Thus far this week (see here and here), we have been rehearsing Adam Smith’s sundry arguments against “the herring bounty scam” (my term) on pages 13 to 22 (Addition #11) of his 1784 pamphlet Additions and Corrections to the First and Second Editions of Dr. Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations. But Smith saves the best for last, so let’s take a closer look at the last two paragraphs of Addition #11 (p. 22).

Here, Smith tries to find one last-ditch way of defending the herring bounty in the penultimate paragraph of Addition #11:

“If any particular manufacture was necessary, indeed, for the defence of the society, it might not always be prudent to depend upon our neighbours for the supply; and if such manufacture could not otherwise be supported at home, it might not be unreasonable that all the other branches of industry should be taxed in order to support it. The bounties upon the exportation of British-made sailcloth and British-made gunpowder may, perhaps, both be vindicated upon this principle.” (Smith 1784, p. 22)

But the herring bounty, Smith goes on to explain in the concluding paragraph of Addition #11, cannot be defended on these national-security grounds. Instead, Smith anticipates Mancur Olson’s classic critique of rent-seeking behavior, The Logic of Collective Action, and then he describes this susbsidy as a “great folly” (my emphasis):

“But though it can very seldom be reasonable to tax the industry of the great body of the people in order to support that of some particular class of manufacturers, yet in the wantonness of great prosperity, when the public enjoys a greater revenue than it knows well what to do with, to give such bounties to favourite manufactures may, perhaps, be as natural as to incur any other idle expense. In public as well as in private expenses, great wealth may, perhaps, frequently be admitted as an apology for great folly. But there must surely be something more than ordinary absurdity in continuing such profusion in times of general difficulty and distress.” (Id.)

This ugly rent-seeking reality of politics — governments favoring discrete groups of favored merchants and manufacturers at the expense of productive pursuits and diffuse taxpayers — is one of the main themes of The Wealth of Nations. But Smith is also making a more profound point in this particular passage: a wealthy nation (like, say, the United States today) might be able to afford to subsidize such foolish and counter-productive projects like herring fisheries, but it is the height of “absurdity” to do so “in times of general difficulty and distress.”

Simply put, Smith’s critique of the herring bounty scam is not just some “obscure corner[] of the overgrown forest of Smith’s mind” or a mere “ephemeral dispute[]” of Smith’s “particular time and place.” (See Emma Rothschild, “Adam Smith in the British Empire,” in S. Muthu (editor), Empire and Modern Political Thought, Cambridge University Press (2012), pp. 184-198.) Smith’s even-handed but devaststing critique of the herring bounty scam is not only relevant today, especially considering the enormous public debt ($39 trillion) the U.S. has now accumulated; it is also one of the most important parts of The Wealth of Nations. (To be continued.)