He [Adam Smith] would not have quarrelled with the dictum of a later economist [Vilfredo Pareto, in Manuale di economia politica] that “the activities of man are expended along two routes, the first being directed to the production or transformation of economic goods, the second to the appropriation of goods produced by others.” Activities devoted to appropriation obviously do not promote production, and production would be promoted if they were diverted into the channels of industry. We must, therefore, understand him to assume the existence of laws designed, and, in the main, competent, to prevent acts of mere appropriation, such as those perpetrated by highwaymen and card-sharpers.
DBx: Pigou here, and Pareto whom he quotes, recognized the reality of rent-seeking. This reality only later began, with important work by my late colleague Gordon Tullock, to be studied analytically by economists.
Pigou failed to add – but should have added – politicians to his list of highwaymen, card-sharpers, and others who engage in acts of “mere appropriation.” If Jones as a private citizen puts a gun to my head and threatens to shoot me if, whenever I buy a foreign-made good, I don’t pay to him the sum of money he demands, he is clearly engaged in an act of mere appropriation. It’s an act that diverts valuable resources from production to appropriation (and to efforts to guard against appropriation). Yet nothing of substance is changed if Jones does the very same thing but only now as an official of the state.
(Pictured above is Pigou.)