Glory Liu on þe Adam Smith Americans Have Imagined, &
BRIEFLY NOTED: For 2022-03-25 Fr
First: Glory Liu on the Adam Smith Americans Have Imagined
My one-time student Glory Liu has a book coming out: Glory M. Liu (2022): Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism (Princeton: Princeton University Press, 978069120381) <https://www.amazon.com/Adam-Smiths-America-Philosopher-Capitalism/dp/0691203814>. I recommend it very highly
When you read Adam Smith at any length <https://www.gutenberg.org/files/38194/38194-h/38194-h.htm> https://www.gutenberg.org/files/67363/67363-h/67363-h.htm>, you keep running across passages like:
The act of navigation is not favourable to foreign commerce, or to the growth of… opulence…. As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England…
Or:
In the progress of the division of labour, the employment of the far greater part of… the people, comes to be confined to a few very simple operations… of which the effects… are perhaps always… very nearly the same.… He naturally… and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging… It corrupts even the activity of his body…. His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues…
Or:
The poor man’s son… admires the condition of the rich…. He devotes himself for ever to the pursuit of wealth and greatness. To obtain the conveniencies which these afford, he submits in the first year, nay in the first month of his application, to more fatigue of body and more uneasiness of mind than he could have suffered through the whole of his life from the want of them…. Through the whole of his life he pursues the idea of a certain artificial and elegant repose which he may never arrive at, for which he sacrifices a real tranquillity that is at all times in his power, and which, if in the extremity of old age he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it. It is then, in the last dregs of life, his body wailed with toil and diseases, his mind galled and ruffled by the memory of a thousand injuries and disappointments which he imagines he has met with from the injustice of his enemies, or from the perfidy and ingratitude of his friends, that he begins at last to find that wealth and greatness are mere trinkets of frivolous utility…. In the languor of disease, and the weariness of old age, the pleasures of the vain and empty distinctions of greatness disappear…. Power and riches appear then to be what they are… keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death…. And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind…
Or:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…
Or:
The capital which an Amsterdam merchant employs in carrying corn from Koningsberg to Lisbon, and fruit and wine from Lisbon to Koningsberg, must generally be the one half of it at Koningsberg, and the other half at Lisbon. No part of it need ever come to Amsterdam. The natural residence of such a merchant should either be at Koningsberg or Lisbon; and it can only be some very particular circumstances which can make him prefer the residence of Amsterdam. The uneasiness, however, which he feels at being separated so far from his capital, generally determines him to bring part both of the Koningsberg goods which he destines for the market of Lisbon, and of the Lisbon goods which he destines for that of Koningsberg, to Amsterdam; and though this necessarily subjects him to a double charge of loading and unloading as well as to the payment of some duties and customs, yet, for the sake of having some part of his capital always under his own view and command, he willingly submits to this extraordinary charge; and it is in this manner that every country which has any considerable share of the carrying trade, becomes always the emporium, or general market, for the goods of all the different countries whose trade it carries on…
Or:
Is… improvement in the circumstances of the lower ranks of the people to be regarded as an advantage, or as an inconveniency, to the society?… No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged…
This is a snarky Scottish Enlightenment moral philosopher, well aware of quirks of human psychology and sociology.
So how is it that Adam Smith in America wound up as the poster child for the “stark utopia” of the free-market order? How is it that he is the guy who is taken to have said that a good society is one in which all of the social power you exercise to command the work and attention of others is mediated through the market? A market society is one in which all the social power one exerts to attempt to command the aims of the work of society is deployed through your effective demand—and so is equal to your wealth times your personal intensity of desire that some commodity be made for your personal use. This is a fine thing to do, but only if the only end of society is to produce commodities for its individuals’ personal utilization, and only if the societal value placed on the happiness of an individual is proportional to his wealth.
But that is simply not the case.
Glory tells the story of how this transformation of Adam Smith was accomplished, here in America.
It is a wonderful story. I have not fully digested what I think the big-think conclusions that I draw from her book are. But one of the excellences of a rich book is that it provides different big-think conclusions for a large number of people, coming at the book from different places than the author. (If you want to know from what position I am coming to this—which is different from where Glory is coming from—see:
).
And some of these big-think conclusions will be ones the author had never dreamed of drawing.
I get to read this now.
You do not. You do not get to read this until November.
One Video:
Nicolas Véron, Sergei Guriev, & Jacob Funk Kirkegaard: How Russia’s War in Ukraine Affects the Financial Sector <https://www.piie.com/events/how-russias-war-ukraine-affects-financial-sector>:
One Picture: The December 1944 “Battle of the Bulge”:
Very Briefly Noted:
Brett Arends: Opinion: How ‘Washed Up…Old Man’ Warren Buffett Is Getting the Last Laugh<https://www.marketwatch.com/story/how-washed-upold-man-warren-buffett-is-getting-the-last-laugh-11648055804>
Megan Carnegie: The Entirely Predictable Impact of Salary Transparency <https://www.wired.co.uk/article/salary-transparency-gender-pay-gap>
Jennifer Burns: Rethinking Capitalism and Freedom: Milton Friedman in Retrospect: ’Thursday, April 14, 2022 4:00 PM (PDT)… <https://www.eventbrite.com/x/rethinking-capitalism-and-freedom-milton-friedman-in-retrospect-tickets-293500366497>
Olivier Blanchard & Jean Tirole: Major Future Economic Challenges <https://voxeu.org/article/major-future-economic-challenges>
Nele Brusselaers & al.: Evaluation of Science Advice During the COVID–19 Pandemic in Sweden: ‘Scientific methodology was not followed…. Many elderly people were administered morphine instead of oxygen despite available supplies, effectively ending their lives… <https://www.nature.com/articles/s41599-022-01097-5>
Lawrence O’Donnell: Supreme Court Confirmation Hearings Are Not About Qualifications: <https://www.msnbc.com/the-last-word/watch/lawrence-supreme-court-confirmation-hearings-are-not-about-qualifications-135910469907>
Martin Wolf & Gideon Rachman: Columnists Exchange: Should Nato Become Engaged in the War in Ukraine?<https://www.ft.com/content/7640ea89-cc1f-4e41-a64f-95e88de19454>
Twitter & Stack:
Matthew C. Klein: Last Looks at the Pre-War World (1): America’s Boom: ‘The U.S. economy was doing extraordinarily well before the Russian invasion of Ukraine…
Paul Krugman: ’People worrying about a return to 70s-type stagflation should… get the history right…
Doug (Mule): Lessons from History: The 1980s Semiconductor Cycle(s): ‘Japan and overcapacity. A new series on cycles to gain insight into today’s semiconductor market…
Chad Orzel: Imminent Death of the Academy Predicted: ‘The whole elaborate edifice of lectures and homework sets and exams and grades is there to provide the extrinsic motivation necessary to get a typical student to put in the work that leads to genuine mastery…
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Not GDP per capita, but rather GDP per capita times the square-root of population adjusted for the share of world resources engrossed should be the variable we focus on in studies of “great” and “little” divergence. I think this is great from Steve. But take this as a tickler that I am going to try to do better this summer:
Stephen Broadberry: Accounting for the Great Divergence: Recent Findings from Historical National Accounting: ‘New estimates of GDP per capita for three leading nations in Europe and two in Asia… point to substantial regional variation… a European Little Divergence, as Britain and the Netherlands overtook Italy. Starting out from a lower level of GDP per capita, both Britain and the Netherlands received a permanent boost to per capita incomes after the Black Death of the mid–14th century, and the Netherlands forged ahead of Italy in the 16th century during its Golden Age, while Britain overtook Italy in the early 18th century and the Netherlands at the beginning of the 19th century. Second, there was an Asian Little Divergence as Japan overtook China…. I also offer an… explanation…. Proximate factors… include the growth of the labour force, increased labour effort, more cultivated land, investment in both human capital and physical capital, the growth of total factor productivity (TFP) and structural change… the growth of labour productivity in terms of human capital deepening, capital deepening, changes in the land-labour ratio and growing efficiency…. Ingenuity rather than abstention governed the Great Divergence, which was due to more efficient use of factor inputs…. Britain’s unique factor price combination of high wages and low energy prices stimulated technological progress that was labour-saving and coal-using…
LINK: <https://voxeu.org/article/accounting-great-divergence-recent-findings-historical-national-accounting>
It looks like here we had a very bad political decision not to prosecute Donald Trump:
Leaked Resignation Letter Squeezes Manhattan DA, Who Suspended Trump Case, Between a Rock & a Very Hard Place: ‘Alvin Bragg… suspended the Trump case. Afterward, Pomerantz and another prosecutor quit…. Pomerantz’s resignation letter…. The evidence, Pomerantz said, would show Trump is “guilty of numerous felony violations of the Penal Law” before he’d become president. He went on: “His financial statements were false, and he has a long history of fabricating information relating to his personal finances and lying about his assets to banks, the national media, counterparties, and many others, including the American people. The team that has been investigating Mr. Trump harbors no doubt about whether he committed crimes—he did.” Pomerantz did not lay out evidence against the former president but did say it was strong enough to show “guilt beyond a reasonable doubt.” He added: “We believe that the prosecution would prevail if charges were brought and the matter were tried to an impartial jury.”… If Bragg fears the political consequences of losing, as all district attorneys do, he should fear even more the political consequences of failing to try. “Whatever the risks of bringing the case may be,” Pomerantz said, “I am convinced that a failure to prosecute will pose much greater risks in terms of public confidence in the fair administration of justice"…
Not calling it “global warming” is, I think, a bad sign. And the extent to which “demographic change” is a problem rather than an opportunity:
Olivier Blanchard & Jean Tirole: Major Future Economic Challenges: ‘The challenges of climate change, inequality and demographic change are significant, [but] solutions—though sometimes expensive or unpalatable—exist…. All three of our challenges are time bombs. Their immediate effects are much weaker than their long-term ones, and so decision-makers procrastinate…. They are also complex problems, meaning that if policymakers are to make those hard decisions, they must do this under uncertainty and often in the face of public resistance…
LINK: <https://voxeu.org/article/major-future-economic-challenges>
Abolutely brutal with respect to the incompetence and the cruelty of the Swedish régime:
Nele Brusselaers & al.: Evaluation of Science Advice During the COVID–19 Pandemic in Sweden: ‘During 2020, however, Sweden had ten times higher COVID–19 death rates compared with neighbouring Norway…. Scientific methodology was not followed by the major figures in the acting authorities—or the responsible politicians—with alternative narratives being considered as valid…. The Public Health Agency labelled advice from national scientists and international authorities as extreme positions, resulting in media and political bodies to accept their own policy instead. The Swedish people were kept in ignorance of basic facts such as the airborne SARS-CoV–2 transmission, that asymptomatic individuals can be contagious and that face masks protect both the carrier and others. Mandatory legislation was seldom used; recommendations relying upon personal responsibility and without any sanctions were the norm. Many elderly people were administered morphine instead of oxygen despite available supplies, effectively ending their lives. If Sweden wants to do better in future pandemics, the scientific method must be re-established, not least within the Public Health Agency…
“I lecture for free; the university pays me to grade…” is a very good peg on which to hang the usefulness of the university. After all, it started as a way to use reading-aloud to groups as a way to economize on very expensive and very scarce books. Yet Gutenberg’s coming did not upset it. Afterwards, it went from strength to strength even though its original raison d’etre had vanished:
Chad Orzel: Imminent Death of the Academy Predicted: ‘The basic claim here is the usual “You can learn what you need to be a successful tech person without all the expensive ancillary nonsense that comes with modern higher education.” And, again, this is true in a narrowly literal sense—it’s absolutely possible for a smart and highly motivated individual to learn the skills they need on their own time, without the formal structure of academia. Many people have done it over the years, and most of them are happy to tell you about it at tedious length. The fundamental problem here is that the number of people who think they’re the right sort of highly motivated autodidact to bypass academia is at least one and probably more like two orders of magnitude larger than the number of people who really are that sort…. The whole elaborate edifice of lectures and homework sets and exams and grades is there to provide the extrinsic motivation necessary to get a typical student to put in the work that leads to genuine mastery. You absolutely do not need the assistance of a tenured faculty member to achieve a good undergraduate-level education in most subjects—there are libraries full of books and an Internet full of other resources that can provide all the raw information. The motivation to work out all the end-of-chapter problems in the textbook without peeking at the solutions online is a lot harder to come by. In a lot of ways, the whole system is justified by a slightly different spin on the old academic joke, “I lecture for free; the university pays me to grade”…
LINK:
This is 100% correct. Workers won’t bargain for locked-in wage increases until they expect ongoing moderate inflation. Workers won’t expect ongoing moderate inflation until by osmosis they have picked up that expectation from the bond market. And the bond market does not expect that, not at all. We have three big processes that need to take place before an inflationary wage-price spiral will be at hand:
Paul Krugman: ’People worrying about a return to 70s-type stagflation should look beyond the macro series and look at what wage- and price-setters were doing…. Employers were locking in large, multi-year cost increases because everyone expected high inflation to continue indefinitely, so their competitors would be in the same position. That was why disinflation—which came as a big surprise—was so costly. Nothing like that is happening now. Large wage increases for some workers, but it’s just supply and demand, not expected future inflation. Medium-term inflation expectations mostly anchored — rising breakevens mainly reflect current oil shock. So a relatively soft landing is still very much possible. The Fed’s belief that it can happen without any uptick in unemployment is dubious. But if you’re going to tell 70s scare stories, get the history right…
LINK:
SUBJECT: The Lack of Full Cross-Society Diffusion of Industrial Technologies
Most conspicuous today among the failures of global economic management is the extraordinary failure of the technologies that have been developed since 1770 to fully diffuse across the world. The industrial innovations had their initial start in the Dover Circle: 300 miles in radius, centered on the port of Dover in the southeastern corner of England.
Technologies and institutions were then carried and diffused via natural increase, conquest, settlement, emulation, osmosis, and diffusion thought the world. But only partially and incompletely. The result is that today there is a thing called the “global north”, which, in its imagination at leas,t traces continuity of descent and commonality of identity in some sense with the civilizations of the Dover-Circle societies of half a millennium ago—a day when the Dover Circle was nothing special, and no prince or merchant of the Yellow, Yangtze, Mekong, Ganges, Indus, Syr Amu, Syr Daria, Tigris, Euphrates, or Nile valleys would have wanted to change places with their counterparts of the Rhine, Meuse, Seine, or Thames.
The result is that there is today a thing called the “global south”, which is the rest of the world, which stood, on average, at least at par with the people of the Dover Circle in income and technology 500 years ago, who today have average incomes less than 20% as high.
This between-society inequality may or may not now be in a process of long-term erosion. But it certainly was in a process of tremendous expansion—divergence—from 1800 to at least 1980. The current 4.5-1 edge of the global north relative to the world average is principally due to the differential creation and adoption of technologies, and secondarily but substantially due to the engrossment of the world’s natural resources: conquest, occupation, extortion, and purchase.
Simon Kuznets in his Nobel Prize lecture back in 1971 pointed to:
Factors… [that] have limited the spread of modern economic growth…. Japan is the only nation outside of those rooted in European civilization that has joined the group of developed countries…. The increasingly national cast of organization in developed countries made for policies… clearly inhibiting [convergence]… colonial status… imperialist exploitation… [neutralizing] the remarkable institutions by which the Sinic and East Indian civilizations produced the unified, huge societies that dwarfed in size any that originated in Europe until recently…. Nor is the social technology that evolved in the developed countries likely to provide models of institutions or arrangements suitable to the diverse institutional and population-size backgrounds of many less developed countries…. It will not be a matter of merely borrowing existing tools, material and social; or of directly applying past patterns of growth, merely allowing for the difference in parameters. The innovational requirements are likely to be particularly great in the social and political structures…. A long period of experimentation and struggle toward a viable political framework compatible with adequate economic growth lies ahead for most less developed countries of today; and this process will become more intensive and acute as the perceived gap widens between what has been attained and what is attainable with modern economic growth…
Nothing in the history of the past half-century—especially not the institutional dysfunctions we clearly see in much of the global north—suggests that these worries by Simon were overstated.
We can compare our guesses as to the state of the Dover Circle to our guesses as to the world as a whole since the year 800. These are more than guesses—it is not quite fair to call them guesses. But they are close to guesses. So take them with a grain of salt. The Dover Circle goes from perhaps 20% behind the world average in terms of its deployment of useful ideas to perhaps 15% above, or maybe a little less, between 800 and 1500. This is somewhat of a puzzle. We understand why the louver circle is behind the world average in 800. Its population density is low because it is heavily forested. Well, the land is fertile, the trees are hard to cut down to make fields, and not worth cutting down until you have the heavy plows that can break up the clayish soils and the horse collars to allow the piles to be pulled efficiently. Low population density brings low urbanization which means ideas do not spread that rapidly, and the political-military chaos from the absence of large empires and imperial peace means that what ideas are broadly known are hard to deploy.
This, however, has changed by 1500: now it is a world civilization more-or-less like any other—behind the world frontier in some things (scale and organization, fine textiles and ceramics) and ahead in others (precision metalworking, gunpowder weapons, ships for sailing rough oceans in all seasons).
Then, around 1500, there comes a sea-change for the world: the crossing of the watershed-boundary that takes the world into the Imperial-Commercial Age. The rate of ideas growth in the world as a whole triples, from 5% to 15% per century. This will drive, worldwide, a jump in the average rate of population growth from 10% to 30% per century. The overwhelming share of this jump-up rings from the impact of globalization, in the expanded trade and ideas flow and then deployment of technologies to grasp the expanded opportunities of comparative advantage opened up—primarily those of the Columbian Exchange, the transfers of biotechnology from the Old to the New and from the New to the Old World.
if you were lucky, and that is if you were lucky enough not to live in what is now Latin America as the conky stories came through and then dominated not to live in slavery afflicted Africa, not to live in someplace where Europeans made negative bids for resources in Cannon. If say you were lucky enough to live someplace else, the commercial Imperial age from 1500 to 1770. So the fastest and most widely distributed economic growth up to that date, ideas growth, largely due to the Columbian in biotechnology exchange more than twice as rapid as any previous era, for the West in quotation marks again edge in quotation marks, I guess, over 1500 to 1770 was primarily military organizational that as the 0.26% per year steady increase in the share of the world's resources in engrosses. The west edge over 1500 to 1770 was secondarily inventive deployment. That is the 0.05% per year pulling ahead and ideas invented and deployed. The institutional configuration and the cultural configuration of the West mattered from 1500 to 1770. But it did not yet matter a great deal at this economic prosperity level of analysis. A bigger shift a much bigger shift was to come with the coming of the British Industrial Revolution Age starting around 1770.
The Dover Circle shares in this upward jump in ideas discovery, development, deployment, and diffusion: Its pace of ideas growth retains its 5%-point per century edge over the world average, doubling from 10% percent rate to 20% per century. A value of ideas deployed in the Dover Circle that was 10-15% above the world average in 1500 is 25-30% above the world average come 1770. Bigger gaps, however, open between the Dover Circle and the rest of the world than just the gap in ideas. Total Dover Circle economic product jumps from growing at 18% per century before 1500 to more than 50% per century afterwards. For the world as a whole, the jump is much smaller: from 10% per century to a bit over 20%. This differential jump means that the relative salience of Dover Circle economic product is amplified by a factor of 2 1/2 over the 1500 to 1770 imperial commercial age. This increasing salience is driven secondarily by the 5%-point per century edge in ideas deployment and diffusion, but primarily by a 25%-point per century edge as the Dover Circle engrosses, via conquest, exploitation, settlement, and purchase, a greater share of the worlds total natural resources than merely those that were physically located inside the Dover Circle in 1500.
This divergence process would continue after 1770. During the 1770 to 1870 industrial revolution age, the Dover Circle has a 5%-point per decade edge over the 4% per decade worldwide ideas growth average. And the Dover Circle has a further 4% per decade edge generated by additional resource engrossment. The 1872 2010 modern economic growth age sees the Dover Circle have a 3.3%-point per decade edge in ideas, and a 1.7%-point per decade edge in yet further resource engrossment. And so all this transforms a Dover Circle in the same league as the world average in 1500 to a set of economies 4.5 times as prosperous today, and economies that held 2.5% of the world’s population in 1500 have grown, via expansion, settlement, and emulation, to a peak of perhaps 15% of the world’s population in 1870 and now 11% of the world’s population today.