Comments about the rule of law, the concept itself, the misconceptions, and its effects on the lives of people. Not meant only for lawyers, but for all those who want to rely on laws and not on the whims of leaders
Note: after the floods that affected La Plata –the city where I
live– in April 2013, I have added entries to this blog at a slower
pace. Moreover, I thought it very necessary to dedicate time to a
number of articles in my Spanish blog about the massive changes that
Cristina Kirchner's government is making on Argentine legislation.
It has occurred to me that a reader of this blog might find it
surprising that so many of my articles are dedicated to political and
economic doctrines, and not to legal issues. Of course, there are a
good number of articles dedicated to the very notion of the rule of
law and to confront its distortions. But then, shouldn't I limit the
scope of my observations to law? Is this blog the proper place for
discussions about moral relativism, interventionist economics, or
about the true legacy of Adam Smith? How do such issues relate to the
subject of the blog?
There are two reasons that have decided me to include articles that
might seem unrelated to the rule of law. One is accidental, and
perhaps superficial. The other is fundamental.
My job
As to the first reason, I must say that as a law clerk working for
the Argentine judiciary, I should refrain from giving my opinion
about cases that may have to be decided by my superiors. Strictly
speaking, that restriction does not apply to the legal controversies
that have a bearing on the scope and effectiveness of the rule of
law. Even judges –to whom the duty of discretion is more severe
than for mere helpers like me– publish now and then their views
about past legal rulings –and their conclusions are not uniformly
favorable. Nevertheless, it is considered unwise for them to switch
too frequently between the roles of commentators and judges.
Certainly, I'am not a judge, so I am bound by good sense and
moderation, but not by the stricter rules that apply to judges (which
sometimes they disregard). I am a lawyer working as a drafter for the
judges of the Buenos Aires Province Supreme Court (i.e. a state
court, not the federal Supreme Court). Unlike most high courts in
the world, those in Argentina have staffs of hundreds of lawyers in
charge of drafting their rulings. This is because in each weekly
seating, an Argentine Supreme Court (state or federal) may typically
decide more than 100 cases, that is many more than those decided by
the US federal Supreme Court in a year. In turn, this is a result of
the fact that, unlike most courts in the world, Argentine high courts interpret the constitutional and legal limits to their
reviewing powers as binding only for normal cases, and not for those
they consider exceptional where the error the judges want to correct
is –in their opinion– too evident, arbitrary and not simply
mistaken. This means that the federal Supreme Court itself decides
when it is bound by the constitutional clauses that limit its
reviewing powers to matters concerning federal laws and when it may
leave those restrictions aside.
In fact, the powers of high courts have become discretionary; they
lack even any self-imposed ruling principle, as was freely admitted
by Genaro Carrio, a former President of the federal Supreme Court in
a book he dedicated to its extended, self-created, new jurisdiction.
Certainly, such new powers mean more work, and Argentine high courts have ended up with huge teams of drafters, coordinators of
such teams, and two or more levels of reviewers of drafts before they
are sent to the weekly meetings. The sheer number of sentences issued
by the same court and the possibilities of contradictions among them
has led the federal Supreme Court to include a Coherence Office
("Sección Coherencia") within its large structure.
So, until I retire, I can deal only in general terms with issues that
may be put to the decision of Argentine courts. That is the first
reason why I have broadened the scope of my blog.
A deeper reason
But there is a second reason, one that goes deeper into the issue and
has nothing to do with my professional situation. It is my conviction
that attacks against the rule of law are seldom if ever motivated by
legal technicalities, theoretical doctrines about the nature of
interpretation, or about the scientific status of jurisprudence.
There are always at play political and economic agendas that cannot
be pursued without trampling on the rule of law. Unless one tackles
that cause it is of little use to complain about the consequences.
That is why in defending the the rule of law, I don't simply confront
the legal theories that distort its meaning or belittle its value –as
I did in my four articles about Joseph Raz. I don't simply challenge
the arguments of those who teach that ownership is a myth –as I did
in my seven articles about Nagel and Murphy's book. I must also deal
with the political and economic theories that move these writers to
erode the value, extent, or meaning of the rule of law.
That is why, for instance, I decided to write an article about Nobel
Prize winner Amartya Sen's claim that Adam Smith actually favored
state intervention in the economy, education provided at not cost,
and "income creation" by governments. That is why in one of
my articles about Orwell, I wrote that the general ideas prevailing
in a country are much more important as a basis for the rule of law
than the declarations contained in constitutions. After all, though
the Argentine federal Constitution bans so-called "forced loans"
to the government (a wise clause that is the product of a long
history of abuses) it didn't prevent the two parties that have
governed Argentina for many decades from imposing "forced savings"
–savings that of course have to be paid to the government and are
returned later at their nominal value in a highly depreciated
currency. The federal Supreme Court has always rejected the
challenges raised against these laws.
That these measures have been accepted by the population without much
complaint cannot be properly understood unless we take into account
that, for instance, schools have been teaching Argentine youngsters
for more than half a century that civil and economic liberties
are unrelated, and that restrictions to the latter do not undermine
the former. This is one of the lessons that I remember from my book
of elementary civic education. It already looked odd to me at that
time.
Certainly, the original text of the Argentine Constitution comes from
a time when economic freedom was understood as a requisite for
progress and indeed for liberty in general. But many decades later,
in 2002, the clause in the Argentine Constitution that states that
property is inviolable (art. 17: "La propiedad es
inviolable...") didn't stop the government from taking the
foreign currency saved by people in their bank accounts. The federal
government even took the dollars that belonged to one of the
provinces that compose Argentina, San Luis –other provinces had
followed the advice of keeping their money safely abroad. This is as
if the federal US government took Texas's money! When the federal
Supreme Court ruled that such takings were unconstitutional, Congress
accused the judges of having been subservient to a previous
government, removed some of them and appointed new ones...who in due
time ruled that everything was according to the Constitution.
I would leave to the reader the not very complex task of passing
judgment on those proceedings. But I must mention the fact that in
Argentina, few people saw anything noticeable in such changes; even
law scholars found no reason to raise an eyebrow. A renowned
professor, the late Augusto Morello, a teacher of many generations of
lawyers and judges, wrote in praise of both court decisions –i.e.
for and against the claims of people concerning their dollars–
because regardless of the outcome, what mattered in his view was that
in both cases the federal Supreme Court "delineated the torso of
reality" (Morello: The Supreme Court in the Political System, p.
101).
What is surprising in these an similar examples isn't merely the
nature of the government's measures, but the lack of reaction. In
particular, the deafening silence of most academics is revealing of
the general ideas about law, morals, and the limits of state action
that prevail in Argentina. Express support like that of Professor
Morello is not characteristic. Rather, it is the uncomfortable
acquiescence; at most, the ironic comment followed by the assertion
that all that is inevitable.
That is why I think that those of us who write about the notion of
the rule of law must not restrict their comments to those instances
where pernicious doctrines have led governments to trample on it, but
must deal with those doctrines themselves. This is what Hayek did in
The Road to Serfdom.
Moreover, in Argentina, and I suspect in the rest of South America,
these doctrines frequently come ready-made from abroad. Professor
Roberto Gargarella who teaches Constitutional Law at Buenos Aires
University, is a promoter of the Analytic-Marxist creed of the
British philosopher G. A. Cohen, and made postgraduate studies in the
United States under Cass Sunstein. Argentina's most influential
criminal law academic, professor Eugenio Zaffaroni –recently
retired from the federal Supreme Court– is a follower of Michael
Foucault, whose work he has made the dominant inspiration for
scholars and policy advisers in that field. Zaffaroni was a member of
the Convention of 1994 which –among many other things–
incorporated positive discrimination into the federal Constitution.
From their professorships in Britain, Gramscian theorists Ernesto
Laclau and Chantal Mouffe provided ideological inspiration and
support to the present government in Argentina. Ronald Dworkin's
opinions has been cited by our highest courts in support for some of
their most decisive rulings, and a book seller tells me that Spanish
translations of his books sell very well among students, lawyers, and
judges. On the other hand you wouldn't find a translation of any book
written by Hayek (I have never seen a translation for sale; I just
checked on the biggest online bookstore in Buenos Aires: no results).
So again, if one must go to the source, one cannot stop at the
local echoes and consequences of ideas. One must deal with the ideas
themselves.
Nobel Prize winner Amartya Sen distrusts free
markets, wants more regulations, and calls for a global redistribution of
wealth. In doing that, Sen claims that he follows Adam Smith’s lessons, which
others have misunderstood. But has everyone been wrong about Adam Smith?
So that you can judge for yourself, below I
have embedded two videos showing lectures by Professor Sen, those in which he deals with Adam
Smith’s legacy. In 2011, together with 19 other Nobel Prize winners (three of
them also economists), Sen signed the Stockholm memorandum in which they announced that recurring economic
crisis won’t be prevented by minor reforms and that governments will have to “reset economic incentives so that innovation
is driven by wider societal interests”. In his articles and lectures Professor
Sen has used the sub-prime crisis of 2008 as an example of the severe
limitations of a capitalism that is not strictly controlled by regulations
issued by governments. Moreover, Amartya Sen writes that world leaders should pursue
a more egalitarian distribution of the benefits of economic development around
the globe. In short, Professor Sen subscribes the whole agenda of
interventionism, regulation, and redistribution on a global scale.
But Sen has also tried to show that his agenda
was actually supported, or at least hinted, by Adam Smith, the economist that
most people place among the earlier and most revered defenders of free markets.
Sen has severely criticized the traditional interpretation of Adam Smith’s legacy.
He sneers at those who assume that Smith’s essential message was that free
markets, not restrictions, are the best path to the wealth of nations. Sen
makes his audiences laugh at those simpletons who never go further than the
famous lines in which Smith declared that it is not from the kindness from the
butcher that we get our meat.
Professor Sen uses the authority of Adam Smith
to chastise the defenders of deregulation and blames them, together with “prodigals
and projectors”, for the sub-prime mortgage crisis. In his view, that came from
“an implicit faith in the wisdom of the market” an idea which must not be
attributed to Smith –Sen tells us–, but to those who misunderstand and misuse
him. He tells us that Adam Smith was actually a promoter of public spending; for
instance in education –which Sen classifies as a public good as a matter of
course. From there Sen deduces that nothing in Adam Smith's thought denies that "state action must supplement the operations of the market by creating jobs and incomes (e.g., through work programs)". Sen declares that Adam
Smith has for a long time been misused and misrepresented as an unequivocal
defender of free markets. He wants to put an end to it (Capitalism beyond the Crisis, New York Times Review of Books, 3/26/2009 p. 4)
I disagree. I think that, at best, Sen points
out some caveats that have never been denied by his much reviled
“traditional” interpretation of Adam Smith’s work. At worst, Sen distorts his
legacy, and not in its details, but in its fundamentals.
There is a lengthy introduction, Professor Sen's lecture starts at 6.28
Misuses of The Theory of Moral
Sentiments
One of the main strategies that Amartya Sen
uses in rewriting Adam Smith is to interpret The Wealth of Nations in the light provided by another –earlier–
book by Smith: The Theory of Moral
Sentiments.[1]
Now, it should be plain, right from the very
titles of the books, that they deal with different subjects. In fact Adam Smith
wrote about many and very different issues: from economy to literature and
jurisprudence, including a bit of the history of astronomy. Passing lightly
over the differences of such issues, Sen surprises his academic audiences with
citations from The Theory of Moral
Sentiments that prove that Smith assigned a great weight to the sentiment
of benevolence towards other human beings. Doesn’t it prove then, by words from
the master himself, that the usual interpretation of The Wealth of Nations is wrong? –and to think that simpletons keep
talking about self-interest and the invisible hand! Sen points out that –in
analysing sentiments– Smith wrote that people are usually very concerned about
the trust and good opinion that others may develop about them. Smith devotes a
whole chapter to the sentiment of approbation. Surely, reading Smith’s earlier
book we should have understood that trust in the economy and banks must be
fostered by regulation!
Again using The
Theory of Moral Sentiments in order to shed light on The Wealth of Nations, Professor Sen finds support for his idea
that governments should pay attention, not merely to the point of view and
interests of their citizens, but also to the opinions of people living in
distant countries. Leaders should hear distant voices in order to enrich their
perspective. Along the same line, Sen has often criticised John Rawls for restricting
the relevant opinions to the citizens of each country. Sen finds that too
limited. After all, we may ask, why should only Americans have a saying about
the proper regulation of the American economy? Why not a Congolese or a
Venezuelan? Why should Swedish legislators consider only the perspectives of
the Swedish people?
According to Sen, all these lessons come from Adam Smith if one
looks in the proper places. Certainly, in the Theory of Moral Sentiments, Smith made occasional use of the
imaginary device of the impartial spectator. In evaluating our own actions and
moral commitments one can consider what an impartial spectator would think of
them. But we shouldn’t exaggerate the importance of the device: the spectator
doesn’t really exist –no more than the Rawlsian assembly of people behind the
veil of ignorance. Moreover, while an imaginary device has a central role in
Rawls system, it has only a minor place in Smith’s –which is to the great
advantage of the latter.
Nevertheless, Smith’s mention of the impartial
spectator is used by Amartya Sen to claim that such revered thinker has hinted
some support for his own suggestion about “distant voices”. Would Smith have
approved the suggestion that the British government should take into account
the opinions of spectators from outside its dominions? I doubt it, unless it was
on the issue of foreign policy.
But Professor Sen thinks that governments
should consult distant voices even when deciding domestic matters. Moreover, Sen
writes that Smith’s occasional use of the impartial spectator in The Theory of the Moral Sentiments sheds
light into another contemporary issue, namely: should judges take into account
the views prevailing in other countries when deciding a case? Should American
judges weigh the opinions of French or German courts about the death penalty
when deciding a case involving the murder of an American by an American in America? Why
not? If one follows Sen’s train of deductions, one will conclude that Adam
Smith gave support to that too.
It baffles me to hear Sen delivering such
lessons to academic audiences and to see that nobody points out to him that it
is one thing to enrich one’s perspective, and another one to judge a fellow
citizen according to the law of the land. There is a difference between judges
and philosopher-kings. Nevertheless, in his book The Idea of Justice, Sen criticizes the US Supreme Court for
refusing to take into account the opinions of judges and people living in
different countries and different cultures. Why are they so close-minded? Sen
writes that common Americans don’t share that limited view because they pay
attention to the ideas of foreigners like Jesus, Gandhi, and Mandela. And Sen
argues: “It is quite a specialized thesis
to assert that while it was OK for Jefferson to be influenced by the arguments
of foreigners, the ears should now be closed to arguments presented outside the
United States”.[2]
Maybe Smith’s notion of the division of labor –or
rather of power– could have helped Professor Sen to understand that puzzling
distinction. Some people write laws, some others apply them. Leaving aside Professor
Ronald Dworkin’s theories, most Americans agree with their judges that these are
different tasks. Moreover, the question is misleadingly stated in terms of
nationality. That isn’t the point; if a German professor writes a persuasive
article about the meaning of the US Constitution, his arguments might be
considered as such. Conversely, if an American born academic comes up with some
good idea that he believes the Court should impose to the rest of the nation, he
won’t be considered.
I wouldn’t think it necessary to assert such
plain truths if it weren’t for the fact that I see that they are so easily forgotten.
Smith’s lesson
restated: distrust the wisdom of the market
In almost every writer it is possible to find,
along with the main ideas, peculiar opinions on special subjects, exceptions to
the principles, and caveats to his recommendations. That is especially so with
an author like Smith, for two reasons. First, he wrote about absolutely
disparate issues: morals, fashion, jurisprudence, literature, economy, astronomy,
and a host of other issues. Secondly, Smith opened the way in some of these
areas. He was among the first to tread on uncultivated land. It must be
expected that some of his notions are not yet fully developed and that some of
the old prejudices still remain in his body of work. For instance, Smith’s
theory of value was defective, and such fundamental issue would remain in that
state for a century. Certainly, none of that should be used to reject the great
lessons taught by Smith. There is no mechanism to separate the wheat from the
chaff other than balanced judgement, but I am afraid that Sen fails in that
respect.
An introduction, then a lecture by Sen's wife Emma Rothschild. Sen starts at 37.30
The traditional understanding of Smith’s
contribution –the understanding that Sen tries to debunk- is that he gave a
very good answer, one that others later perfected and refined, to the question
that he posed in the very title of his book, which was an inquiry into the
nature and causes of the wealth of nations. Smith’s answer was that wealth
doesn’t come from restrictions of trade or from laws that promote the
accumulation of gold within the territory of the nation. Those were the usual
answers in Smith’s time. Those were the policies of Spain,
of France, and even of Britain to a
large extent. In contrast, Smith pointed out in the direction of the division
of labor, of markets, and of exchange –all of which required freedom. Of course
governments were there enforcing contracts, punishing criminals, providing
defense, and many other things besides. But, again, that is not the point. With
the exception of a few modern anacho-capitalists, almost nobody denies that
governments are necessary, in Smith’s time or in our time.
Besides, interventionists and promoters of
redistribution aren’t criticising a future stateless world. They are trying to
change this one, were there is a State, and not a small one. A market without
laws, courts and the rest is a straw man that interventionists like very much
to imagine and attack. But in doing so they evade the real question, which
isn’t today –and never was– whether governments are needed at all, but whether
governments should erect custom barriers, prevent people from opening shops and
starting enterprises, tell banks what rate they should charge to customers for whom
politicians feel sympathy, direct or misdirect investment, and a thousand other
brilliant ideas for the use of other people’s money.
Adam Smith gave a good answer to that question
–to the real question. And his answer was that restrictions of trade,
regulations, and intervention caused poverty, not wealth. Which is precisely
the answer that Amartya Sen rejects.
Professor Sen could enlist Smith as a supporter
of his ideas only by making deductions in leaps that would astonish Olympic champions
in long jump. From Adam Smith’s use of an impartial spectator (which by the
way, Smith placed in each man’s heart, not in distant lands) Sen deduces that
the US Supreme Court should ponder about the opinions of foreign citizens and
academics in deciding a legal case. From the fact that governments “were there”
performing some limited functions in Smith’s time, Sen extracts support for
intervention, regulation, and redistribution at a global scale. That is the
proper use of Adam Smith’s legacy in his view.
All the while, Sen laughs at those who know
nothing about Smith other than the words about the interest of the butcher. But
that is not the only lesson that he must dismiss. There are many others. For
instance, simpletons like F.A. Hayek have also found great insight in Smith’s
words:
“The
stateman, who should attempt to direct private people in what manner they ought
to employ their capitals, 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”.
And there is much more in the same line. For
instance:
“It is the highest
impertinence and presumption, therefore, in kings and ministers, to pretend to
watch over the oeconomy of private people, and to restrain their expence either
by sumptuary laws, or by prohibiting the importation of foreign luxuries. They
are themselves always, and without any exception, the greatest spendthrifts in
the society. Let them look well after their own expence, and they may safely
trust private people with theirs. If their own extravagance does not ruin the
state, that of their subjects never will.”
But then, apart from referring to a book that
Smith wrote about a different subject, what has Sen found to support his idea that
people have misunderstood Smith’s legacy? Sen cites again and again three
examples he has managed to find in the whole Wealth of Nations. Nevertheless, I think that it is easy to see
that two of them –when read in full context– don’t support Sen’s interpretation.
The third one does: it actually shows Smith supporting intervention. But this third
example is also an instance of a rare fault of judgement on Smith’s part, a
kind of intervention that no modern economist would approve –perhaps not even
Sen, which is a lot to say. It is impossible to reject the main body of the
book on these three isolated examples.
Did Adam Smith support
free education?
In his speeches and articles Sen stresses the
point that Smith actually supported education at the public’s expense. But
let’s follow Sen’s own advice and look at the context. In The Wealth of Nations, Smith says that division of labor, so
beneficial in general, doesn’t come without some drawbacks. People forget to
take responsibility for the defense of their own country. So people should
learn how to use weapons as every man does in less developed societies. And
there are deficiencies in basic education as well. Although the higher ranks
can take care of it by themselves, it is different with poor people. Let’s see
Smith’s whole argument so that we cannot be blamed of neglecting context:
“It is
otherwise with the common people. They have little time to spare for education.
Their parents can scarce afford to maintain them even in infancy. As soon as
they are able to work, they must apply to some trade by which they can earn
their subsistence. That trade too is generally so simple and uniform as to give
little exercise to the understanding; while, at the same time, their labour is
both so constant and so severe, that it leaves them little leisure and less
inclination to apply to, or even to think of any thing else.
But though the common
people cannot, in any civilized society, be so well instructed as people of
some rank and fortune, the most essential parts of education, however, to read,
write, and account, can be acquired at so early a period of life, that the
greater part even of those who are to be bred to the lowest occupations, have
time to acquire them before they can be employed in those occupations. For a very
smallexpence the publick can facilitate, can
encourage, and can even impose upon almost the whole body of the people, the
necessity of acquiring those most essential parts of education. The publick can
facilitate this acquisition by establishing in every parish or district a
little school, where children may be taught for a reward so moderate, that even
a common labourer may afford it; the master being partly, but not wholly paid
by the publick; because if he was wholly, or even principally paid by it, he
would soon learn to neglect his business.” p. 175 [3]
That is, in full, the passage that Sen uses in
order to claim that Smith supported education at the public expense. Certainly
Smith never meant that the public should pay for the education of all,
including the rich. He wouldn't recommend the system that has been in use in Argentina
for decades, where rich youngsters spend many years in public universities
maintained by the whole nation. Nevertheless, sometimes Sen likes to quietly drop
the limitation and speaks of education in general as a public service.[4]
In contrast, Smith meant basic education for
the poor people who, in his time, had to send their children to work at a very
early age. In our time the situation has changed greatly. But what is much more
significant, even for those in such appalling conditions, Smith recommended
that the costs should not be “wholly, or
even principally paid” by the public. His reason is that if people have to
pay for education, they will be more careful about its quality. Now, to extract
from that the lesson that Adam Smith supported free education as a public
service, to further build upon that example an argument for State intervention,
and think it fair to scoff at the unenlightened people who miss the context in
Smith’s work, is well beyond what I am prepared to accept, even from a renowned
academic like Amartya Sen.
Let’s see a second example. In his article in The New Statesman, Sen writes that Smith
“was
deeply concerned about the inequality and poverty that might remain in an
otherwise successful market economy. Even in dealing with regulations that
restrain the markets. Smith additionally acknowledged the importance of interventions
on behalf of the poor and the underdogs of society. At one stage, he gives a
formula of disarming simplicity: "When the regulation, therefore, is in
favour of the workmen, it is always just and equitable; but it is sometimes
otherwise when in favour of the masters."
Such formula would delight more than one union
leader. Was Smith really recommending intervention based on that formula? Let’s
see the full context. Smith writes:
“Particular acts of
parliament, however, still attempt sometimes to regulate wages in particular
trades and in particular places. Thus the 8th of George III. prohibits under
heavy penalties all master taylors in London, and five miles
round it, from giving, and their workmen from accepting, more than two
shillings and seven–pence halfpenny a day, except in the case of a general
mourning. Whenever the legislature attempts to regulate the differences between
masters and their workmen, its counsellors are always the masters. When the
regulation, therefore, is in favour of the workmen, it is always just and
equitable; but it is sometimes otherwise when in favour of the masters. Thus
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. 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” (p. 163)
What Smith says is that, as masters were in his
time the advisers of legislators, they managed to get laws imposing maximum
salaries. But today we don’t have maximum salaries, we have minimum salaries. Today,
employers are seldom if ever the advisers of legislators in such matters. So if
we speak of Adam Smith’s legacy, we have to realize that his real message is
that intervention works unfairly in favour of those who can influence
legislators. It is hardly a recommendation for intervention in favour of some
group or other.
A real example
Professor Sen provides a third example, this
time a real one. In The Wealth of Nations
Smith deals with the interest paid for loans. Certainly Smith doesn’t build a
system for intervention in this area. There is no general discussion of the
principles that would justify intervention in the money market. But writing
about the legal ceiling for rates that was almost universal in his time (in
places were interest was allowed at all), Smith recommends fixing the ceiling “but a very little above the lowest market rate”.
His motive? He says that if the ceiling fixed by law –above which interest was
illegal and in some countries even a crime– is rather low, very little above
the lowest paid in the market, then creditors won’t be tempted to risk their
money in dubious enterprises in order to get a higher interest. A low ceiling
would have the effect of directing credit to “sober people”, in Smith’s words. If a higher rate is permitted,
then credit would be directed to –again in Smith’s words– “prodigals and proyectors”.
Amartya Sen triumphally cites this passage of The Wealth of Nations as a proof that
Smith’s legacy has been misunderstood, that he recommended regulation. Sen even
draws lessons for our own time, and blames the sub-prime mortage crisis on
“proyectors”.
So Sen has shown, though with a single example
fished out from the whole book– that the lesson of The Wealth of Nations is that we must distrust the wisdom of free
markets, and that Adam Smith actually supported government’s intervention in
the economy. Thesis demonstrated: Adam Smith’s legacy has been misunderstood.
Has it? What the example of the low ceiling for
interest rates shows is that Smith wasn’t free of human error. Nevertheless, The Wealth of Nations is full of
examples in which Smith shows that governments’ intervention in the economy is
both unfair and damaging. That applies to many areas: in page after page Smith
shows how intervention fails, in foreign trade, monetary policy, salaries, the
price of goods, and everything else. That, with the exception of this example which
occupies less than a page, and in which Smith made a clear mistake. So the
legacy of the great economist, the lesson that we have to learn from his work,
must be built around this error of judgement which nobody –with the possible
exception of Sen– would approve today?
To fix by law a ceiling for all interest rates
is already objectionable; but to fix it very close to the lowest market rate is
madness. Smith made this single mistake when treading in new territory, but we
cannot be mistaken about it today. We cannot present it as an example of
Smith’s wisdom and –worse– pretend to base our understanding of his legacy on
it.
Let’s compare: Johannes Kepler legacy doesn’t
rest on his attempt to find some geometrical relation in the distances between
planets. Kepler was another genius exploring new territory. But we know that his
conviction about geometrical relations was wrong. Moreover, the comparison is
unfair to Smith, because Kepler’s error has a much more important role in his
work than the recommendation about low rates has in Smith’s.
Should Bentham’s
letter to Smith be laugh at?
Professor Sen finds it amusing that Jeremy
Bentham tried to convince Smith that he was wrong in recommending a very low ceiling
for rates. Figure that! Bentham, a philosopher with a modest knowledge of
economy –says Sen– trying to teach economics to Smith, who was perhaps the
greatest economist of all ages. How ridiculous.
In his letter Bentham defended the “proyectors”
who Smith had snubbed. Bentham said that a low maximum rate won’t distinguish
between good and bad among the new projects. He added that all well established
enterprises have been at the beginning uncertain endeavours. Bentham even cited
Smith’s arguments in order to convince him; for instance, he said that Smith’s
had rightly asserted that people often exaggerate the importance of bankruptcies:
After all our complaints of the frequency
of bankruptcies, the unhappy men who fall into this misfortune make but a very
small part of the whole number engaged in trade, and all other sorts of
business; not much more perhaps than one in a thousand. And Bentham argued
further that even if it were true that all untried projects and new machines must
fail, they would have opened the path to others who will succeed. He concluded
saying that if all new and uncertain projects had ever been abandoned in favour
of the well known ways, men would still be shivering in caves.
Can Bentham’s arguments be dismissed simply by
scoffing at the attempts of an amateur?
Rewriting the past
In the classic film La belle de Moscou an American man says to a Russian apparatchik: we don’t change the past, only the future (I
am citing from memory, I love that line).
But why is that some try to debunk the usual
understanding about one of the earliest defenders of free markets? Why does it
matter today whether Adam Smith really supported public financed education,
whether he provided a simple policy maxim in favour of labor and against
employers, or whether his legacy can be better assessed by recalling his advice
about a very low ceiling for interest?
Friedrich Hayek explained why. He wrote in The Road to Serfdom that the doctrines
of intervention and redistribution can be made more palatable if we get
convinced that they are simply our own traditional ideas about liberty and
progress, only that we have failed to grasp them correctly.
[1]The Economic Manifesto, article by Amartya Sen
in New Statesman. Sen writes: “since the ideas presented in The Wealth of Nations have been
interpreted largely without reference to the framework already developed in Moral Sentiments (on which Smith
draws substantially in the later book), the typical understanding of The Wealth of Nations has been
constrained, to the detriment of economics as a subject.” Constrained? Yes,
and rightly so. Constrained to what is relevant to the issue of economics.
[2]Amartya Sen: The idea of Justice. Belknap Harvard 2009,
p. 406.
[3]The Wealth of Nations. Link to book vol. II. The complete
works of Adam Smith can be read or downloaded for free from the same site. I
cite the pages according to the pagination in the pdf document.
No way. That would be the answer to such
question at first glance –and as you will see, that will be my final answer
too. Nevertheless, Jinzhou Ye, a kind reader of my blog, has written to me and rightly pointed
out that Hayek seems to have thought that his ideas weren’t so radically
different from Rawls’s.
In the preface to the second volume of Law, Legislation and Liberty Hayek wrote that his differences
with Rawls
“seemed more verbal than substantial. Though
the first impression of readers may be different, Rawls’s statement which I
quote later in this volume (p. 100) seems to me to show that we agree on what
is to me the essential point. Indeed, as I indicate in a note to that passage,
it appears to me that Rawls has been widely misunderstood on this central issue”
Then in p. 100 Hayek writes that the problem of justice is relevant not only as the basis of the
rules that judges apply but also for the “deliberate
design of political institutions, the problem to which Professor John Rawls has
recently devoted an important book. The fact which I regret and regard as
confusing is merely that in this connection he employs the term ‘social
justice’. But I have no basic quarrel with an author who, before he proceeds to
that problem, acknowledges that the task of selecting specific systems or
distributions of desired things as just must be ‘ abandoned as mistaken in
principle, and it is, in any case, not capable of a definite answer. Rather,
the principles of justice define the crucial constraints which institutions and
joint activities must satisfy if persons engaging in them are to have no
complaints against them. If these constraints are satisfied, the resulting
distribution, whatever it is, may be accepted as just (or at least not unjust)’.
This is more or less what I have been trying to argue in this chapter.”[1]
Though I admire him greatly, I think that here
Hayek deluded himself. He wanted to hear a faint echo of his own ideas in
Rawls’ book, and he overlooked the crucial differences.
An apparent agreement
Hayek wrote that the notion of social justice was a
mirage, and a dangerous one. A few paragraphs before that quoted above, he
wrote that it tends to destroy genuine moral feelings. It comes “into constant conflict with some of the
basic principles on which any community of free men must rest”. Hayek
defended the classic system in which rules have no other purpose than to allow
each one to follow his own road without colliding with others. Such rules are
–Hayek said– like road signs that tell people how to reach their own
destination but without commanding any collective destiny. I have described that system in more detail in a previous article.
Of course, laws that comply with that
requirement don’t establish who owns what. Distribution comes from the play of
the market, that is, from the judicious, injudicious, lucky, or unlucky
decisions of millions of people. The price mechanism makes it possible for them
to collaborate without a general agreement about collective purposes. The men
who make bolts do not have to agree –or have any idea– about the usefulness of
the simple door, or of the complex machine in which bolts might be used. They
agree with the maker of the door and the machine about the price. Nothing more
is needed, and to require agreements about further and general goals is not
only inefficient, but immoral. A system requiring more agreement than is
possible, moral, and efficient can only attempt to work under the command of a
bigger, more powerful, and ultimately uncontrollable government.
Rawls’s system might look similar at first
glance. So it is when one reads the paragraph quoted by Hayek. Rawls too relies
on general principles and says that whatever distribution of goods that results
from a system that complies with those principles must be considered just. The
difference, the enormous difference, is that Rawls’s system includes
equalization by redistribution as a fundamental “principle”. In other words,
Rawls made a goal into a principle. After that, one might think
that his system relies only on general rules, not on collective goals. Wrong:
what happens is that a collective goal about the distribution of goods has been
adopted as if it were a rule like any other. But it is one of Hayek’s
fundamental insights that rules and goals are different. And if one uses the
name of “rule” for collective goals, that difference does not disappear. It is
blurred only.
Oceans of discretion
One must remember that Rawls does not include
property among the fundamental rights protected by the first principle of his
community. Property is regulated by the difference
principle which states that differences in wealth are allowed only if they
improve the situation of the least fortunate members of the community (least
favoured by nature, luck, or anything else). For instance, medical researchers
might be allowed (mind the passive voice) to buy and own
expensive equipment, and perhaps be
permitted to retain a considerable part of the profits that comes from
their discoveries, if it is considered
that such level of inequality works for the benefit of the least fortunate. The
passive voice should alert us that some government official or authority is
implied. The passive voice allows one to overlook the agent that performs the
action, therefore its frequent use in bad political philosophy.
The difference principle is made both more
stringent and more uncertain by two further requirements. First, the
improvement of the least fortunate must be the maximum possible. That means
that it is not enough to say of an inequality of distribution that it improves
the situation of the least fortunate in some degree, if another distribution
would make it even better.[2]
Secondly, Rawls tells us that what must be improved are the “expectations” of the
least fortunate, which some personal traits may make different from actual
improvement of their wealth or situation. Government must care about classes or
categories, not about individuals.
Now the two systems –Hayek’s and Rawls’s– look
absolutely different –as indeed they really are. We must also be aware that
Rawls’s system requires momentous decisions “on the merits”, a kind of decision
that proper rules (in Hayek’s sense) must not put in the hands of governments.
For instance, on what basis do authorities select the least favoured group? There
are none, as Rawls openly admits “it
seems impossible to avoid a certain arbitrariness in actually identifying the
least favoured group”[3].
As to the reasons that would justify the taxes that will be used to nip off the
inequalities that are not justified (in the view of the rulers) Rawls tells us
with commendable frankness that “naturally,
where this limit lies is a mater of political judgement guided by theory, good
sense, and plain hunch, at least within a wide range”.[4]
As another tool for equalization Rawls mentions “redefinition of property
rights”.
Same conclusions
reached from different paths?
Rawls said that his system was compatible both
with socialism and with free markets –free markets with a considerable degree of
intervention. In contrast, one would say that Hayek’s ideas aren’t compatible
with socialism, and that they run against strong intervention.
Moreover, while Rawls rejected that property
were to be considered a fundamental right, one would say that Hayek adhered to
Edmund Burke’s definition: we all have equal rights, but not to the same
things. And among such rights Burke (and Hayek) surely included property.
Rights can be equal only if they are unrelated to the condition of the person
or the amount of wealth. Rawls’s system pursues a redistribution of property:
that is why property cannot be a fundamental right in it.
All that said about the differences, there is
an element in Rawls’s system that makes its implications very vague (even more
vague than they already are without it). And because of the haziness that this
element adds, because of the fog that it suspends on the oceans of vagueness already
opened by Rawls, one might say that his system could well provide a
justification for capitalism. The trouble is that it could well justify almost anything
else. Let’s see how Rawls introduces this new element.
Rawls tells us that there must be justice
between generations too. Some amount of saving, for instance, is necessary for
the well being of people not yet born. This new element must also be balanced
(again mind the passive voice). Rawls uses it to show that perhaps considerable
differences of wealth might be admitted as fair.[5]
For, while they might not seem justified according to Rawlsian principles when
applied to people living today, it might be argued that such inequalities are
necessary for the well being of people in some future generation.
Rawls says that his difference principle cannot
be applied between generations because economic benefits go only in one
direction, that is, to the future.[6]
Just for the record I would say that debts for loans taken today are often
passed to future generations, and that will affect distribution in the future.
But, leaving that aside, now Rawls has a new element that may justify the wide
differences of wealth that are to be found in any place where the means of
production are possessed by individuals or private companies. In this way, one
could say that Rawls’s notion of justice may be presented as a justification for
capitalism and free markets.
Nevertheless, it would be difficult to find a
shakier basis. With its exclusion of property as a fundamental right, with
equalization as a goal-principle, with its need of a myriad of momentous
collective decisions for which it recommends a good “hunch”, it is the worst
defence of freedom one may devise.
Hayek described and defended clear principles
that build a stronghold for liberty. It is solid because it is rooted in
history. In The Road to Serfdom he
dealt with, among others, the British and German experiences. Rawls built a
castle in the air with no reference to history. Anyone who plans to use that
castle for the defence of liberty must be aware that it offers all its gates
open for an easy access of attackers. Its basis could be used for as well as
against freedom and personal independence. The question about the needs of
future generations as against those of the present one will be argued, the
selection of the least fortunate group and the proper transfer of wealth will give
rise to many different hunches. The redefinition of property rights will provide
room for ingenious but controversial schemes. But don’t you worry, in the end,
some authority will settle everything down.
[1] Law, legislation and liberty, The University
of Chicago Press.
[2] “In other words, however much a scheme
improves the expectations of the less fortunate relative to full equality, it
cannot be just if a more egalitarian scheme could sustainably do better for the
less fortunate” Philippe van Parijs: Difference
Principles, in The Cambridge
Companion to Rawls. CambridgeUniversity Press 2002.
[3]A Theory of
Justice. BelknapHarvardUniversity
Press, Revised Edition p. 84
