According to Rachel Sylvester in The Times (£) today, George Osborne’s love of soaking the rich — from the non-dom levy to the tycoon tax – stems from the importance he puts on the ‘empathy’ described in Adam Smith’s Theory of Moral Sentiments. If so, he’d better start re-reading his Adam Smith.
Certainly, the Chancellor is familiar with Smith’s other great book, The Wealth of Nations (1776). He wrote an introduction to a recent edition of it. That book is a passionate call for free trade and for open and competitive markets, and a stinging critique of the mutual back-scratching between businesspeople and politicians — what today we would call crony capitalism.
Smith railed against restraints of trade, regulations, the special privileges and subsidies that businesspeople wheedled out of government, lavish public spending schemes and the high taxes required to pay for them. All these things, he thought, conspired against the working poor, preventing them from finding work and prospering under their own effort and initiative.
Osborne says that he plans a ‘budget for working people’ aimed at ‘low and middle earners’. If so, The Wealth of Nations will give him the perfect template. Smith’s argument is that the best way to help ordinary working people is by making sure that markets are honest, open and competitive, by sweeping away the regulations and restraints on commerce, abandoning the prestige spending projects and making taxes ‘easy’ as he put it. If Osborne did all that, as I am sure he would like to, I would be a happy man, employment and investment would get an instant boost, and the country would recover all the faster.
But Smith’s moral arguments certainly do not justify a ‘soak the rich’ policy. Smith argued that there was indeed empathy between human beings (though he actually called it ‘sympathy’). Simply, we are social creatures that feel for others, and want to do good by them.
That is a long way from the idea that we should bring the rich down to our level by imposing levies or taxes on them. While Smith ridiculed the rich and ‘the parade of riches’, he resented wealth only when it came through power and privilege. He had no quarrel with those who made money in open, competitive markets.
Smith’s ‘sympathy’ is much more likely to reveal itself as heartfelt distress at the dismal condition of the working poor. And, as I have said, The Wealth of Nations tells the Chancellor exactly what to do on that score.
Eamonn Butler is Director of the Adam Smith Institute.
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