miraculous ability to regulate itself became, the greater became the capacity for moral disaster when policy-makers succumbed to the simplistic charms of its Looking-Glass world. The story of one of the most shameful episodes in the history of economic policy-making testifies to quite how bad things could get.
THE INVISIBLE HAND IN ACTION
In 1845, Ireland had been a full constituent nation of the United Kingdom for more than four decades, and an accessory of the British economy and polity, if often by force, for several centuries before that. Yet in its religion, politics, and language, Ireland retained a quite distinct culture from its neighbour: economically and socially speaking, it was almost of another era. By the early nineteenth century, Britain was the greatest manufacturing economy in the world, while Ireland was one of the most backward in Europe. The most tellingevidence of its poverty was the near-total reliance of the rural economy and population on a single crop: the potato. So when the first reports of a disastrous failure of the Irish potato crop began to emerge in September 1845, they were brought at once to the attention of the government in Westminster.
The government’s initial response was quick. A scientific factfinding mission was dispatched, the gravity of the situation was ascertained, and a Relief Commission established. At its head was Sir Randolph Routh, who had been the senior logistics officer at Waterloo. Meanwhile, the mastermind of government policy was to be the young Assistant Secretary at the Treasury, Charles Edward Trevelyan. Trevelyan was a prodigy—one of the most brilliant of the new breed of modernising progressives then beginning to dominate the British civil service. With a team combining such unimpeachably noble principles and such long practical experience in charge, Ireland was surely in the safest possible hands.
Those praying for a merciful policy from Trevelyan’s Treasury should, however, have been forewarned by the very first sentence of an editorial shot across his bows from
The Economist
magazine in late November 1845. It opened with a chilling warning: “[c]harity is the national error of Englishmen.” 9 There was no question that the impending Irish famine was an economic disaster and a human tragedy. But simply sending aid was absolutely the wrong way to help. It would violate two central principles of economic theory. The first was the need to avoid moral hazard. Send aid, and one might alleviate the immediate problem—but at the cost of reducing the Irish to a state of permanent dependency. The second was the hallowed principle of non-intervention in the operation of the market. Adam Smith had proved that it was allowing private self-interest to operate as freely as possible that most efficiently achieves the social good. For the government to interfere with the operation of the market in solving the crisis would therefore be a foolish error.
A second editorial in
The Economist
, published in March 1846, captured the consensus which dominated the views of the British Establishment. Proactive intervention by the government, the editorswarned, would be futile: “To feed the Irish, to attempt which it is now practically driven, … is for the legislature physically impossible.” 10 To attempt it therefore risked jeopardising the authority of government: it would “only damage the interfering, unthinking lawmaker … arms against him all the unsatisfied desires of the people, and must in the end destroy his power.” 11 Ultimately, it would do more harm than good: “The legislature therefore cannot effectively help Ireland … [I]t can no more relieve the wants of the Irish, than a man can cure
delirium tremens
by swallowing daily increasing quantities of ardent spirits.” 12 Above all, to deny these self-evident truths was proof not of an alternative political or moral disposition—but of wilful ignorance of objective, scientific fact. Appealing to
THE INVISIBLE HAND IN ACTION
In 1845, Ireland had been a full constituent nation of the United Kingdom for more than four decades, and an accessory of the British economy and polity, if often by force, for several centuries before that. Yet in its religion, politics, and language, Ireland retained a quite distinct culture from its neighbour: economically and socially speaking, it was almost of another era. By the early nineteenth century, Britain was the greatest manufacturing economy in the world, while Ireland was one of the most backward in Europe. The most tellingevidence of its poverty was the near-total reliance of the rural economy and population on a single crop: the potato. So when the first reports of a disastrous failure of the Irish potato crop began to emerge in September 1845, they were brought at once to the attention of the government in Westminster.
The government’s initial response was quick. A scientific factfinding mission was dispatched, the gravity of the situation was ascertained, and a Relief Commission established. At its head was Sir Randolph Routh, who had been the senior logistics officer at Waterloo. Meanwhile, the mastermind of government policy was to be the young Assistant Secretary at the Treasury, Charles Edward Trevelyan. Trevelyan was a prodigy—one of the most brilliant of the new breed of modernising progressives then beginning to dominate the British civil service. With a team combining such unimpeachably noble principles and such long practical experience in charge, Ireland was surely in the safest possible hands.
Those praying for a merciful policy from Trevelyan’s Treasury should, however, have been forewarned by the very first sentence of an editorial shot across his bows from
The Economist
magazine in late November 1845. It opened with a chilling warning: “[c]harity is the national error of Englishmen.” 9 There was no question that the impending Irish famine was an economic disaster and a human tragedy. But simply sending aid was absolutely the wrong way to help. It would violate two central principles of economic theory. The first was the need to avoid moral hazard. Send aid, and one might alleviate the immediate problem—but at the cost of reducing the Irish to a state of permanent dependency. The second was the hallowed principle of non-intervention in the operation of the market. Adam Smith had proved that it was allowing private self-interest to operate as freely as possible that most efficiently achieves the social good. For the government to interfere with the operation of the market in solving the crisis would therefore be a foolish error.
A second editorial in
The Economist
, published in March 1846, captured the consensus which dominated the views of the British Establishment. Proactive intervention by the government, the editorswarned, would be futile: “To feed the Irish, to attempt which it is now practically driven, … is for the legislature physically impossible.” 10 To attempt it therefore risked jeopardising the authority of government: it would “only damage the interfering, unthinking lawmaker … arms against him all the unsatisfied desires of the people, and must in the end destroy his power.” 11 Ultimately, it would do more harm than good: “The legislature therefore cannot effectively help Ireland … [I]t can no more relieve the wants of the Irish, than a man can cure
delirium tremens
by swallowing daily increasing quantities of ardent spirits.” 12 Above all, to deny these self-evident truths was proof not of an alternative political or moral disposition—but of wilful ignorance of objective, scientific fact. Appealing to
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