Coordination Problem

"Natural" And "Unnatural" Development: Arrighi's Adam Smith

I David L. Prychitko I

I'm reading Giovanni Arrighi's Adam Smith in Beijing.  In it he tries to develop something of a Marxian Adam Smith.  The argument is rich and difficult, and I'm still trying to make sense of it.

I'm most interested in his claims about Smith's views on Chinese economic development.  Arrighi argues that Smith, in The Wealth of Nations, appeals to the Chinese development of his time as following a "natural" path, while British development followed an "unnatural" path.  Arrighi calls the former "market-based development" and the latter "capitalist development" proper. He apparently believes that Smith favors the former over the latter.

What is it?  I've found these words of Smith:

According to the natural course of things, therefore, the greater part of the capital of every growing society is, first, directed to agriculture, afterwards to manufactures, and last of all to foreign commerce.  This order of things is so very natural, that in every society that had any territory, it has always, I believe, been in some degree observed. Some of their lands must have been cultivated before any considerable towns could be established, and some sort of coarse industry they could well think of employing themselves in foreign commerce.

But though this natural order of things must have taken place in some degree in every such society, it has, in all the modern states of Europe, been, in many respects, entirely inverted. The foreign commerce of some of their cities has introduced all their finer manufactures, or such as were fit for distant sale; and manufactures and foreign commerce together, have given birth to the principal improvements of agriculture. The manners and customs which the nature of their original government introduced, and which remained after that government was greatly altered, necessarily forced them into this unnatural and retrograde order.

Book III, ch. 2 [I apologize for the italics.  Computer problem.]

With claims such as these, Arrighi applauds Smith for promoting, so he thinks, China's path to development, one which he maintains is still being carried out today.  It bypasses the class conflict that Marx emphasized during the so-called "unnatural" course established by the industrial revolution.

Smith's Wealth of Nations is loaded with interpretive problems.  Rothbard (correctly) sees in Smith the statements that help undergird Marx's notion of class alienation.  Arrighi sees an implicit if not direct criticism of British economic development.

Natural or unnatural -- whatever that really means -- we have to watch out for these historical accounts of growth that are used to develop theoretical accounts.  (I'm reminded of Rostow's Stages of Economic Growth.) By that I mean there is no reason to believe today that a nation naturally (let alone should) shoot for economic development based upon freeing up agricultural markets first, cities and urban areas second, and then international trade third.  One should resist the temptation to use history to develop a general theory. Britain's development might be an historical exception (if even those words make sense) but why call it, for that reason, unnatural?  It is surely not a theoretical exception.

The colleague who loaned me this book applauds Smith and Quesnay for focusing upon agriculture as a source of wealth and opulence, and seeks to promote China as an historical example that he argues continues to have lessons today. But what of Smith's primary argument that productivity and wealth stem ultimately from the social division of labor, which is limited (and developed) by the extent of the market?  That is a theoretical claim that can explain historical developments.  The particular circumstances -- institutional practices, industrial technology, information networks, natural resource capacity and so on -- differ over time.  Calling for "natural" land-led economic development today, despite my colleague's claims to the contrary, ignores the particular circumstances and skills that people find themselves in the here and now.

Back to Arrighi's book.  It is challenging, and he does have interesting and even fruitful things to say about the importance of decentralized, spontaneous development at the local level.  But I'm unimpressed with the concepts of natural and unnatural, as if history follows, or can be expected to follow, such a course.

Krugman On Health Care

I David L. Prychitko I

government involvement is the only reason our system works at all.

Read it all here.

Polluting us with Debt

An op-ed of mine by that title appears in today's Tampa Bay Tribune.  It's online here.  It's choppier than I'd have ideally preferred, but I think the key point is one worth making.

More Evidence That We're All Getting Richer

Steve Horwitz

While looking for something else, I stumbled across this Census report on household income from 2006.  What's really interesting is to look at the percentage of households in each income category and how that's changed over time.  If the prophets of doom and decline and rising inequality are right, we would expect to see, I'd think, lots more rich households and lots more poor ones as the supposed gap widens.  Some prophets of doom might expect to see fewer households in the upper brackets as the highest income categories are dominated by a few people getting very, very rich.

The reality, as it turns out, is different.  From 1980 to 2006, the percentage of US households earning $100,000 or more (in constant 2006 dollars) grew from 8.6% to 19.1%.  The percentage between $75k and $100K grew from 10.3 to 11.3 percent.  At the other end, the percentage under $15K fell from 16.6% to 13.4% and the percentage between $15K and $34K fell from 26.2% to 23.3%.  Thus all three categories below $35K fell a total of 6.1 percentage points. 

The middle classes fell too, though by less.   The sum total across the $35K to $75K categories fell by 5.4 percentage points.  In other words:  the net movement of households was an 11.5 percentage point gain in households above $75K and a net reduction of 11.5 percentage points in houses below $75K.  So the percentage above $75K rose from 18.9% to 30.4%.  That is, it increased by over 50%.

Let me repeat that:  over 30% of US households in 2006 earned above $75K compared to under 20% in 1980.  Over the same period, the percentage of US households earning under $35K fell from 42.8% to 36.7%.  Fewer households are poor, fewer are middle class, and a hunk more are above $75K.  (And in case you were wondering, those general trends hold for black and hispanic households too - with the percentage of black households under $35K falling by 10.9 percentage points and the number above $75K increasing by 8.9 percentage points, for example.)

Throw on top of this the fact that most everything people buy costs less in real terms and you have a recipe for increasing wealth across the board.  Not bad for what so many people claim is 30 years of stagnation.

Video Reflections on Human Action

As I noted in an earlier post, FEE recorded a bunch of interviews with the faculty at the Advanced Austrian seminar earlier this month where we talked about the meaning of Human Action after 60 years.  They are now slowly posting those videos here.  As of this evening, the ones with Bruce Caldwell, Peter Lewin, Larry White, Larry Reed, Sheldon Richman, and me are available.  I was off-camera trying to get Lewin to laugh, but he wasn't paying any attention to me.

These are all terrific reflections and there may be more to come.

Econ 880: Austrian Theory of the Market Process I

| Peter Boettke |

The syllabus for my graduate course on Austrian economics is available on-line.  It is a large class this term with over 30 students, so the course experience will be more lecture driven than in the past few years.  If you are in town, consider attending a lecture.

Schedule for PPE should be up next week.

Emotive Appeals in Politics

| Peter Boettke |

Last year as I was teaching my HNRS 131 class and we were working our way through The Grapes of Wrath, I realized something that was a common thread in works like Dickens and Steinbeck, that was reversed in writers such as Rand.  The critics of the market-order emphasized personal plights of misery due to forces beyond their control, whereas Rand talked about systemic forces in society and relied on personal stories only to the extent they illuminated the systemic forces.

New Freeman Celebrating Human Action's 60th Anniversary

Steve Horwitz

Under Sheldon Richman's excellent editorship, The Freeman's September issue celebrates the 60th anniversary of Mises's Human Action with articles by Boettke, Leeson, Kirzner, and Greaves among others.  Sheldon's introduction along with links to the various articles is here.  (The issue also includes an "It Just Ain't So" piece by yours truly on the claim that we are "saving too much.")

Two brief comments on the Mises appreciations.

1. Kirzner's is a recapitulation of the main theme of his FEE lecture that I posted the other day and was the subject of some critical back and forth.  I suggest folks read this piece alongside his talk to get the full picture.

2. For those who think the two Petes are somehow anti-Misesian, a read of both of their contributions will clear up that fallacy.  And Pete L nicely links one of the core insights of Human Action to his own research program in the endogenous evolution of rules and social cooperation.  Both Petes also note how that book is the core of the courses in Austrian economics that they teach.

Thanks to Sheldon and FEE for the celebratory issue.  I also happen to know that FEE filmed a whole series of short video interviews with Austrian economists reflecting on the meaning Human Action had for them.  I'll let you know when those are up.

Bernanke Preparing for Jackson Hole

Peter Boettke --

NYT has a profile on Ben Bernanke.

Wouldn't it be great if George Selgin and Larry White were invited to Wyoming to discuss proposals with the world's central bankers?

Knowing What And Knowing How

David L. Prychitko

Shortly after I began teaching in the 1980s I lost interest in what my students thought.  To this day I really don't care to know what they think. 

Outrageous?  No.  But where does my interest lie?  As I now prepare for the upcoming semester, it hit me in a way that I've never been able to clearly articulate for over a quarter of a century of teaching.  And it's so simple. 

I don't want to know what my students believe or think.  I have neither the time nor the interest.  Instead, I want to know how they think.  Are they using the economic way of thinking? And, if so, are they merely using the same words and terms that I use in the classroom, or are they absorbing and understanding economic analysis?  I feel that my goal as an educator is to offer them a way of learning how to think about complex social phenomena.  "What do you think about minimum wages?" -- forget it.  "How do you think about minimum wages?"  Now we have something to discuss.

Job market applicants are often asked to write up something about their teaching philosophy.  If I were to ever do so, I'd sum up mine in one sentence:  I have no teaching philosophy, or at least none that I'm aware of. (I also have no clear method, no bag of tricks, nothing special to offer.)  I do, however, have a single purpose -- to encourage my students to think like an economist.