Monday, December 29, 2014


Ricardo Hausmann, a former minister of planning of Venezuela and former Chief Economist of the Inter-American Development Bank, is Professor of the Practice of Economic Development at Harvard University, where he is also Director of the Center for International Development. He asks, 29 December HERE 
Why Are Rich Countries Democratic?”
“When Adam Smith was 22, he famously proclaimed that, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.” Today, almost 260 years later, we know that nothing could be further from the truth.
Ricardo Hausman  objects to the young Adam Smith’s youthfull exclamation from a short note that Michael or his son, Dugald Stewart, close family friends, had kept, which was later destroyed by Dugald’s mentally-ill son, without it being seen by anybody else. 
Young Smith’s experience of the 18th-century, systemically corrupt, war debt-ridden, British state, given to long and expensive wars across the then known world, was hardly one characterised by anything like the idealistic interpretation that Ricardo Hausman offers of modern democratic states in his otherwise interesting model of the USA, UK, and many European, richer states (though few of them have managed to avoid wars and their associated debt burdens even today).
However, as a thought experiment, for a Harvard post-graduate seminar, Professor Hausman’s essay fits the bill as an intellectual challenge for his students, once he adds the magic word: “Discuss” and requires his students, when asked by name, to provide their verbal comments to the class.
If I had been present in the class, I would have asked Professor Hausman, in what manner are the USA or Britain today so different, “almost 260 years later” that would lead us to conclude that Smith’s observation was “further from the truth? 
Yes, what became the USA (1776) embarked on a democractic journey lasting until the 1900s, with the demise of racial segregation in the 1960s, and the UK similarly, when universal suffrage male and female was finally achieved in the early 1900s.
Adam Smith’s youthful assertion was partly true and while not the whole truth (he didn’t ever walk on water!) it certainly does not warrant Ricardo’ dismissive proclamation that “260 years later, we know that nothing could be further from the truth” than the quoted assertion.
Are the USA and the UK models of war-making as ‘last resorts’? Has either solved the war-debt burdens of modern states and the crises that go with large-scale debts in all modern economies?  Is either (or any) state actual, as opposed to nominal, models of democratic accountability? Or is it the case that the working of markets is less than what we now imagine as ‘perfect competition’ and that all advanced and undeveloped (e.g. Venezuela) are closely entwined to varying degrees in their state-market economies? 
Smith may have been somewhat hasty in his tone but the case he was quoting was a fairly basic, non-developed economy starting from in the ‘lowest barbarism” (or what was referred to elsewhere as “savage” or near “savage”) for which he recommends “peace” - the absence of wars and their associated expenditures for which “easy taxes” would certainly follow in contrast to the experience of war-driven taxation and high borrowing in the UK and the rest of monarchial Europe.
To which he added a “tolerable administration of justice”, ignoring, of course, the vast intolerable mal-administration of justice in all feudal and war-lord economies of Europe, the Mediterranean, India and China over many millennia (since 'Providence divided the Earth'). 
Smith, we note, did not mention markets or the economy in his ‘juvenile’ declamation. So from what does Ricardo justify his dimissal of Smith’s fairly limited statement with the alleged line that “we know that nothing could be further from the truth”? 
I have read many statements from the ‘rightist’ press that laud the above statement of young Smith as it stands and assert that it is a statement favouring their version of what they call the “free market”, as if states should not exist at all. Ricardo comes from the other extreme, minimising the roles of the market as if they can operate without entrepreneurs. They are both wrong-heafed fantasies shown most dramatically in the 19th and 20th centuries. States can operate without markets - they did for 2 or 3 millennia. In their state-managed societies the bulk of their populations lived in poverty (as did the 20th century state dominated versions in Russia, China, and, in the 21st century, as State-run Venezuela seems to be heading. 
Extreme, hard-line libertarians, believe that markets can operate without states.  They haven’t so far, though the proclivity for gun-anarchy in the USA remains a worrying, claimed, so-called ‘right’.  This has been tried in history too in the form of local war-lords and princedoms.
Smithian-minded pragmatists, such as myself, hold to the different perspective of: “markets where possible, the state where necessary”.
Finally, Professor Ricardo Hausman, in chastising Adam Smith for being “furthest from the truth” may want to correct his own errors first, where factually incorrect. He quotes with confidence that when Adam Smith was “22” he proclaimed the “famous quote” about “little else” being necessary”, which is factually incorrect. Smith’s “famous quote” was made in 1755, when he was 32, not 22! (Smith was still at student at Oxford in 1745 and still working on his highly productive 'History of Astronomy' paper, published posthumously in 1795).
Smith was baptised in 1723 (his birth date is unknown but assumed to be when he was born, or close to his baptism date, as was the custom with sickly babies at the time). 
For the very best biography of Adam Smith, you should read Ian Ross, "The Life of Adam Smith”, 1976, 2nd ed. 2010, Oxford University Press and Liberty Fund). I discuss the interesting '1755' paper (now lost) and its background, in my first book, “Adam Smith’s Lost Legacy” 2005, “Appendix: Smith’s ‘1755’ paper”, pp 241-43, Palgrave-Macmillan.
Professor Hausman adds another factual error in his assertion that Smith published The Wealth of Nations, at age “43”. Again, using 1723 as his birth year, he was aged 53, not 43, in 1776 when Wealth Of Nations (first edition of six) was first published.
These errors may be unimportant in themselves, but a knowledge of Adam Smith’s biography is very important when modern professors interpret his moral philosophy, his political economy and also his teachings on Rhetoric and language. Their students are advised to read the originals for themselves and not to accept in reverence or misplaced trust any quotations and paraphrases from their professors of what other professors are alleged to have written before the 21st century (even at Harvard).
[I may return to Professor Hausman's otherwise interesting paper in due course.]


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