Saturday, December 27, 2008

An Imaginary Perspective of History

Niall Ferguson, a contributing editor of the Financial Times and the author of ‘The Ascent of Money: A Financial History of the World’ (Penguin), writes in FT.com, 27 December, HERE:

An imaginary retrospective of 2009

As Adam Smith had foreseen in The Wealth of Nations, economic liberalisation had allowed the division of labour and comparative advantage to operate on a global scale.”

Comment
Er, not quite. Long before Adam Smith (genius that he was) put pen to paper, global markets operated across Europe, and from the geographical explorations of the New World, began to link up with distant lands, in their case by systematic plunder by Spain in Central America and in India and south-east Asia (Dutch, Portugal, England (Britain) and France.

Adam Smith’s account of the global links in the manufacture of the common labourer’s woolen coat (Wealth Of Nations, Book I, chapter 1) is a description of what was happening already, before a version of ‘economic liberalisation’ came into practice.

Indeed, long before anybody wrote about free economies and a large-scale roll back of legislative interventions in economic life, there was a brisk, sustained, and expanding trade between and within European countries from the 14th century, which contributed the international division of labour.

Adam Smith, as a philosopher, was an observer, not an initiator.

‘Overselling’ his role is persistent, though a relatively minor transgression on his reputation.

Of far greater importance are the daily distortions of his radical assessment of how economies work and how they may be better able to work if people, not just legislators and those who influence them, would also first observe and not then offer prescriptions to ‘improve’ what happens anyway, often without the slightest contact with what is happening now and what brought to pass the ‘fine mess we are often in’.

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6 Comments:

Blogger Bill Greene said...

WINNERS MAKE IT HAPPEN, PHILOSOPHERS TRY TO EXPLAIN HOW AND WHY IT HAPPENED

I enjoyed this post very much and was struck by how it supports my interpretation of historical progress. In writing "COMMON GENIUS," I developed for ease of illustration "The Radzewicz Rule" (you can google it) which provides an algebraic equation for Why the West Won. It also indicates why we are beginning to lose and how Dubai and China may beat us at our own game!

I submit a few lines from my Preface which support your line of thought. Here, I comment on the role in history of the Great Thinkers and Philosophers:

"Even the best of these, “giants” like John Locke or Adam Smith, were merely “reporters”
attempting to describe what common people had already done.
Comparative dates are used to demonstrate that nothing “original”
was ever included in such philosophers’ writings. They did try to summarize
general principles from what had occurred, but most of them did
even that poorly, and too frequently wandered off into idle speculation.

"Many such reporters and analyzers played a useful role in mankind’s advance, but they never were the cause of the advances. There has never been a useful innovation in government or economic freedom that emanated from an armchair; all such innovations were the product
of involved individuals cooperating, arguing, and compromising in a working environment, and very few of these, if any, were ever
members of an intelligentsia.

The summaries produced in the armchairs may have helped promulgate useful ideas, but they never originated the ideas. And unfortunately, many of the philosophers’ reports and summaries were so inaccurate or distorted from reality that they led many readers far astray."

I used the "case method" to examine the few locales in history where free economies arose, and flourished. We know that, for starters, almost 4,000 years ago, the Phoenicians took advantage of their isolated and "useless" islands and penninsulars along the Lebanon coast to develop a prosperous "world-wide" trading nation that was remarkably open and free to aspiring entrepreneurs. And their trading success led to the manufacture of finished products, assembled with a division of labor, and mass produced for their clientele. The country was led by an enlightened business class that allowed free and open opportunity to business interests. It was one of the first laissez-faire success stories.

The Italian city states and 16th century Holland, and then 17th century Glasgow, were similar nurseries of free enterprise, operating originally out of "useless" swamps and tidelands, left alone by the surrounding Kingdoms, and thereby allowed to unleash the genius of their people.

Ironically, such start-up societies flourished, unburdened by soft-science intelligentsias or philosophers musings. It was only later, suffering under the complexities of intellectual abstractions and the grand theories of those new elites who wanted to make it better, that such societies Declined.

We can thank Adam Smith for promoting capitalism, but if you want to know how it actually works, and how it operates best, look to case studies of real-life results with the fine details there to be measured and compared.

3:33 am  
Blogger Gavin Kennedy said...

Bill

Thank you for your informative comment.

There is much in with which I would agree, tentatively.

I would suggest that it is not 'democratisation' that inspired early pioneers of trade, so much a 'Liberty'.

Even the elite of the Barons were moved to confront King John at Runneymeade by the threat to themselves they felt at John's arbitary use of his kingly powers. In similar vein in the wilder kingdom of Scotland, the elite rulers confronted arbitrary rule by their kings, in a more messy way, leading to the Declaration of Arbroath.

Democracy came later, and first in the written consitutition of the US, though 'demcratic' government stuggled to appear among the city elites of Greece (and was not lasting, nor inclusive in its male franchise but not of women or slaves.

Philosophers observe, said Adam Smith, but do not do anything. It is from the accounts of philosophers, both 'right' and 'wrong' that we know of the history of ideas and we can read and interpret their work, if it survives, today.

Some influenced the elite; some wrote for posterity. I would be careful about dismissing them all, because ideas are important.

9:13 am  
Blogger Bill Greene said...

I agree that "liberty" in one's personal and economic affairs trumps democratic rights. What good is the vote if you are taxed and regulated to death in your personal affairs?

"The Radzewicz Rule" spells out the conditions for successful societies and it only calls for security of life and property, and a minimum of regulations. The Medici Princes allowed no vote, but they encouraged upward mobility and took care to observe Machiavelli's instruction to "leave your subjects' property alone." That laissez-faire atmosphere, and the occasional restoration of the republics, ensured that the rulers limited their oppression.

Hong Kong, Singapore, and Dubai illustrate that authoritarian governments which allow economic liberty can make their citizens' "pursuit of happiness" exceed that found in democratic, but bureacratic states.Democracies such as India and many African and South American nations suffer from top-down regulation by elected leaders! That is why China's new embrace of free enterprise is such a great challenge to America's economic future.

In looking at the history of economic practices, it is evident that almost all leaders have been unable to resist the temptation to excessively control their subjects' behavior. Power corrupts! The resulting "controls" are what kept the vast majority of the world's people in poverty--and still does.

The genius of open economies, or economic liberty, was evidenced primarily by chance--in those rare locales where the leaders could not, or chose not, to excessively restrict their people. That is why isolated outposts such as Phoenicia, early Greek cities, and Venice had the opportunity, starting as small free enclaves, to grow in power. The absence of a landed gentry, royal aristocracies, and an intelligentsia class, in such relatively primitive places, lent an element of "democracy" to their structure, but it was the open economy and minimal regulation that allowed the growth.

In short, democracies, in their youth, can help allow economic freedom by limiting controls from the top. But democracy, per se, is not essential. And, unfortunately, mature democracies usually descend into "populist democracies" where a majority of the people become convinced their leaders' role is to play Santa Claus. Gradually, the leaders and elites then resort to more and more "government programs" to redistribute or fine tune the nation's economy. That seemingly irreversible process of destroying the original economic freedom that built the nation has usually brought on the Decline of free nations.

2:40 pm  
Blogger Gavin Kennedy said...

Bill
I would agree with the general drift of your comments.

8:25 pm  
Blogger Bill Greene said...

Thank you for that support. My hypothesis about how the Common People created progress by trial and error, sticking to common sense, and repeating actual policies that had worked in the past, is a radical concept.

Most writers on the subject are by profession so marinated in academic and abstract theories that they will reject any theory that does not attribute progress to the great Thinkers and Philosophers. Of course, as you point out, those famous names were merely "reporters," outlining actual past events, and passing off their observations as original thinking!

I do cite many learned historians who have come close to my hypothesis--they critique the intellectuals, praise the common people, and indirectly support most of my observations. But none have explicitly stated the obvious conclusions:
1.) that the innate demand for liberty is inborn, and when given free reign, will transform a society into a prosperous nation;

2.) that all men are created equal, endowed with inalienable rights including life, liberty, and the pursuit of happiness. And,

3.) most importantly, these are not new "theories." They are ancient and fundamental principles. They predate all the Enlightenment philosophers by thousands of years--as a minimum to almost 2,500 years ago when spelled out by Pericles in his Funeral Oration and iterated many times since then by those in the field fighting to assert their rights.

One of the case studies that I believe helps illustrate this hypothesis concerns Scotland, and I would appreciate your comments since you may have special knowledge of that history: I cite with praise John Knox's arrival in Scotland in 1559 preaching the new Protestantism. His impeccable credentials as a “common man” included a youth in exile, imprisonment, and even penal servitude chained to a rowing bench in the Kings galleys. But his dedication to the Almighty served him and Scotland very well. He preached that since God loved us and created us, we must not submit to any other authority, whether that of the King, the nobles, or the established churches.

The common people liked his message and after massive protests and bloody battles, they and Knox prevailed. In the 1570's, just a few years before the Dutch Oath of Abjuration, Knox spoke of how all political power was vested in the common people, not in Kings, nobles, or even clergy. Although Scotland was slow to ever grant a widespread electorate, Knox had made another baby step that would eventually lead, in the United States, to universal suffrage.

Knox declared that it was the duty of every man to defend his rights against tyranny from any source. Doing just that, in 1638 the citizenry forced their leaders to sign a National Covenant that ensured legal protections for the citizens. Scotland's people thus anticipated the Glorious Revolution in England some thirty years later. Later philosophers would write complex treatises about human rights but give no credits to Knox, John Cooke, the Dutch burghers of 1581, or all the many freedom fighters who anticipated with deeds what John Locke wrote about many years after the fact.

Arthur Herman writes well on this subject and quotes Robert Burns, who spoke for the common people:

"What though on homely fare we dine,
Wear hodden-gray, an' a' that;
Gie fools their silks, and knaves their wine,
A man's a man for a' that.
The honest man, though e'er sae poor,
Is king of men for a' that."

With this new spirit of freedom and independence, Scotland's people created their own Renaissance and for a while led Europe in medicine, engineering, and trade. But, 200 years after Knox's arrival, with prosperity and a leisure class, the new elites in Edinburgh's fancy eating clubs were quite different from the men in Burn's poem.

David Hume was typical of these new "Moderates" who feasted and drank in the Select Society. Herman writes, "The closes and wynds of Edinburgh flowed with alcohol. Drinking. . .engrossed the leisure hours of all professional men. . .Half the bench of the Court of Sessions . . were well-oiled before they met in the morning."

And the elites were slow in expanding the hard-earned rights of commoners. There was a flood of people leaving Scotland for the American colonies. Those emigres soon contributed immensely to the new young country where they were free from "the fools and knaves" who now dominated Edinburgh society. By denying sufficient rights to those that left, Scotland lost one of its most valuable natural resources--it’s people.

When Benjamin Rush arrived in Scotland in 1767, bearing letters of introduction from Benjamin Franklin, he was unhappy with the moral relativism of the intellectuals that had taken over Scottish universities. He preferred the East Lothian minister, John Witherspoon, who shared the evangelical spirit so popular with American Scots. Indeed, Rush talked Witherspoon into emigrating to the colonies to accept the Presidency at Princeton College. Eighty years later, unhappy with the continuing lack of reform, Andrew Carnegie’s parents brought him to what is now Pittsburgh. Starting as a bobbin boy, within 40 years he built the world’s largest steel and coal empire. The rest is history.

Many leading Scots agreed with Witherspoon that righteousness, not birth or membership in drinking clubs, should establish the order of men; that democracy must be open to everyone; and that the new "overly enlightened" church leaders in Scotland had gone astray. A popular ditty expressed their mood:

"To the West, to the West, to the land of the free;
Where the mighty Missouri rolls down to the sea;
Where the man is a man even though he must toil,
And the poorest may gather the fruits of his toil."

It is common among historians to identify that point when a society's sophistication peaks as the highest and best indication of success. My contrary approach is that the people who created that affluence, and the usually centuries long time it took to do it, represent the true Glory of the nation. The literary and artistic culmination that is eventually attained has usually marked the beginning of the end. That is a time when new elites usurp control, question traditional values and beliefs, and substitute their own abstract vision of how to “make it better.”

12:59 am  
Blogger Vashi said...

Wishing You,Your Family,Colleagues and Respected Readers of this post,

A Happy, Meaningful, Constructive, Purposeful, Inspiring, Prosperous and Progressive New Year

Whatever is Beautiful,

Whatever is Happiness,

Whatever is Wisdom,

Whatever is Meaningful,

May all that be Yours,

Today, Tomorrow and Always

Best Wishes,

Vashi Ram Chandi

5:18 am  

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