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TRANSFORMATIONAL ECONOMICS 
Economics, Enlightenment and Education
John Berdell, Associate Professor of Economics  DePaul University, Chicago  5/18/2011 12:13:40 AM


Conceptions of how economic growth and political change can be made to support each other and provide a reliable basis for social stability have proved to be influential, as well as occasionally profound. Keynes certainly exaggerated the influence of ideas over economic interests when he asserted that:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back(1936).

Perhaps Keynes can be forgiven this exaggeration since he felt himself to be mortally at combat with a ‘Treasury View’ of the economy that opposed government spending and so consigned the world, in his view, to prolonged depression and political decay. Keynes’ reference to ‘a few years back’ is telling and reminds us that “Keynesian” policy recommendations have by now come in and out of favour several times over. At times economics appears to be little more than fads and fashions set in motion by adherents to rival political passions.
 
So it is important to remember that many of our foundational ideas regarding how the economy ought to contribute to social growth have not gone in and out of favour. This is especially true of Adam Smith thoughts on how the growth of commercial society ought to be made to benefit society. He was very worried about the difficulties that his society faced, and supposed that there was a narrow aperture through which commercial society must pass for it to attain wealth and stability. Education played an especially important role in threading this narrow passage so the relationship between the state and education had to be gotten right.

Let us start with Adam Smith and his justly famous division of labour. The notion that increased international trade is an essential input to faster rates of economic growth continues to have extremely able advocates, none more so than Jagdish Bagwati. While much of the Wealth of Nations reads as if it is only the per capita income of a nation that Smith seeks to increase, the discerning reader sees that distribution matters greatly to Smith and that his advocacy of pro-growth policies is strictly linked to their tendency to increase the wages of the ‘common workman’. So his chapter on the division of labour culminates in a discussion of how trade and productivity growth has made the woolen coat more available among the ‘common workmen’ in wet and chilly North Britain. In fact as far as a laissez fair or free market view of the economy is concerned, Adam Smith adopted it with caution and only in particular settings. So trade monopolies were irksome to Smith because he saw them as lowering the demand for labour and so lowering wages. He decries the labour legislation of his day not because it allowed workers to combine for higher wages, but to the contrary because it provided employers with powerful means for preventing or persecuting the ‘combination’ of workmen while allowing combinations among the employers (to lower wages) to occur without challenge.

But serious discussion of the role of the state is reserved for the last book of the Wealth of Nations, that concerned with the duties of the sovereign or as we say today ‘public finance’. Three great tasks for the state are presented: defense, the provision of justice and the provision of public goods — or as Smith put it “those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual…” (WN Vol. 2,723). Infrastructure such as roads, bridges and improvements to navigation gets plenty of attention but special attention is devoted to the provision and financing of education. Education has a claim to public support because as commercial society and the division of labour progressed it became “necessary in order to prevent the almost entire corruption and degeneracy of the great body of the people”. Parents of rank and fortune are ‘sufficiently anxious’ to equip their children with “every accomplishment which can recommend them to public esteem”, but:

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 think of any thing else (WN Vol.2, 781).
 
These are the people who should be taught, at an early age, to “read, write and account” (WN Vol.2, 785). Additionally Smith advocates the establishment of institutions for the instruction of people of all ages, by which he means adult education.

Several motives are evident in Smith’s advocacy of government support of education. First the more instructed the common or inferior people are the “less liable they are to the delusion of enthusiasm and superstition, which, among ignorant nations, frequently occasion the most dreadful disorders.” So he likens education to a form of public health expenditure, but one that prevents the spread of a peculiar social disease: political instability. Secondly “an instructed and intelligent people… feel themselves, each individually, more respectable, and more likely to obtain the respect of their lawful superiors”. Respectability is politically good — it renders the population “more capable of seeing through, the interested complaints of faction and sedition” (WN Vol 2, 788). But respectability is something more. Quite a lot more. It is a balm that Smith prescribes to counter the terrific psychic pain that attends social isolation and insignificance. This pain is described in vivid detail in his first great work the Theory of Moral Sentiments. Here Smith sounds a theme that has recently been elabourated upon with great eloquence by Laureate Amyrta Sen (Sen, 2004, Sen, 1999) across an alarmingly wide range of distinctive contexts. Third and lastly there are Smith’s observations, scattered throughout the discussion, that the subjects he recommends will genuinely be of use during working life. Now the really interesting thing here lies in the fact that Smith sees government actions as often likely to backfire, and the state as he knew it as constituting a set of problems rather than a set of solutions. So a delicate balance between public and private is sometimes suggested. In the case of educating the young he notes that government payment of teaching salaries irrespective of the student’s experiences will produce ruin.

So despite the poverty of their parents it appears that some part of the teacher’s pay must come from student fees, otherwise teachers will be lazy and useless. This leads Smith, very very reluctantly it must be said, to recommend that educational requirements be imposed upon the population — a self conscious violation of his general advocacy of a ‘system of natural liberty’. Another such balancing appears within his discussion of the public finance of local toll roads. Local roads should be paid for, he argues, by local taxes rather than nation-wide taxes because the benefits are largely local. So imposing a toll makes sense. But there must then be competent and public spirited overseers appointed by government to see to it that the tolls collected are only used to repair the roads and that they are so-used efficiently. He regards the pitiful state of most toll roads in his day as the predictable result of the absence of such oversight.

Few modern readers remain attentive through to the end of the Wealth of Nations. Those that do are always struck by Smith’s alarmist declaration that Britain must awake from its ‘golden dream’ of empire because the reality has been a painful cycle of wars and debts that cannot be sustained. It must either give up the imperial project or transform it into a polity representative of its far flung components. In a move that continues to divide his readers, Smith advocated the establishment of a ‘States General of the British Empire’ in which each part of the empire would be represented in proportion to the tax revenue it provided to the whole. While the big policy sting is reserved for the tail of the book, it helps us understand why the body of the book is so reluctant to portray government as a great shock absorber or impartial arbiter. Various views can be taken of his suggestion for government reform but it clearly indicated that big changes were needed if government wished to have the capacity to execute the tasks it had already committed itself to. So the broad message was that there were several distinct paths ahead that led towards sustained commercial and political growth, but that they were very few in comparison with those that led towards political and social instability. 

(John Berdell is Associate Professor of Economics at DePaul University in Chicago Illinois. He holds a B.A. from the University of Rochester, an M.A. from the University of California Berkeley and his Ph.D. from Cambridge University. He is the author of International trade and economic growth in open economies: the classical dynamics of Hume, Smith, Ricardo and Malthus and contributions to The Economic Journal, The Journal of Economic Perspectives, History of Political Economy, The European Journal of the History of Economic Thought and the Review of Social Economics.

The views expressed in the article are personal and do not reflect the official policy or position of the organisation.)



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