Rent Seeking – A Note

This week I’m reading a book by Mariana Mazzucato, The Value of Everything: Making And Taking in the Global Economy (2018)

Finally! A book about economics that everyone can understand. I’ll review this book fully when I’m finished with it.

For now, I want to clarify the Word of the Day post I wrote in 2013, “What the Heck is Rent-Seeking?”

“Rent seeking” is a word that libertarian scholars, such as Gordon Tullock, appropriated during the last century, along with words such as “liberty,” “freedom” and heritage” from the ‘founding fathers’ of the United States.

Rent-seeking was a concept put forth by Adam Smith, a Scottish philosopher interested in economics, who wrote his famous book, The Wealth of Nations, a few months before the United States of America even existed. Smith published his book March 9th 1776.

In her 2018 book, Mariana Mazzucato begins by seeking to uncover the roots of how the words “value” and “wealth” were defined by men in Western civilization who wrote about  economics during the past five centuries.

Mazzucato begins with a fascinating look at well-known classical-era ‘political economics’ writers such as Smith, Ricardo, Malthus, and Marx.

She says these writers have defined who were (or are now) the productive members (i.e., makers) of their society who create value, and who were (or are now) the unproductive members i.e.(takers) of their times.

Each man defined these groups quite differently!

Adam Smith was chipping away at the idea advanced by his contemporaries who called themselves, ‘mercantilists,’ that commerce along with gold and silver were the only sources of national wealth.

In Smith’s day, “rents” were monopolies that commercial trading companies in Europe (such as the British East India Company) obtained from their national governments.

Smith globalized the scope of the word “rents” beyond just land grant monopolies given by kings of European countries to their loyal “lords” in Europe.

Smith expanded “rent seekers” to include the early American colonizers who traveled to “New World” to settle it and extract raw materials for their kings’ use, along with those who sought monopoly “rents” elsewhere in the world to advance their own and their king’s wealth and power.

Smith was critical of commercial traders, lawyers, and other “rent-seekers” of monopolies granted by the kings of Europe. And with good reason!

A footnoted quote in Mazzacato’s book says:

In 1621 there were said to be 700 monopolies, and by the late 1630s [in England] they [rent-seekers] were bringing in £100,000 a year to the Exchequer.

Mazzacato adds that these monopoly grants to landlords and commercial traders on land and sea were highly unpopular, the cause of the Civil War in England, and led to the death of King Charles I. [page 39]

The creation of so many monopolies in the 18th century led Adam Smith to be a strong advocate of the idea of “a free market,” a market that was free of “rent-seeking” of special privileges from government coffers.

Rent-seeking in our day

Today we call rent seeking “pork”.

Two, recent examples of “pork” facilitators in this country feature Senate leader, Mitch McConnell and his wife Elaine Chao, US. Secretary of Transportation. (Source Politico “Chao created special path for McConnell’s favored projects“).

In a highly questionable ethical move, Elaine Chao used her position in government to spend taxpayer money to hire a special liaison for bringing in “grants totaling at least $78 million for favored projects” that Mitch wants for the State of Kentucky. No other State in the Union has received such a privilege.

According to Politico’s article, Mitch McConnell brags about his favorite private industry projects coming to Kentucky, saying to a Kentucky newspaper last year, “All 100 senators may have one vote, but they’re not all equal. Kentucky benefits from having one of its own setting the agenda for the country.”

In particular, this article focuses on the details of Mitch’s long-standing “special relationship with the Kentucky town of Owensboro throughout McConnell’s career in Washington.

It’s too bad that writers like Gordon Tullock, who admired Adam Smith’s classical book on economics, didn’t modernize the word, “rent-seeking”!

Rent-seeking was Tullock’s term for “seekers of special privileges from government officials”. To Tullock, “Rent-seeking” was a pejorative term, not a thing to brag about.

So, I guess for now, the words, “lobbyists” and “pork” will have to suffice.