On Writing, Adam Smith & The Institute

I've just starting writing for, and am probably going to become a regular contributor to, the Adam Smith Institute (ASI) - an excellent think tank and vehicle of market research which, according to Global Go-To Think Tank Rankings published this week, is rated the 16th best think tank in Western Europe, the 5th best out of all the International Economic Policy think tanks, and 3rd best in the UK.

So I'm in good company, amongst regular social commentators who you'll often see on TV, putting people straight on Newsnight, The Daily Politics, Sky News and so forth. But even though the general ethos of the ASI creates a libertarian milieu in which I'd usually feel fully ingratiated, there is always that big caveat with me - I am, at heart, a solitary worker, unbound by political parties, ideologies, inner rings, and group identity.

As I've said before, in domestic pet terms, I'm far more feline than canine, preferring my projects to remain within the body of my overall life's work, rather than being engulfed into the practices of an organisation or institution. In short, I'm bound not to consent to or fully concord with every tenet of an organisation's views, so any work I do for anyone is always going to be secondary to what I'm trying to accomplish in my own life's work.

What I will try to bring to the ASI is a balance that looks at present to be missing in some parts, where free market qualities are sometimes exaggerated to the extent that too much emphasis is placed on the market economy and too little consideration is given to what I call socio-personal factors.

Or to put it another way, which Adam Smith fans will recognise straight away, the ASI is probably about an 85% "Wealth of Nations" kind of group, and a 15% "Theory of Moral Sentiments" kind of group, when, in my view, a 50% of each mentality would be best. Those are Adam Smith's two great works - both thoroughly excellent, but while the majority of people associate Smith with the "Wealth of Nations" approach to humankind, where market develops by virtue of our self-serving instincts, his "Theory of Moral Sentiments" is much more concerned with our propensity to be kind, generous and altruistic (see altruism footnote*) towards each other.

Putting to bed the market myth

Before I get to the main point, let me just put to bed a myth about the market economy. The free market isn't an overarching sentience that confers conscience, ethicality and will over the proceedings - it is a descriptive term that describes the mutually voluntary allocations of value (be it money, goods, services or labour) between everyone in society. That does not, however, mean that the system is unconscionable or incorrigible, as some claim. If the free market is the mutually voluntary allocations of value between everyone in society (with mutually voluntary being the operative words) then there is nothing immoral going on in libertarian economics. 

By definition the problems we see in the world cannot be caused by the mutually voluntary allocations of value between everyone in society - they can only be caused by an impediment to those freedoms - usually in the shape of bad government policies, poor regulatory protocols, or an oppressive State regime. In other words, and this is a point that even Adam Smith couldn't have foresaw to the extent that we do, it's a lack of free market qualities that besieges them, not the opposite.

It's true that most people in the free market don't have the breadth and depth to consider the complex strategic high level perspective associated with the wider market, but as Adam Smith showed in his Wealth of Nations, in market economics competition brings about self-interest for the good of everyone, where value is created because prices near-perfectly match supply and demand.

The market economy and the socio-personal economy

Now for the balance. The market system (no system, in fact) is a panacea to cure our human ills - but this is where Smith's other great work, The Theory of Moral Sentiments, comes in, because although Smith didn't have a forward notion of the kind of interconnected nexus of social activity we see in the modern age, he did understand that the selfish habits that drive the market economy (and create virtue and accountability actually) have to be balanced by kindness and consternation for one another.

So, what I will try to contribute to the ASI is more awareness that there is a good balance to be struck between a market economy and a socio-personal economy. We could easily speak at length about the differences between the market economy and the socio-personal economy, but the principal distinction is that the market economy has exchanges that are precisely recorded in terms of cash exchanged or increases/decreases in 1s and 0s on banks' computers, and the socio-personal economy has exchanges that are less-precisely recorded in terms of voluntary transactions for the good of one another.

The difference between their operations is notable too. In the financial economy the demand almost always exceeds the supply (of a limited range of labour, goods and services), because suppliers maintain their status differential (principally income) by increasing their prices or their supplies (or a combination of both), and endeavour to become top of the supplier tree by out-competing their competitors.  

Conversely, in the case of a socio-personal economy, the supply (of a nigh-on unbounded range of actions) almost always exceeds the demand, and suppliers who care enough about others maintain their status differential (primarily their character and reputation) by trying to summon up new ways to be a better person. Of course, a financial economy has a necessary social economy woven into it, because it’s hard to be successful in business without good character and reputation.

If one is going to have any assent towards the brilliance and prescience of Adam Smith, at the forefront of economic thinking should always be the mindfulness that society doesn't just function through Smithian economic transactions, it functions through social mindfulness too, which involves doing our bit at a cost to ourselves to help society.

Where it goes wrong is in many people's failure to target the right enemy. Poverty, unfairness, exploitation and injustice are certainly human ills - but the natural response from the economic left is to blame capitalism, when capitalism is the wrong target for their opprobrium. The balance that needs to be struck is an economic one that frees up the global market so everyone can partake in those mutually voluntary allocations of value, and a moral one that can better feed into the areas the market cannot, or has not, yet reached.

Too many libertarians think too highly in terms of market economics, and as a consequence they pay too little regard to socio-personal qualities that are woven into economic behaviour. And too many on the economic left think too highly in terms of socio-personal qualities by using them as tools for condemning market economics, and as a consequence they pay too little regard to, or harbour unawareness of, just what those mutually voluntary allocations of value (money, goods, services or labour) between everyone in society over the past 200 years have done for human prosperity and well-being (alongside science). Unless that proper balance is struck, any analyses brought to the table will be woefully inadequate and detrimentally one-sided.

 

* Footnote: Quick point on altruism; If you'll recall, altruism means individual behaviour that increases the fitness of an organism while decreasing the actor's fitness. In Robert Trivers' "Social Evolution", for an act to be called altruistic it must be demonstrated that the actor is incurring a cost. We've said that although there are occasions when we do something with seemingly no ulterior motive or assent towards outward self-interest, there is always the concomitant pleasure and satisfaction that such acts confer on the self. If it is the case that the benefits to the self always exceed the cost of the beneficent act (and that's by no means a certainty), this means it is nigh on impossible for a human to be altruistic.

** I have three pieces so far for the ASI - you can view them through the following hyperlinks if you wish:

Why emissions tests are so exhausting

Restating the case for freedom of speech

A plain pack of lies