Thank a Scot for our 100-fold increase in America’s standard of living.
Monday, June 5, marks the 300th birthday of a Scottish philosopher considered the father of free-enterprise capitalism and our prosperity.
Adam Smith (1723-1790) put together the classical model of economics, consisting of free trade, limited government, the virtue of thrift, balanced budgets and sound money.
Smith called it “the system of natural liberty.”
He made an outlandish prediction in his famous book,“The Wealth of Nations,”declaring in 1776 that his model would result in “universal opulence which extends to the lowest ranks of the people.”
It was a tall order.
Indeed, at that time life was “nasty, brutish and short” for most people, to quote Thomas Hobbes. There was very little progress.
But as the world gradually adopted Adam Smith’s model of free trade, low taxes, deregulation, patent law and sound money (supply-side economics), we witnessed the Industrial Revolution in the West, then in the East, and a 100-fold increase in our standard of living.
Adam Smith’s incredible forecast had come true.
Smith’s book was primarily focused on how nations could succeed.
First and foremost was his “very violent attack” on state intervention in the economy, which he called mercantilism (what we might call today “economic fascism”).
Most Western governments were engaged in “a detailed economic policy which requires active intervention in the affairs of the community in a thousand and one ways,” to quote one historian.
Smith offered a better formula for economic growth: unleash the powers of enlightened self-interest!
Rather than depend on top-down government decision-making, leaders should maximize economic freedom from the bottom up.
The wealth of nations could increase most rapidly if everybody was allowed the fullest opportunity to decide for themselves the best way to use their labor and capital.
Government should interfere as little as possible with the occupations and enterprises of its citizens.
Smith himself put it this way: “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.”
He promised a simple formula and a new world, not just for the rich and the rulers, but for the common man.
Here was a program that could capture the imagination and hope of not only the English worker, but the French peasant, the German laborer, the Chinese dayworker and the American immigrant.
The freedom to work could liberate everyone from the chains of daily chores.
The outcome was a hat trick: maximum liberty, individual improvement and public benefit, all at the same time.
So, how much of the Adam Smith model still exists today?
At the top of the list, free trade and globalization have been a big success. The Soviet central-planning model has been abandoned.
Capitalism delivers the quantity, quality and variety of goods and services that the centrally planned economy never could.
The Economic Freedom Index — based on the Smithian measures of laissez faire, balanced budgets, sound money, free trade and rule of law — shows a marked increase from the mid-1970s to the early 2000s.
However, for most of the new century, the Adam Smith model has come under attack by Keynesians, Marxists and interventionists who want a return to top-down policies of authoritarian government, deficit spending, tax hikes, fair trade and over-regulation, all in the name of fairness, equity and saving the planet.
If Adam Smith were alive today, he’d be appalled by the never-ending federal deficits and out-of-control national debt.
He would not approve the overgrown welfare state and military-industrial complex.
He’d be shocked to see the US tax code at over 7,000 pages, and the federal tax regulations exceeding 75,000 pages.
The bloated bureaucracy would be a reminder of the mercantilist policies of his age.
Perhaps there’s a white knight out there coming to put America back on a sound fiscal and monetary basis, but I fear Humpty Dumpty has fallen and can’t be put together again.
I don’t see America becoming another Venezuela, but neither do I see it as another Singapore.
It’s easy to become pessimistic. But perhaps we can learn something from Smith, the ultimate optimist.
Nearly 250 years ago, he wrote, “The uniform, constant, and uninterrupted effort of every man to better his condition . . . is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”
Mark Skousen holds the Doti-Spogli Chair of Free Enterprise at Chapman University. His book, “The Making of Modern Economics” (Routledge, 2022) makes Adam Smith the hero of economics.
This story originally appeared on NYPost
