Thursday, August 25, 2005

Best Smithian Analysis for a Long Time

From "The Austrian Economists" Blog ( “Why Aren’t Institutions like Can-openers?” (Posted by pboettke on August 22, 2005):

After describing the shipping of a simple can-opener to a friend in Peru who does not have, but needs, one the authors turn to the difficulty of establishing the ideas that form institutions that can drive development without corruption, totalitarian diversions and entrenched poverty:

“The transfer of deep beliefs seems much more difficult than the transfer of things. Why that is so, it is not obviously clear. Pete Leeson, Chris Coyne and I have a paper, "Institutional Stickiness and the New Development Economics" which tries to address this issue that is currently under review at a journal. This work develops themes I first addressed in my "Why Culture Matters" paper that was published in an Italian journal of political economy and then reprinted in English translation in my Calculation and Coordination. Chris Coyne's work on the political economy of post-conflict reconstruction is grounded in this puzzle and he has made great strides in the theoretical underpinnings of this argument and the empirical illustration of the point.

Again in reading for my graduate seminar in Constitutional Economics that I start teaching in 2 weeks, I was struck once again by the wisdom of Adam Smith and how it relates precisely to this point. In his Lectures on Jurisprudence, the appendix includes Smith's plan for The Wealth of Nations. On pages 578-579 of the Liberty Fund edition of this work, he has a section in his plan entitled "Concerning the causes of the slow progress of opulence." Smith states that there are two reasons for why some countries are poor while others are rich. The first are natural impediments and the second are the policies of oppressive and injudicious government. Bad public policy render a countries agriculture and its arts and commerce underdeveloped. Bad public policy, the reader is told, increase the natural impediments to development.

What are the natural impediments?

The original poverty and ignorance of mankind the natural impediments to the progress of opulence. That it is easier for a nation, in the same manner as for an individual, to raise itself from a modern degree of wealth; money, according to the proverb, begetting money, among nations as among individuals. The extreme difficulty of beginning accumulation and the many accidents to which it is exposed. The slowness and difficulty with which those things, which now appear the most simple inventions, were originally found out. That a nation is not always in a condition to imitate and copy the inventions and improvements of its more wealthy neighbors; the application of these frequently requiring a stock with which it is not furnished. (emphasis mine)

And this stock need not refer to material accumulation, but as Chris [Chris Coyne] is showing relates more to the stock of social capital that resides in the people of the nation under investigation."

This is the kind of economic thinking that is worthwhile and is the proper use of Adam Smith’s legacy. Why can’t we have more of it?


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