Yahoo Finance Matthew Lau: On his 300th birthday, the world needs less government and more Adam Smith
Adam Smith’s 300th birthday was earlier this month, although the exact date is uncertain. Smith, a moral philosopher, published his first book, The Theory of Moral Sentiments, in 1759. His second, The Wealth of Nations, published in 1776, made his name as “The Father of Economics.” Centuries later both books are still read, and his writing remains as relevant as ever.
They are not read widely enough, however. Politicians and much of the voting public, ignoring economics, ignore Smith’s writing. His warnings, for example, about the conceit of central planning go unheeded. “The statesman who should attempt to direct private people in what manner they ought to employ their capitals,” Smith wrote in The Wealth of Nations, “would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”
Today, as in Smith’s time, many politicians display their folly and presumption by directing our financial affairs. In 2014, Munir Sheikh, former chief statistician at Statistics Canada, and our own Philip Cross, the agency’s former chief economic analyst, estimated that government control of the economy in the form of program spending, tax expenditures, and regulation of prices and output had by then reached over 64 per cent of GDP. It is almost certainly higher now. Federal politicians just exhibited $30-billion or so of folly and presumption by buying themselves two battery factories. The results of this wider and wider reach of folly and presumption? A less productive economy and lower standards of living.
Smith’s opposition to top-down government control extended beyond economic decision-making. In The Theory of Moral Sentiments he described “the man of system” who “is apt to be very wise in his own conceit” and “enamoured with the supposed beauty of his own ideal plan of government.” Such a person “seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess–board.” When people are forced in a direction they do not choose, Smith explained, “society must be at all times in the highest degree of disorder.”
Such disorder can be caused when governments, for instance: infuse into the taxpayer-funded education system ideologies that many of these taxpayers oppose; prevent people from obtaining or supplying medical care in order to preserve a government monopoly; declare plans to phase out an industry on which people rely for employment; ban the types of cars people want to drive and the shopping bags they want to use; or dictate people’s daily activities and medical choices during a pandemic to a degree far beyond what might be justified by the government’s legitimate public health role.
One area where Smith most famously opposed government control was in trade. “In every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheapest,” he wrote. “The proposition is so very manifest that it seems ridiculous to take any pains to prove it.” Centuries later, the point still needs to be made. Government protection of and subsidies to domestic farms and manufacturers, occupational licensure discriminating against qualified foreign-trained professionals, and government “buy local” policies all continue to cause economic harm.
Consistent with his skepticism of government economic planning, Smith advocated for taxation to be light, easy, and minimally distorting of the economy, lamenting that “there is no art which one government sooner learns of another than that of draining money from the pockets of the people.” Our own governments, ignoring Smith, impose heavy taxation riddled with complications and distortions and informed by political instead of economic considerations. Politically convenient targets such as corporations that repurchase shares, earners of high incomes and financial institutions are singled out for special or punitive taxation without any sound economic rationale.
While warning of the dangers of government control, Smith defended the free market and private enterprise. He pointed out that in order to make profits, businesses have to serve customers and produce things people want to buy. In a free market, in other words, people looking to serve their own interests must promote the public welfare. This was one of Smith’s key insights, one that, if more people kept it in mind, would prevent a significant amount of deleterious government regulation. Today, as in the 18th century, we need less government and more Adam Smith.
Matthew Lau is a Toronto writer.
