In 1705 there appeared in London a little volume of wretched doggerel verse entitled the Grumbling Hive: or, Knaves Turn’d Honest. It was a fable about a hive of bees, prosperous but dissatisfied with its perceived lack of moral virtue. Listening to their grumbling, through his divine power the god Jove removes their selfishness and instills them with a natural love of virtue. The result is a steep loss of prosperity and standard of living. Commerce, arts, and industry, you see, are dependent on a certain level of social vice.
The author of the poem was Bernard Mandeville (1670-1733) or “Man-Devil” — as some of his detractors liked to call him — a Dutch physician who had settled and taken up practice in London. In 1714 Mandeville decided to expand The Grumbling Hive, re-issuing it with extensive notes and commentary. Subsequent printings contained further additions until it became the sprawling and ramshackle work that became notorious under its new title, The Fable of the Bees: or, Private Vices, Publick Benefits.
The basic moral of The Fable of the Bees is that without selfishness, there is no motivation to employ one’s skills and arts. More controversially, Mandeville would have us believe that without thieves there would be no work for locksmiths, without crimes or quarrels over property there would be no work for lawyers, and without overindulgence in food, gin, and sexual debauchery, there would be no work for physicians like himself, (nor for undertakers where physicians fail). Even among the very poor, he claims, liquor has its beneficial place, for it helps to stupefy the destitute, giving them comfort and supplying "the Places of Meat, Drink, Clothes and Lodging."
Where we might see social ill, Mandeville sees no such thing, for "the short-sighted Vulgar in the Chain of Causes seldom can see further than one Link; but those who can enlarge their View, and will give themselves the Leisure of gazing on the Prospect of concatenated Events, may, in a hundred Places, see Good spring up and pullulate from Evil, as naturally as Chickens do from Eggs." Thus, as the famous subtitle heralds, private vices result in public benefits.
There are many distinguishable — though not always distinguished — arguments contained in the Fable. Speaking generally, it is a vicious and no-holds-barred attack on the prevailing morality of its time. For example, it makes the case that virtue is a sham imposed on a gullible public by those who would like to take advantage of their gentleness. Furthermore, Mandeville argues, the gullible public buys into this morality because they like to think of themselves as more virtuous than they really are: cunning politicians indoctrinate the herd into morality, and the herd willingly accepts this because it flatters them. As Mandeville pungently sums up the whole con, “moral Virtues are the political Offspring which Flattery begot upon Pride.”
Predictably, the book generated a lot of controversy in its time, provoking responses like George Berkeley’s Alciphron, or, the Minute Philosopher (1732), Francis Hutcheson’s Observations on the Fable of the Bees (1726), and William Law’s Remarks Upon a Late Book Entituled the Fable of the Bees (1725). (Law was better known as the author of the classic 1728 devotional work, A Serious Call to a Devout and Holy Life.) Most of these refutations — for few wrote in Mandeville’s defense — were focused mainly on the Fable’s analysis of the foundations of morality. In the rest of this posting, I will concentrate on its economic doctrines, particularly the doctrine that expenditure on vice is just as conducive to economic prosperity as any other kind of expenditure.
A Dollar is a Dollar
A simpler way of putting this claim is that a dollar spent is a dollar put into the economy, regardless of what it’s spent on. For example, the fact that theft is rife and many homes are broken into is an incentive for homeowners to invest in good locks. That investment is of net benefit to the economy as a whole, for it provides locksmiths and their employees with jobs, enabling them to earn money. And hopefully they will spend that money on gin, because their heavy gin consumption provides several more spin-offs: money for the excise man, employment for growers of grain and distillers of spirits, and — eventually — a clientele for physicians and undertakers.
So you see, says Mandeville, contrary to what prudish moralists would have us believe, theft and alcoholism are conducive to the public good. Actually, he makes the rather stronger claim that vices are not only good for society, but that society couldn’t survive without them. This is because, for the most part, dollar for dollar, money spent on vice goes farther than money spent on virtue. In part, this is because, by “virtue”, Mandeville seems to have the more ascetic and self-denying virtues in mind. Ascetics don’t spend money on luxury, or on much else for that matter. A society of such people would not make for a growing economy. Of course, what he ignores is that such a society would already have most of its meagre wants met, which means that it would in theory not require a vigorous commerce.
I leave it as an open question whether such a society of monks and ascetics is possible in anything more than a conceptual sense. I suspect that Mandeville's opinion has some limited validity. Nonetheless, we needn’t defend asceticism in order to refute him. While accepting that economic man has almost limitless wants, we can still demonstrate that there is a qualitative difference between vicious and non-vicious expenditures.
Berkeley and Hutcheson
The first attempts at this task came from George Berkeley and Francis Hutcheson. I say “attempts”, because they didn’t clearly distinguish between vicious and non-vicious expenditure in a qualitative sense so much as a quantitative sense. To see what I mean, here is an exchange from Berkeley’s dialogue Alciphron (1732), between Lysicles, the stand-in for Mandeville, and Euphranor, who is Berkeley’s mouthpiece; they debate the evils and benefits of gin consumption:
EUPHRANOR: Say, Lysicles, who drinks most, a sick man or a healthy?
LYSICLES: A healthy.
EUPHRANOR: And which is healthiest, a sober man or a drunkard?
LYSICLES: A sober man.
EUPHRANOR: A sober man, therefore, in health may drink more than a drunkard when he is sick?
LYSICLES: He may. [….]
EUPHRANOR: A sober healthy man, therefore, in a long life, may circulate more money by eating and drinking, than a glutton or drunkard in a short one?... You seem to me to have proved nothing, unless you can make it out that it is impossible to spend a fortune innocently. I should think the public weal of a nation consists in the number and good condition of its inhabitants…
Berkeley’s argument here relies on the idea that it’s not so much that gin (or food, or sex, or whatever) is evil in itself, but rather it is evil in excess. There is of course much to this argument, but more can be said.
Hutcheson gets a little closer to the mark in his Observations on the Fable of the Bees (1726), when he poses the following drawn-out question: “Would there be a less consumption, if those of greater wealth kept themselves within the bounds of temperance; and reserved the money thus sav’d to supply the interest of money lent gratis to a friend, who may be thereby enabled, consistently with temperance, to drink as much wine, as, had it been added to the quantity drunk by the lender, would have taken away his senses?” Here the crux is not so much the quantity drunk, as it is the inefficient allocation of resources it represents. Although he doesn’t put it in terms quite so modern, Hutcheson is grasping at something like the concept of diminishing marginal returns: resources could be drawn from the drunkard’s excess consumption and put to better use elsewhere. An extra unit of consumption by the drunkard is worth less than the same unit consumed by another who has not reached the plateau of his personal utility curve, as it were.
This is a much more sophisticated argument, and it can be taken further.
What is Seen and What is Unseen
The French politician and economist Frédéric Bastiat (1801-1850) in his 1850 essay “What Is Seen and What is Unseen,” introduced what has come to be known as the “broken windows fallacy”. It is so named after the following scenario: a boy kicks his ball through his father’s window, shattering it. The father’s neighbour, no doubt in an attempt at consolation, proclaims that “it’s an ill wind that blows no one any good”, since at least employment will now be provided for the glazier that the man will have to call in to fix the broken window.
So you see, in Mandeville’s theory, the boy’s negligent — or just plain unfortunate, as the case may be — action, is transformed by the subtle alchemy of economics into net social good: private vices are really public benefits, no?
No, says Bastiat. This is an incomplete accounting. Looking at the situation from a Mandevillian viewpoint, what is seen is the benefit to the glazier, perhaps along with the dubious “benefit” to the man of having his broken window fixed. But the Mandevillian viewpoint contains a blind spot, for what is not seen is what the man would otherwise have spent his money on, to his greater satisfaction, if he hadn’t been compelled to hire a glazier. Let us say he had been saving up for his daughter’s wedding. Note first, that spending money on his daughter’s wedding would have produced greater overall utility for him than spending it on a broken window. Note second, that the same money would have been spent and added to the economy in either case, only it would have been spent on different products or services.
To put Bastiat’s reasoning in more modern economic terms, each expenditure one makes represents an opportunity cost: a dollar spent on X, means that same dollar is no longer available to be spent on Y. Now, if for you Y > X in terms of utility, then to have to spend money on X instead of Y means, other things equal, you are worse off than you would otherwise have been; you are down on the whole deal to the tune of Y - X.
It’s this kind of full-cost accounting that we need to do before we surmise that cleaning up after the Exxon Valdez oil spill produced a net economic benefit, or that extravagant US military expenditures have the same effect.
In economic parlance, an externality is a cost of production borne by someone other than the producer. For example, the folks who distribute all those junk mail flyers that litter the inside of your doorstep when you get home do not pay the disposal or recycling costs when you throw them out (at least not in my jurisdiction) — you do.
Similarly, when a company pollutes the environment, it’s a lucky break if that company itself foots the bill for the cleanup. After all, it may have long gone out of business. That cost too often gets transferred to the public.
We can broaden the application of this concept, from production, to activity more generally. Thus, cigarette smoking is not really “production”, but there are usually externalities associated with that activity, including (but not limited to) health care costs and illness from second-hand smoke.
It’s not hard to understand that externalities are bad (although Mandeville seems to have had a hard time understanding it). But they may be bad for more than one reason. My hunch is that the general public thinks they’re bad because there’s something immoral about the idea of making others pay for your pleasures. After all, those who produce externalities are getting a free ride, which seems unfair. However, immoral though this is, such an explanation will presumably cut no mustard with Mandeville, who doesn’t really believe in morality anyway (or so he claims).
On the other hand, we can say that externalities are inefficient, because they represent a misallocation of resources that could have been expended to much better effect elsewhere. This is the gross flaw at the heart of Mandeville’s “private vices, public benefits” thesis: whatever “prosperity” flows from it hides the opportunity for greater prosperity that has been squandered.
I confess that I’ve read The Fable of the Bees several times. After all, “know your enemy”, as they say. However, the book’s doctrines have always appalled me, as has Mandeville’s own vulgar and disjointed prose style (attentive readers may already have noticed that The Spectacled Avenger has no sufferance for ugly prose). It is therefore with some sadness that I must report that two of the thinkers I most admire, Samuel Johnson and Friedrich Hayek, have praised Mandeville’s work. Johnson was a master prose stylist, and Hayek was a Nobel Prize-winning economist, so their lack of judgment in this instance is not to be excused.