Today, as my wont every Sunday morning, I tuned into Fareed Zakaria’s program on CNN. In my estimation, this is by far the most enlightened program on TV (alas, not a very high bar). The topic of discussion was the latest ascent of China and its recent replacement of Japan as the second largest economy in the world.
Opinions ranged from “beware the awakening dragon” to “the current miraculous growth rate is unsustainable” because of a variety of social reasons (labor unrest due to low wages, widespread poverty, and inequality, no health care, corruption, suffocating pollution, etc.,etc.,etc.). Niall Ferguson, a Harvard historian, made the argument that China is following an old-fashioned mercantilist policy: Economic power begets political and military power, and vice versa –the two feed on each other. This is the same Prof Ferguson who wrote in his book “The Cash Nexus”(2001) that Imperial America (his terminology) “should devote…a larger percentage of its vast resources to making the world safe for capitalism and democracy.”
Specifically, what does Ferguson mean by the general term “capitalism?” Does he mean British, or French of German commercial interests? Read between the lines, and what he really means is “safe for U.S. commercial interests.” This is classical mercantilism.
By the way, his statement predated the war in Iraq! In fact, he lamented that the U.S would be unlikely to “impose the rule of law in countries like Iraq”, because of “a pusillanimous fear of casualties.” I believe that over four thousand young soldiers are dead and close to a trillion dollars spent (including long term care for our wounded), we have proved that we are not pusillanimous! But, we sure have ended up in bankruptcy, both moral and economic.
So what is the “Real Historical Record?”
The message is shouting out: Peace and morality are the macro-environment for economic success. Here some examples from history:
- Queen Hatshepsut, the female pharaoh of the powerful and warlike 18th Egyptian dynasty (1478 -1458 BC), foreswore all aggressive incursions into the neighboring countries and instead established trade as the cornerstone of her public policy. Egypt attained unprecedented prosperity under her rule.
- King Solomon (ca.950 -900 BC), the Israelite builder, sent his navy to trade with countries as far flung as Yemen and Turkey. Unlike his father, King David, he did not engage in foreign conquests. As the Bible says, “…and the country was peaceful and prosperous, each under his vine and under his fig tree” (symbols of personal wealth).
- The Phoenicians were derided for being merchants, not fighters. But their commercial empire stretched from Lebanon to Spain and North Africa.
- Greek democracy was invented by the people who rebelled against the tyrant kings who had ruled them with arbitrary and draconian laws (one of them was actually called Drakon, hence the name). One city, Sparta, elected not to go the democracy route but rather retained their royalty and their extremely militaristic social structure. To maintain their military they had to enslave the surrounding cities. Eventually, they got over-extended in their military adventures, could not maintain the military at its full power, the enslaved cities rebelled and sacked Sparta. An almost perfect experimental design.
- The Romans were brought down by their constant wars with the tribes in the periphery of the Empire.
- The British Empire was crippled by WWI and brought down by WWII.
- The German Empire, the Japanese Empire –all brought down to their knees by their imperial ambitions.
We must acknowledge that war is necessary sometimes – the civil war, WWII, Serbia/Kosovo (and too bad, although we were not pusillanimous Rwanda) – these were just wars. But the cold, hard facts remain: wars are ruinous to the economy.
A Moral World as an Economic Imperative.
Not to seem elitist, I must say that if you haven’t heard of Adam Smith, you must have lived in a cave since grade school! He coined the phrase “the hidden hand” of the market, which leads merchants to maximize profits while also maximizing benefits to society. Smith did not advocate “laissez-faire,” (an anything goes economy). Rather, he championed markets that were moral and fair. It is ironic that the “ free market is infallible” pundits often cite Adam Smith. When examined closely, however, you will find that there is a curious omission by the advocates of untrammeled free markets: Adam Smith was not only an economist, he was a moral philosopher.
Consider this quote from his masterpiece “An Inquiry into the Nature and Causes of the Wealth of Nations” (could a book with such a title would ever sell today??).
”We rarely hear, it has been said, of the combinations of masters,* though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labor above their actual rate…Masters, too, sometimes enter into particular combinations to sink the wages of labor even below this rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people” In contrast, when workers combine, “the masters..never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen”.
Note: 18th-century “masters” are the equivalent of 21st-century corporations
Have you ever heard this quoted by Free Marketeers?
Have you ever heard this quoted by Free Marketeers? Probably not. He was not a socialist (they didn’t exist then), nor a rabble-rouser. He was the founder of the free market economic theory, a clear thinker with a conscience. As an economist he knew that unequal societies cannot flourish; as a moral philosopher, he felt that immorality will eventually undermine the very foundation of an organized society.
My favorite 19th-century British thinker is hardly known. Richard Cobden was an entrepreneur, a courageous politician, and a deep thinker. He campaigned against protectionism and against Britain’s foreign adventures. Keep in mind: this was at the height of the British Empire power when conventional wisdom said that conquered colonies would feed the prosperity of the colonizing country, which in turn would bring more conquests…in a never-ending virtuous cycle.
Isn’t that the very definition of a “bubble”? Here is a quote from this obscure politician who Gladstone described as “…decorated neither by land nor title, bearing no mark to distinguish him from the people he loves, has been permitted to perform another great and memorable service to his sovereign and his country” (averting yet another war with France):
“Market forces act in the moral world like the principle of gravitation –drawing men together and thrusting aside antagonism of race, and creed, and language.”
Richard Cobden, we could benefit from your wisdom today, although you are “decorated neither by land nor title,” and bear “no mark to distinguish” you from the people you love. You have, nevertheless, a powerful message that could provide our country and our leaders with a “great and memorable service.”