Posted on 03/20/2004 8:28:46 AM PST by T-Bird45
Why can't Iraq do what American pioneers did? Why haven't Haitians done it, or Russians?
What enabled ordinary farmers and merchants to build the world's richest and most powerful nation? Why for two centuries has America been the dream destination of both ambitious immigrants and impoverished refugees?
Not far from Florida's shore, Haitians are once again killing each other over who will lead. This November, if we U.S. citizens tell our president to pack up and leave the White House, he's gone.
But as amazing as the smooth transfer of power is, even more astonishing is how little the change affects the fortunes of most of us. School children are taught the genius of American federalism, but the equally important economic system set up in the late 1700s is too little appreciated.
Had it been unable to generate great wealth, the nation would not have survived very long.
To hear today's presidential candidates talk about growing jobs, managing trade, reviving manufacturing and improving the lot of the little guy, you might think the president runs the economy. Actually, it mostly runs itself. This American economic experiment has proved to be the best thing ever done for the little guy.
Prior to the American Revolution, a free economy was only a theory. Its leading proponent was a quiet Scottish academic named Adam Smith, whose 1776 book ``The Wealth of Nations'' was widely read by the leaders of the American Colonists who were trying to start a new country.
What gave this small group of American farmers and merchants their confidence? Why did they think they could improve on the monarchies and highly regulated economies that had created the British Empire and all the other great powers of their era?
That question is the topic of a useful new book, ``Adam Smith and the Origins of American Enterprise'' by a New York University professor, Roy C. Smith, no relation to Adam.
What Adam Smith figured out, just by observing closely and thinking logically, was that the best way to manage workers and investors would be to encourage them all to follow their self-interests. Such freedom was a radical idea in 1776, when most of the world assumed that kings should control property and that it wasn't proper for commoners to try to better themselves.
Smith predicted that a simple system of fair justice, financial integrity, free markets, protection of property rights and light taxation would produce economic progress like the world had never seen.
That is not how the British economy worked. If you were a mill worker, you would be arrested if you tried to take your textile know-how out of the country. Economic rules were designed to build wealth by importing cheap raw materials and exporting valuable manufactured goods.
To that end, the Colonies were required by law to remain economically primitive. They were not allowed to buy from anyone except the British or to build a manufacturing plant or bank.
Even so, Smith noticed that the Colonies were growing much faster than Great Britain. He predicted that they would overtake Britain in 100 years, and history proved him right.
Much credit must go to the practical-minded Colonial leaders - Thomas Jefferson, Alexander Hamilton and others - who made Smith's theories work in the real world.
Today's voters would be well- advised to review U.S. history and rediscover the power of simple honesty and freedom. One example cited by Roy Smith is how the brand-new nation dealt with its debt, which, together with the war debts of the 13 states, amounted to a crushing 15 percent of the value of all the property in the country.
The temptation was to write it off or pay bondholders perhaps 10 cents on the dollar. Hamilton convinced lawmakers that the federal government should pay it all off, even the states' share. This surprising display of financial integrity made international news.
``Many wealthy Europeans were looking for a safe place to put their money,'' Roy Smith writes. Hamilton gave it to them.
Word spread of the great potential of this new, self-improving society where the government was honest and fair deals were available. Property was protected, even a foreigner's. Between 1790 and 1800, the population increased 36 percent. And still today immigrants pour in, hoping for work and a chance to build equity in homes and businesses.
Wherever freedom has been denied - such as on the slave plantations of the South or in the dictatorships of South America - the broader economy and public welfare have always suffered, just as Smith predicted.
Yet still today, political leaders try to win votes by promising special favors with someone else's money.
The world itself is an economic laboratory in which we discover that the richest countries are the ones with economies that are the most free. What is most astonishing is how many people, just like 18th-century British leaders, refuse to see it, and when they see it, refuse to believe it.
Development in the US historically followed major rivers--first the Hudson and later Eire Canal. The Ohio River, then the Mississippi and Missouri Rivers were the arteries that opened the Midwest. The Great Plains and far west were opened with the railroads.
For countries like Haiti--there is no transportation infrastructure to move what resources there are to places of demand.
However, the existence of private property and the ability of entrepreneurs to make money for taking risks without government interference or crippling taxes is also essential.
Look at Mexico and most of Latin American --- Mexico has more oil, better weather, shares the same two oceans, and is part of the same continent as the USA and it's an utter failure with millions of it's citizens fleeing and the rest living in dire poverty.
You leave yourself a lot of wiggle room here. On the one hand, the US has the resources, so they are advantaged. On the other hand, Hong Kong doesn't have resources BUT they are an access point to resources, so they are advantaged. Haiti has no resources AND they never managed to become an access point, so they are disadvantaged.
It's that the access point concept that makes it all mush. The winners are de facto an access point, and the losers are not. How convenient.
Best example of the Truth that freedom leads to wealth: Israel. It had no resources, not even oil. It's surrounded by hostile neighbors. Yet they have changed their deserts into farmland. They manufacture high-grade goods (not just simple stuff, but planes and tanks and cars). And they manufacture high-quality virtual materials like software.
Saudi Arabia has much better resources and cannot even tap those resources itself. Foreigners tap the oil in Saudi Arabia. They manufacture nothing. They are not reclaiming the desert. Why has Israel flourished and the Arab states generally not? Freedom in Israel trumps Feudal System barbarity in the Islamic world.
That is a crock of ca-ca. Look at Hong Kong. The concept you need to be looking at is in how the govermnent made rules, meted out justice, and guaranteed rights to ownership of what people produced.
Free market economies grow stronger through competition and the inherent self-regulation that comes from it. One important factor in this is technology. A free market economy is more likely to invest in R&D to improve how they use resources - literally, to make profitable what may not have been at a previous time.
I've recently seen commercials from some resource-oriented corporation - I forget which but let's say it's an oil company. The gist of the message was that the company can now get it's product from "sand tars" (as an example) - which has been more expensive than say, getting Saudi light (which requires little refining). Technology and the ever-changing market conditions sooner or later make extraction of what was previously judged to be non-profitable resource viable.
This is something that tyrannical/socialist/fascist/communist/islamic (all birds of a feather) economies have so far proven to never have been able to achieve - they waste their efforts spying/stealing/piggybacking upon the progress and developments that come from free market economies. We're all aware here on Freep how any sort of system that gives power to the government over the people inhibits growth in so many ways... but I think most of our "acceptance of this universal truth" comes from political/social observation. Repressive systems have a technological/developmental disadvantage as well, as I humbly try to describe here.
Julian Simon's "The Ultimate Resource 2" does a great job of describing the effect of technology in easy-to-read detail (the previous paragraph ascribing failure to unfree systems are my own thoughts; i haven't yet read them in the book) - I strongly recommend it.
One final comment on what you wrote: "... However, without our natural resources though, we wouldn't have exploded like we did ..." - this may be true for the moment in time we came into existence as a nation, I don't have enough information/data to suggest otherwise (or suggest pro; there's just so much damn information out there nowadays to stay competently abreast of, and I DO have a 7 month old baby boy!!!) - but I submit to you that having a wealth of natural resources in the 21st century is a much less critical requirement for national prosperity than it was back in the 18th and 19th centuries.
Juan
Some of you may find this link interesting. link . It is related to this thread by the first paragraph, and what follows is interesting.
Israel was once poor. Big resources: sand and dissension. They added freedom and became rich.
Hong Kong may have gotten its start moving large amounts of natural resources but is that what Hong Kong does today? Beign rich at one point does not gurantee future welath. I'll mention Cuba again. Hong Kong could have stayed wealthy, using past wealth as a bootstrap, or it could have become poor despite its past wealth. What ALLOWED Hong Kong to use its past wealth in a constructive manner?
Freedom.
Deuteronomy 8: 6-20
Gee, thanks for the info. Our lives just weren't anywhere complete without knowing this little snippet.
Ephraim = "double ash heap"
I've a friend named Ephraim. I think I'll tell him what his name means.
Genesis 41:52 And the name of the second called he Ephraim: For God hath caused me to be fruitful in the land of my affliction.
It is a nice story that we got rich because we enshrine Adam Smith. But it isn't true.
First the natural resources distraction, most have already addressed. The Indians didn't exactly rule the world as its premier superpower. They had millenia to use the resources here, and their wealth consisted of piles of animal skins and a few bows and arrows.
But this does not mean we got rich because we sprang out full blown Hayekians in 1790. Alexander Hamilton was pro-business and believed in sound credit. But he was also a mercantilist and a protectionist. Yes there was freedom to practice a trade - in the north. In the south, there was King Cotton - that c word you mentioned - and chattel slavery. Which was highly profitable and generated half of all US foreign exchange down to 1860.
Yes the revolutionary war debt was paid off in full, which established US national credit. Many a canal or railroad project funded by British capital, on the other hand, was pirated by insiders, bled into bankruptcy, in early versions of Enron. The population was fair minded and industrious - but also enthusiatically backed wars of expansion against Spain, Mexico, and the Indians. Britain protected us with a navy we did not have to pay for - but we visited large scale war on ourselves anyway.
We have not been saints through our national history. US commitment to free trade as a bipartisan matter dates from the second world war. Before then it was a sectional interest favored by the south and west, exporters of agricultural products to Europe, and opposed by the mercantile northeast, which started with shipping and finance and gradually developed domestic industry. Our free traders were not capitalists and our capitalists were not free traders. That changed in 1945, when we had to run a world wide system and replace the tottering British Empire, which had sheltered us before.
Military victory has had plenty to do with it. A leading navy, preceded by alliance with Britain while it had the leading navy, also had plenty to do with it. Continued population growth, including through immigration, has also had plenty to do with it. Our economic institutions have improved gradually, as knowledge of economics advanced. But we have suffered every economic delusion short of outright communism, in the heyday of each.
The success of the US is first and foremost a reflection of the world wide success of modern European civilization, of the west. Including the development of modern science. With a set of specific differences, shared with Britain, of naval rather than land based power, two party rather than multiparty democracy, common law, etc. The British Empire dominated the globe for a long time, for essentially the same reasons we succeeded. That we have largely inherited their position stems first and foremost from the concrete success of US arms in WW II, a result our prior economic power certainly favored but did not accomplish on its own.
In other words, the US is rich for the same reasons Germany and England are also rich today, because it is a western country. (Luxembourg is not a world power, but it is just as rich as we are). Our premier position in world politics stems from additional factors, first and foremost that we've always won when it counted.
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