a. Mercantilists viewed market as crazy thing, unruly, almost a state of war and thought we must treat it as such
b. Smith is important because he begins to counter this view – he views the market as self-regulating
c. 3 classic theorists of political economy – their ideas dominate the late 1700s-end of 19th century
i. Smith, Ricardo, J.S. Mill
d. Malthus (friend of Ricardo) is writing at the end of the 1700s. He is considered a great and influential thinker, although he is not considered a classical theorist of political economy
e. Smith is writing in feudal context that is ending, a changing society. He cant imagine manufacturing dominating the economy and the agrarian part being significantly reduced
f. We will talk more about:
i. Corn Laws, and the Poor Laws, which have to do with conflicts emerging between capitalists and landlords ii. Adam Smith book 5, in which he talks about the government iii. Smith’s notion of “fellow-feeling”, which is a notion that is as important as that of the invisible hand
II. Smith, on the “publick Revenue”
a. Key piece of a happily functioning market
b. Expenses (of the state; the government is key in providing these services):
i. Fight wars, defend its citizens – Smith says wars should be funded through public revenue. Why is this important? Because in affluent nations people tend to become lax and weak so if there weren’t a specialized, trained army run by the state they wouldn’t be able to defend themselves. But he says that it is important to have a civilian in charge of the army ii. Administer justice, in case of wrongdoing iii. Erects and maintains “public works and public institutions” e.g. schools, roads, …financing adventurer-merchants, “publick diversions”, etc.
1. He believes these are all things that support commerce and education in society, and they should be funded by the state
2. He believes that if you pay teachers a fixed salary they will become lazy. Therefore a part of their pay should be based on performance: combination of salary and commission. He thinks this keeps people honest.
3. He believes that people should be able to show that they are educated enough to do a certain job (ex: you should have to achieve a certain level of education in order to be a merchant, etc.)
4. Education makes things less monotonous
c. Sources of funding – how is all of this funded?
i. Taxes – the bulk of funding comes from taxes ii. Profits/stock iii. Land – he thinks that land is more permanent and stable than profits/stock iv. Publick debts – sell bonds to raise money, then pay interest to people who lent them the money
d. The government is a very key part of his ideal society
III. Smith, on “Moral Sentiments”
a. In order to pay these taxes (mentioned above), we need to have a sense of a civic duty which leads to the discussion of his essay “Moral Sentiments”, which asks the question how we come to care about other people?
b. We have a “natural affection”, which is strongest towards our family. In other words, this natural affection is most easily directed towards family and friends (we can think of this as necessary affection)
c. Noblest affection – when on regards others’ interest almost on par with one’s own interest
i. We rarely see this type of affection (only in exceptional cases – pg. 235)… ii. He talks about a perfectly virtuous man in Section III – the perfectly virtuous man regulates his own self-interest with “fellow feeling”
d. Does an invisible heart accompany Smith’s invisible hand?
i. Fellow feeling also regulates this system (the market?)
1. Wages never go too low (since landlords look out for the fact that people need to have enough money to sustain themselves) and rent never goes too high (because that would be greedy) ii. The system is self-regulating, whether by fellow-feeling or by competition
1. But Smith also notes that sometimes things go wrong (e.g. in the 1700s, the famine in India)
2. He says that…