Wednesday, August 23, 2006

What Do they Teach in Long Island?

Papers, reports, book reviews and letters cross my desk each day, and occasionally I come across absolute gems, such as James Buchan’s, Adam Smith and the Pursuit of Perfect Liberty (Profile Books, 2005), near absolute gems, Eric Beinhocker’s, The Origin of Wealth (Harvard 2006). I also come across many duds, but few as bad as a very long article by Professor Mahfuz R. Chowdhury, who apparently teaches economics at C.W. Post Campus of Long Island University, USA, (“Economics Has and Will Shape the World”). I quote a small sample of what he writes in it:

Economics has been defined in a number of different ways. All definitions however lead to its central theme that it is an art of accumulating material wealth. The main objective is how to achieve a comfortable life. As such, the idea of economics is nothing new to people. Although Adam Smith, who published “The Wealth of Nations” in 1776, is regarded as the father of modern economics, its subject matter is as old as the human race itself. It was not by any choice that people started to practice economics; their very survival practically forced them to engage in economic activities. The main difference between ancient and modern economics is that people have learned to practice economics in a more scientific and organized manner.
The fundamental idea of economics is that economic resources are limited, but human wants are unlimited. So, to get the greatest fulfillment of their wants people need to utilize their limited resources in the most efficient and economic way. Also, people need to choose what satisfies them most since they cannot get everything they want.

This concept of economics was as true when people lived in caves as it is today. People have come a long way from the time of cave dwelling, and have made tremendous progress in raising their living standards. Unquestionably, people are now better fed, better clothed, and better informed. They can enjoy life more, and live longer. In other words, there has been tremendous economic progress over time. More importantly, along with the many technological innovations this progress is continuously changing for the better. But alas, while human society is making such achievements, not everybody in society is getting the opportunity to share the benefits equally. The opportunity gap among people is staggering - some live in great luxury, while others find it hard to even feed themselves properly.”

(Published in 'Peace Journalism')

For a tendentious analysis of society you have to read the rest of this article in ‘Peace Journalism’, but as an example of economic illiteracy you could not beat it.

Economic activity is not an ‘Art’ (whatever that means); it is a networked series of actions. It is not a ‘fundamental idea that economic resources are limited’ – resources are scarce at any one moment and their opportunity costs, in all the things people could do with what is available is limited by knowledge, technology, access, and time, but what is ‘limited’ is not some absolute quantity; it depends on the time period and, crucially on the extent of the division of labour. Neither are human wants ‘unlimited’ in the sense that every human throughout all history conceived of wanting everything, including that which they knew nothing about, and were deprived of what they wanted. The cave people, the author talks about, did not ‘want’ colour tv sets, etc., (the very poor in American, colour tvs are a 'necessity').

The author notes the extent of economic progress but then laments: “Alas, human society is making such achievements, not everybody in society is getting the opportunity to share the benefits equally.” Within that ‘Alas’, lies utter confusion (what is he teaching his class in Long Island University?). In which society, ever, have its members shared everything ‘equally’? The closest people got to ‘equality’ was in societies that shared the ‘abject relative poverty’ of the ‘gatherer-scavenger’ societies in the last million years of the Hominids and the early millennia of the human race; it got slightly better as they learned to cooperate in hunting.

Adam Smith, writing of the North American ‘Indians’ that were found when Europeans arrived near Long Island, drew attention to the fact that the living standards of the meanest common labourer in 18th century Scotland were much greater in material wealth than the ‘princes’ who led tribes of a ‘thousand’ people in America. Indeed, and this is significant, the Scottish common labourer enjoyed living standards closer to the ‘princes’ who ruled his life in 18th century Scotland than the North American Indian did to him. The cause of this wider disparity between the unequal societies of Europe and the unequal societies of the ‘Age of the Hunters’ was the division of labour. It had nothing to do with racism. John Locke opined the view that ‘in the beginning all the world was America’ (Two Treatises on Civil Government), including Western Europe, Asia, and Africa. Our predecessor were all 'savages' 30,000 plus years ago.

And today, Professor Mahfuz R. Chowdhury might care to note that in the country he lives in, the USA, the gap between the rich and poor in America is incomparably smaller than the gap between the rich and poor of India, China and Africa, for exactly the same reason: the vastly more complex market economies in the former compared to the latter.

The remedy, the only remedy, to poverty, relative and absolute, in the case of the developing countries (probably relative only now in the developed economies, except perhaps for recent immigrants) is the creation of wealth, which Smith defined as the annual produce of exchangeable value. No economic system ever has found another route. Capitalism, like democracy, is not the ‘best system’; it is the least worst of all the alternative economic systems that occupy and have ever occupied, the design space.


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