Nothing is so mortifying as to be obliged to expose our distress to the view of the public, and to feel, that though our situation is open to the eyes of all mankind, no mortal conceives for us the half of what we suffer. Nay, it is chiefly from this regard to the sentiments of mankind, that we pursue riches and avoid poverty. For to what purpose is all the toil and bustle of this world? what is the end of avarice and ambition, of the pursuit of wealth, of power, and pre-eminence? Is it to supply the necessities of nature? The wages of the meanest labourer can supply them. We see that they afford him food and clothing, the comfort of a house, and of a family. If we examine his economy with rigour, we should find that he spends a great part of them upon conveniences, which may be regarded as superfluities, and that, upon extraordinary occasions, he can give something even to vanity and distinction. (Italics added.)
This is from Adam Smith, The Theory of Moral Sentiments. You can find the passage here.
I’m working my way through TMS for a speech I’m giving in December. It’s hard slogging but worthwhile. I found the above passage this morning and was struck by it. When we economists compare standards of living in the middle of the 18th century, when Adam Smith wrote TMS, with living standards today, we talk about how incredibly wealthy over 90% of Americans and over 50% of world inhabitants are by comparison with 260 years ago. But even in 1759, Smith thought even low-paid laborers were doing well.
Makes ya think.
READER COMMENTS
Andrew_FL
Oct 4 2023 at 9:43am
Scotland was probably substantially poorer than England but it is worth noting that ca 1759 the UK* was already experiencing economic growth that had been ongoing by that point for about a century, after the long 250 year stagnation experienced from ca 1400 to 1650.
*Of course, it is actually England and England only for which we have any substantive data from before 1700, and that is a rather exceptional case, as most parts of the world any GDP/capita estimates that far back require and consist mostly of guess work. Realistically, actually complete data for the whole of the UK (and most European countries) starts in the mid 19th century. But assuming GDP/capita of the UK as a whole more or less tracks w/ English GDP/capita (that is, assuming no substantial, major divergences in Scotland, Wales, & Northern Ireland) one can backcast UK GDP/capita from English GDP/capita, which is what the Bank of England does in their “Millennium of Macroeconomic Data” dataset. If you follow through the sources, you can find the paper which estimates English GDP/capita back to 1270(!) available online-worth a look!
nobody.really
Oct 4 2023 at 5:27pm
Thanks for that quote; it does make me think. Specifically, it made me think this:
Perhaps Smith was justified in his conclusion that, in 1759, even people of low estate could earn enough to fulfill all the “necessities” and have surplusage to spend on luxuries/frivolities. But perhaps this observation reflects more about the distinction between necessities and luxuries than about wealth.
For example, compare the sum a prudent person in 1759 would save for health care to the sum a prudent person would save today. If 1759 health care had little cost and almost no efficacy, then I would expect a prudent person to save rather little for it. In contrast, today’s health care has greater efficacy and enormous cost, so I would expect a prudent person today to strive to save quite a bit for it (or to buy health insurance). As a result, even though people today have greater wealth than people in 1759, they might have less “surplus” wealth. The affluent man of 1759 who failed to expend his resources to get a heart operation for his daughter would be an appropriate object for consolation–because there were no heart operations in 1759. Today, an affluent man who failed to expend his resources would be considered a monster.
In short, what we call a “necessity” and a “surplus” is culturally defined—reflecting not only a person’s wealth but also the range of “valuable” things to pursue with that wealth.
And this poses a challenge for economic theory/public policy: More options do not always make people feel better off. Having a sense of fatalism makes risk less salient, freeing people to focus on other–and perhaps happier–things. For example, when surveyed, unarmed people who had to walk down a dark alley reported feeling anxious–but armed people reported feeling VERY anxious. Having more options for dealing with a crisis made them less happy.
So consider how much money you save/invest today to protect yourself against earthquakes. Lacking a viable strategy to protect yourself, I expect you’ve put the matter out of your mind and feel little anxiety about it. Now imagine that someone invented a cost-effective method to shield yourself. Having the option to shield yourself now gives you cause to reflect on your risks, and these thoughts may make you more anxious–even though you face no new risks. Those who invested in shielding themselves would presumably be better off, even though they would have less “surplus” money to spend–yet I suspect they would not feel better off than they did when they simply ignored the risk of earthquake and had more “surplus” money. Ignorance may indeed be bliss.
People who invested in that method would presumably feel better for having done so–even though they rarely felt threatened by earthquake before.
I expect you might invest in it–and if you didn’t, you might feel anxious about the risk.
Probably very little, because there are relatively few things you can do to. But if someone invests a method to shield yourself against the risk of earthquake, you may feel inclined to invest in that service. If you did so, presumably you’d feel better off–even though this would leave you with less “surplus” money than before. But the fact that this mechanism does not exist today probably has not caused you to lose much sleep;
nobody.really
Oct 4 2023 at 5:30pm
Oops–I neglected to delete some draft text from the bottom of my comments. Sorry ’bout that.
steve
Oct 5 2023 at 11:22am
“But even in 1759, Smith thought even low-paid laborers were doing well.”
He should have asked the low paid laborers. (Health care was generally not very good but it would be expensive. Probably the bigger issue would be the loss of income if the man was sick or the lack of household labor is wife was sick.)
David Henderson
Oct 5 2023 at 11:54am
You write:
Do you know that he didn’t?
Jon Murphy
Oct 5 2023 at 12:00pm
He did. He spent a lot of time in factories and work houses to see how things actually were done. I don’t think many people realize how much shoe leather Smith invested into Wealth of Nations and Theory of Moral Sentiments.
steve
Oct 5 2023 at 2:45pm
40 years since I read the book but that’s what I remember. He spent a lot of time seeing how people work. I dont remember him asking workers if they were happy with how they lived and what happened if, for example, someone got sick or disabled. I suspect that if he did ask them they would agree they were better off than in the past in some ways, but that it was still a rough life. That they often went without heat, sometimes food. The Agricultural Revolution provided more food but didnt stop occasional shortages. They had homes but for laborers it was generally 2 or 3 rooms and still one room for the poorer laborers. Compare that with where Smith lived. Having an extra room where the kids could sleep separately and considering that a luxury seems a bit much. He might have some credibility if he had ever had to live in such a home and subsist on laborer pay.
https://en.wikipedia.org/wiki/Panmure_House_(Edinburgh)
Steve
Jon Murphy
Oct 5 2023 at 3:43pm
Coincidentally, you’re demonstrating Smith’s point: what was once seen as luxuries is now treated as a necessity. You’re projecting the ideas of 2023 onto 1759.
David Henderson
Oct 5 2023 at 3:50pm
Good point, Jon.
Also, Steve wrote:
It is true that living on laborer pay would have given him instant credibility. But that does not mean that he would have lacked credibility without having lived on laborer pay. Steve is a doctor. I bet he has dealt with many patients who have diseases he doesn’t have. That doesn’t mean that he has no credibility in understanding their diseases and their situations.
Notice also how Steve begs the question with his “subsist on laborer pay.” Smith’s point was that they weren’t just subsisting. Notice also that while Steve doubt’s Smith’s credibility about the lot of people 250 years ago, when Adam Smith was around but Steve wasn’t, Steve thinks he, Steve, has credibility about their state: thus his term “subsist.”
steve
Oct 6 2023 at 12:45pm
“I bet he has dealt with many patients who have diseases he doesn’t have. That doesn’t mean that he has no credibility in understanding their diseases and their situations.”
I treat their illnesses. Sometimes I commiserate with them and try to offer some compassion. I never pretend that I know what it’s like to live with their problems.
English history is my wife’s obsession. I get to hear more about it than I want. Through her I think I have a pretty good idea how people lived in that era. It’s possible I might be judging by 2023 standards, but I think you guys miss that people who are wealthy often have no real idea, or much interest really, in how the poor people live. An occasional observer, or an economist who looks only at numbers, might conclude that people were living well. Indeed economists get credit for being among the first o look at this. However, historians have now joined in and looked at the issue looking at contemporaneous writings where they pick up the intermittency of the food supplies or heating materials. They note the chidld mortality rates fo 30%-50% of the laborers. For the wealthy it’s easy to say just have another kid. For that for laborer they lost a child.
Steve
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