Sunday, December 3, 2017

A comparison of Adam Smith and Jean-Baptiste Say, based on their "Lotteries" paragraphs

Adam Smith

Smith looked at who gets the money from lottery ticket sales, and pointed out that lotteries are not "perfectly fair". If they were, he said, "the undertaker could make nothing by it".

From this observation he draws the conclusion that

There is not ... a more certain proposition in mathematics, than that the more tickets you [buy], the more likely you are to be a loser. [Buy] all the tickets in the lottery, and you lose for certain ...

That doesn't stop me from buying the occasional lottery ticket. I've never hit the big one, though, so on net I'd have to say Smith is right: I've lost more than I've gained by the lottery.

Other than that, Smith makes use of the lottery to look at aspects of human nature. We love the chance of gain, he said:

That the chance of gain is naturally over-valued, we may learn from the universal success of lotteries.

And we are dazzled by the big prize:

The soberest of people scarce look upon it as folly to pay a small sum for the chance of gaining ten or twenty thousand pounds; though they know that even that small sum is perhaps twenty or thirty percent more than the chance is worth. In a lottery in which no prize exceeded twenty pounds, though in other respects it approached much nearer to a perfectly fair one than the common state lotteries, there would not be the same demand for tickets.

Smith is fine with the idea that a laborer should get his wages, and an entrepreneur his profits. But if the entrepreneur is in the lottery business, Smith says, his cut is unfair... And the entrepreneur becomes an "undertaker"!

In this one particular case, the entrepreneur's profit is not "fair" to his customers. I don't know why Smith says that, unless he really didn't like the lottery. But if you accept Smith's premise, you have to accept his whole paragraph. It's all one argument. It all hangs together.

Jean-Baptiste Say

"[T]he chances are manifestly against" lottery players, Say says. Smith said the same, but Smith at least did the math. J.B. Say only makes the assertion.

Say's assertion makes a good conclusion to his paragraph. But it is not a conclusion to an argument about the chances of winning a lottery. Say's argument is not about the chances of winning a lottery. His argument is that lotteries are bad.

Say says that lotteries are an unprofitable use of capital. That's in contrast to Smith's view that the undertaker's profit is unfair or excessive. Say also says that lotteries cannot possibly contribute much to the Treasury, and that they are like a tax that falls heavily on the needy.

In addition, he points out that lotteries are a "vast" waste of time, and that they teach people to trust chance more than their own talents and to favor zero-sum gain over productive activity.

None of Say's assertions are backed up the way Smith backs up his "not perfectly fair" assertion. And half of Say's remarks are moralistic generalizations focused on harmful effects of the lottery on human character.

Smith was a great thinker. Say was a petty man.

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