Sunday, March 01, 2009

Not Quite Accurate About Wealth Of Nations

John Clark, the creator of Provocate, a Senior Research Fellow at the Sagamore Institute, a think tank in Indianapolis. He was a Senior Fellow at the Hudson Institute and director of the Center for Central European and Eurasian Studies.

I comment upon selected pieces from John Clark’s discussion paper on Adam Smith’s Wealth Of Nations’ for HABEAS LOUNGE, A Public Art Project Focus on the Economy, One New York Plaza, this coming Wednesday in New York (details HERE:

'Comments from John Clark on Adam Smith’s “Wealth of Nations”'

John Clark asserts that pins, discussed in Chapter 1 are not what they seem:

“Pins” really means nails, which were essential in an economy in which everything was still made of wood rather than steel or plastic.”

They were not nails, they were household pins, drawn from iron wire and fully explained in Diderot’sEncyclopédie’ (Paris, 1755) under the heading ‘Épingles’, French for pins.

Smith reports on his visit to a pin factory, saying that the division into 18 operations (the French norm) was undertaken by 10 men, where sometimes an individual man ‘consequently performed two or three distinct operations’ (WN I.i.3: p 15), the last one of which was to wrap the pins in paper, as appropriate for pins but not for nails.

Democracy favors the development of industry by multiplying without limit the number of those engaged in it.”

Smith did not speak of democracy, except theoretically in ancient Greece. He did not have a vote under the existing electoral franchise in Scotland. His concern was more with Liberty, not democracy, hence he is not represented by Alexis de Tochville’s 19th century writings on the USA (Smith died in 1790).

It’s the coat of a poor laborer. He ends the chapter may strike our enlightened 21st century ears as un-PC, but it’s a valid point: if an economy functions well, even the poorest members of societies can attain decent levels of consumption. In fact this is the rule of thumb for public policy he uses throughout the Wealth of Nations: if a policy improves the standard of living of the poor and workers (often the two categories overlap) it’s a good policy; if it hurts their standard of living, it’s a bad policy. This is important!”

Adam Smith’s example of the production of the day labourer’s common coat is a much stronger example of the (international) division of labour than the local manufacture of pins, which raised labour productivity, whereas the numerous workers engaged in the multiple supply chains necessary to produce the simplest coat for the poorest employees, indicated how complex the division of labour was becoming already by the mid-18th century.

Each step in the entire production process was capable, in practice, of improving its productivity if the extent of the markets for each bit of the process made it worthwhile to do so. As each bit of the process served the needs of many different products, as well as those needed for coats, this would tend to lower unit costs and intensify commercial society. As more employment opportunities were created this too would raise demand for labour and raise real wages.

Before, the idea was that a wealthy economy was a big economy, with lots of resources at the disposal for the ruler to conspicuously consume or mobilize armies and navies. Smith says what matters isn’t the Wealth of the Sovereign, it’s the Wealth of the Nation, which means the wealth of the bulk of the people who make up the nation: that’s what he means by comparing the American colonies with Britain with China. Note his comments on Bengal (a declining state), where famine made things even worse than stagnant (stationary state) China. He knows who is to blame for the impoverishment of India — the Brits. And the Americans could prosper because the Brits left them alone. (See the notes for his criticisms of British policy toward the colonies later in the book).”

Adam Smith’s actual points were more interesting than the way it is presented here:

The difference between the genius of the British constitution which protects and governs North America, and that of the mercantile company which oppresses and domineers in the East Indies, cannot perhaps be better illustrated than by the different state of those countries. The liberal reward of labour, therefore, as it is the necessary effect, so it is the natural symptom of increasing national wealth. The scanty maintenance of the labouring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition that they are going fast backwards.” (WN I.viii.27: p 91)

His point was that whereas in the British colonies of North America, which were governed according to British laws and practices, the colonists (though not the indigenous people, nor the slaves) were protected by the rule of law, and the state governors and other officials were subject to removal from office for malfeasance (and were), while in Bengal the local populations were governed by the East India Company, noticeable for its oppression by the rule of men, many of whom were corrupt, nearly a year’s sailing from Britain, and beyond accountability for their actions.

In the British colonies in North America the colonists were industriousness, lived under civil order, and relative prosperity; in India there was appalling misbehaviour, poverty, and violence.

To say: “He knows who is to blame for the impoverishment of India — the Brits. And the Americans could prosper because the Brits left them alone,” is hyperbole, at least, as well as inaccurate.

The ‘Brits’ who colonised the eastern seaboard of North America and the ‘Brits’ who tyrannised Bengal were from the same stock of British people. If anything, it was from the circumstances that the ‘Brits’ in India were ‘left alone’ and beyond the remit of the rule of British law, that their worst excesses were encouraged and left unpunished.

The constitutional changes from the rebellion of the British colonists in North America led to major and lasting improvements in constitutional government (much of the jurisprudence of the USA has its roots in British jurisprudence), but it is no improvement to distort Adam Smith’s actual views in such a manner.

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