Monday, 24 August 2009

Adam Smith: Bourgeois Republican Patriotism

Primary version of this post, with visual content, at Barry Stocker's Weblog.

The final post on my recent re-reading of An Inquiry into the Nature and Causes of the Wealth of Nations. The end of the book is taken up with discussion of taxes. The most ideal situation for Smith here seems to be found in the modern merchant republics of Hamburg and the Netherlands. In both cases, he suggests that occasionally taxes are raised through a wealth tax, tax on the total worth of individuals which is paid voluntarily, Everyone makes a payment based on unchallenged self-assessment, and Smith claims that great honesty is shown in both states. Smith does not suggest that taxes could be regularly raised in this way, even if citizens could be expected to be frequently so honest, frequent taxes on the total worth of individuals would destroy the capacity to pay taxes up by using up all individual wealth.

The worst examples Smith gives of taxation are in France, at that time an absolutist monarchy administered at local and national level by the aristocracy in patchwork of different tax regimes. The irregularity of tax is one problem, another major problem is that heavy taxes are placed on the necessities of life. Smith strongly believes that taxes should fall most heavily on luxuries mostly consumed by the rich. Smith is not a redistributionist though, he does not suggest progressive rates of tax, and restricts taxation to taxes on consumption rather than on income (leaving aside occasional wealth taxes). His reasons for opposing taxes on the necessities of life are explained just as much in terms of keeping the cost of labour down, as in terms of assisting the labouring classes, but the two things are difficult to keep completely distinct.

Britain occupies a middle place between the Dutch Republic and France. Smith welcomes the lack of taxes on internal trade within Great Britain, but is concerned about taxes on the necessities of life. He is very condemnatory of customs on imported goods, suggesting that these promote smuggling and are not respected by citizens who frequently buy from smugglers; he suggests that customs taxes should be replaced by excises taxes (both used to be levied by a distinct unit of British government) on the manufacture of goods.

The discussion of British taxes runs into a more general discussion of the political system in Britain. He suggests that Scotland benefited from the union of the Scottish Parliament with the English Parliament, that is the abolition of the Scottish Parliament and the inclusion of Scottish representatives in the English Parliament. The reason he offers is the escape of the Scottish people from aristocratic domination. Smith objects to the principle of aristocracy rather than the Scottish aristocracy as such. He describes the Scottish aristos as honourable, as deserving of their station and so on. There is an implicit rejection of the very ideas of honour, station, and so on, there. He calls for a similar Act of Unio between Ireland and Britain to rescue the Irish from domination by a worse aristocracy, a Protestant English aristocracy who despised Catholic Irish tenant farmers. An Act of Union did take place in 1800 (creating the United Kingdom, the Irish component now only consists of Northern Ireland), and political discrimination against Catholics was ended in 1829. Unfortunately this did not bring about an end to mutual hostility, including violence.

Smith hints at hostility to aristocracy, and even monarchy, in contrast to his friends Edmund Burke and David Hume. It’s important to distinguish Smith as the least conservative, and most liberal, of that trio. There may be some tension with his idealisation of the merchant republics of the Netherlands and Hamburg. As Smith himself explains, the taxes paid by the Dutch merchants are dependent on their dominant place in Dutch politics. He gives a shining account of the republican patriotism of the Dutch merchants: their profits from trade and from lending money are greatly lowered by the taxes they pay. On the other hand, he believes that they will not be willing to pay those taxes if their political influence wanes. Smith did not really entertain the idea of democracy as votes for all, or certainly not in the text of The Wealth of Nations. He advocated representative government, but implicitly for the merchant class.

It may be that Smith assumed that the merchant class would be the most natural politicians, even in conditions of universal suffrage. His views are based on the assumption that labourers and merchants have common interests under a set of clear laws which maintain ‘free trade’ (by which Smith understood all that we would understand as free market, or open market). It seems to me that this is broadly correct, but Smith clearly underestimated the degree to which merchants and labourers would use the state, its laws and regulations, its expenditure and employment opportunities, as ways of promoting monopolies, and restrictions on market exchange; and clearly underestimated the degree to which these would become the sources of political conflict and the ways in which political parties would try to appeal to electoral alliances of various interests of these kinds. He did also gave us the intellectual tools to understand and criticise that process.

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