Do not think about, write about or deal with human behavior without determining the effects of incentives.
Wherein we read Adam Smith’s admonition concerning impoverishing great nations by “public prodigality” and “maintaining unproductive hands”. Adam Smith’s book, usually called “The Wealth of Nations”, was published in 1776, indicating that some truths about Human Nature and Activity endure through centuries without change.
“Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands. Such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, great fleets and armies, who in time of peace produce nothing, and in time of war acquire nothing which can compensate the expence of maintaining them, even while the war lasts. Such people, as they themselves produce nothing, are all maintained by the produce of other men’s labour.”
Productive people maintain unproductive people. Smith’s notion is that this is fine an a small scale, but when the amount becomes large, distortion ensues.
When multiplied, therefore, to an unnecessary number, they may in a particular year consume so great a share of this produce, as not to leave a sufficiency for maintaining the productive labourers, who should reproduce it next year. The next year’s produce, therefore, will be less than that of the foregoing, and if the same disorder should continue, that of the third year will be still less than that of the second. Those unproductive hands, who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment.
In other words, is capital is stripped from production and allowed to go into “unproductive hands”, production will falter, making less available to future production, the very thing that has been happening in Western Nations for decades. When it reaches critical mass, the standard of living stagnates, then falls. Adam Smith was a prophet. If only we had listened.
Adam Smith: An Inquiry Into The Nature And Causes Of The Wealth Of Nations
Next time you’re speaking with a government employee, think about “unproductive hands”.
Cheerio and ttfn,
Cui Bono–Cherchez les Contingencies