A MUDDLE!

Prof. (Dr.) S. N. Misra posts (16 March) on Pragativadi HERE 

“Towards a new language of growth”

“It was Adam Smith who is credited with inking the syntax of capitalism, when he wrote: “Market forces, as if by an invisible hand, will lead to welfare of all”. He was writing in the backdrop of industrial revolution when technology was making a tectonic shift in the wellbeing of European nations. Smith also underlined the importance of division of labour and ‘self-interest’ in bolstering the market forces. He had famously observed: “It is not from the benevolence of the butcher; the brewer or the baker that we expect our dinner, but from their regard to their own interests”.  David Ricardo took the free market theory a step further when he argued that free trade would tap the comparative advantage in production of commodities between nations and increase global wealth significantly. Globalization as a concept owes its origin to this free trade theory of Ricardo. Export of goods and services has contributed to one-third of global wealth. The unbelievable prosperity of many emerging market economies like China, South Korea and Thailand owe their origin to this expert led growth strategy.”

COMMENT

There are multiple problems with Prof. Misra’s statements above.

Who exactly credited Adam Smith with “inking the syntax of capitalism”? The claim is a nonsense anyway. The word ‘capitalism’ was first used in English in 1854. While Smith was alive (1723-90) it is debateable that ‘capitalism’ existed yet.

Adam Smith NEVER wrote”:

“Market forces, as if by an invisible hand, will lead to welfare of all.”

Smith’s reference ONCE in Wealth of Nations (1776) to different subject, specifically to a risk averse merchant who preferred to invest domestically rather than in foriegn trade, for which he was ‘led by an invisible hand’ to benefit the domestic economy by the extent of his investment and its associated employment, which Smith considered to be a public benefit.

Smith also added throughout Wealth of Nations, that many other actions by  “merchants and manufacturers” led to disbenefits, such as import controls, prohibitions and rising domestic prices and less competition, decreasing and slowing the spread of wealth growth.

When Smith was writing there was no:

 “backdrop of industrial revolution when technology was making a tectonic shift in the well being of European nations.” 

Manufacturing was still in its early infancy. Large factories manufacturing prodcts were almost unknown across the land until the division of labour was mechanised with machinery, a process hardly begun before the turn of the century (Watt’s mechanised steam power, in mining and cotton manufactures and such like). The “tectonic shift” came later and took time to spread, requiring large capitals. Many European countries did not participate until mid-19th century onwards

Finally: “Globalization as a concept owes its origin to this free trade theory of Ricardo.”

The actuality of “globalization” originated not from a ‘concept’, but from what people did quite independently of the writings of economists. 

Ricardo - and Smith, Marx, etc. - were not, so to speak players, in society. If they had never existed and had not written a word, the industrial revolution, capitalism, imperialism, socialism, modern globalisation and so on would still have happened. 

Though, of course, that creative writers do exist, human understanding is an important element in human culture.