If society is going to be flexible enough to embrace new technologies and innovations, then society needs a humane system for maintaining those displaced by changes in the workplace.

Or, we can all become luddites and go back to smashing machines.  Imagine how many of the undeserving poor we could employ if we returned to the age of sail, of horses, buggies, and hand knit stockings.

Forbes Magazine, of course, published a response to Norton and Ariely’s leftist blast of subversive statistics.  In what has to be one of the more priceless statements ever made by a Forbes columnist Tim Worstall dismissed the current severe concentration of wealth saying “the numbers it is using are quite simply wrong. Oh, they’re right enough if you consider just financial wealth: but that isn’t wealth at all, or at least most certainly not all wealth.”

Well, that certainly is true, not all wealth is gold, but I’ll give you a moment to stop laughing.

If financial wealth isn’t all that important, you’d think that top 1% wouldn’t have an issue with spreading it around a bit, right?  But Mr. Worstall is not interested in sharing the wealth, instead he wants to remind those who aren’t wealthy how terrifically well off they are.. historically speaking.  After all, most of us have indoor flush, machines to wash our clothes, a roof over our heads, access to internal combustion for transportation instead of horseflesh… really, you’d think all this had been gifted upon us by a benevolent upper class, instead of built, and paid for, by ourselves.

But Worstall is right in one respect.. regardless of the division of wealth, historically speaking most of us are rolling in it.

And our stuff is complicated stuff.  A friend of mine took up mountain biking a half dozen years ago.. he’s been through three increasingly expensive and complicated bikes, the latest incarnation barely resembles a bicycle, it’s a high tech geometric confection.  I’m on my third set of snowshoes.  This pair is aluminum, flexible plastics, with steel crampons… my grandmother’s bent wood and woven gut shoes with leather bindings are now decorator pieces, prized for their merit as antique folk art.  For half a century my grandmother used those shoes, repaired them when necessary, and varnished them every spring to keep them flexible.. I spray mine down to rinse the mud off and heave them into the back of the garage.

I don’t feel richer for it, although arguably owning high tech snowshoes is a sign I’m wealthier than my grandmother was.  My grandmother paid for her shoes in care and varnish.  I paid for mine with cash… no care required.

My grandmother, on her antique shoes, walked these woods every winter, right up to the year she died, at 85.  She brought me out into the glittering white silence when I was 8, and big enough to stomp around on a child sized set of bear claws, just as I’ve dragged children out into winter in my turn.   While I’m entirely convinced owning a washing machine makes washing clothes infinitely more pleasant than banging them on a rock.. I’m not convinced modern snowshoes makes an tromp through the woods on a snowy eve one whit more beautiful. And the antique shoes provide better float over deep powder than the modern shoe, built as it is to be light on already packed trails.

I am surrounded by 150 acres of pristine white snow just waiting for my little footprints.. and my snowshoes are designed not for the path untravelled, but the path well worn and packed down.

There’s a metaphor in there somewhere..

And so I find myself tempted by perversity. Let’s do it.. let’s perversely go back to 1760.. for Christmas, and see what the holiday looked like before capitalism got ahold of it.

An 18th Century Christmas

Further Reading:

The Rhetoric of Reaction: Perversity, Futility, Jeopardy

How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness

The Theory of Moral Sentiments by Adam Smith

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