Economic Development From Zero via Adam SmithAugust 21, 2015
The main advantage of Pantrynomics over Economics is that it is based on the dynamics of the human mind as explained by David Hume which was later applied by Adam Smith into his Theory of Moral Sentiments and The Wealth of Nations.
To David Hume and Eastern philosophy, the mind is a metaphysical thing, different from the physical brain. Metaphysical things are less bound by space and time compared to physical things, and so the mind’s dynamics can remain the same throughout space and time.
A human mind living 2,000 years ago has the same dynamics as a human mind living today, and the same with a human mind 2,000 years from now living in a spaceship in a different galaxy. It will still feel pleasure and pain and use logic to drive its actions to avoid suffering.
Thus, the same maxims given by Smith on economic development which he observed from the Roman times up to his time in 1776 will still apply to humans from 1777 onwards until the human homo-sapiens change into homo-futurus.
Key Ideas That Are Missing
Currently, the only maxim of Smith on development accepted by economists is comparative advantage. His other maxims (mostly in Book 3) have been conveniently disregarded because it goes against the commercial system:
Natural Sequence of Development
The natural and sustainable progress of economies is from agriculture or extraction first, then processing, and lastly, trade. In Smith’s system, the countries where natural resources come from should eventually process them as well.
For example, the Ivory coast, which exports cocoa, should implement policies so that it will eventually make chocolates itself.This would solve child labour for good. However, this goes against the vested interests of chocolate corporations in richer countries which profit from the low cost of raw cocoa.
Campaigns against African child labour might succeed in small cases, but can never produce any sweeping change, since those campaigns urge African governments to bite the hand of business that feeds them with the taxes that they need.
Backward versus Advanced
There are differences in the dynamics of a society in a ‘rude’ or backward state and those of a society in an advanced state.
Liberal policies work best in advanced, rich countries while austere policies work best in more backward, poor countries. China, a poor country, adopted liberal policies immediately when it opened up in the ’90s. This created wealth imbalances, migration, ghost cities, wasted capital, increased pollution, territorial disputes and stock market crashes. Changing austere policies to liberal ones must be done gradually, just as a person cannot simply flip his entire mentality instantly and expect no bad effect.
Also, desolate countries such as those in the Middle East and Western China are naturally not suited for republican governments and liberal policies. Had the Bush administration known this, then it would have thought twice about establishing a democratic system in Iraq and Afghanistan.
Use Mercantile Capital to Build Infrastructure
Since the interests of merchants are usually opposite that of society, the government should use temporary mercantile capital as ‘hot money’ to build its national capital so that when the merchants flee in capital flight, the nation would have enough local capital to sustain its own economy.
When China opened up, American companies left the US, leaving a lot of Americans unemployed. In today’s world where the merchant class dominates and is free to remove its capital anytime, the only logical workaround is for the government itself to spend for and maintain the economy in a system called Keynesian economics.
Another workaround is for the government to go into business itself, as state capitalism. This is best shown by China’s Huawei which dominates the telecoms industry.
Mercantile economists, on the other hand, would say that governments should not go into business simply because they want to protect their business interests from a very powerful competitor such as the government.
The Economic States of Society
Smith’s economic system works in all states of society, from nothing or ‘state zero’ up to the advanced, prosperous state.
|0||Has very basic necessities like water|
|3||Has production facilities|
|4||Has a port|
|5||Has a major port|
- State 0 happens after a natural disaster or war
- State 1 is where people live very far apart in undeveloped rural areas and live off the land (when people have some lodging and clothing)
- State 2 is a modern town or village with electricity
- State 3 is a major town or a city with production facilities and roads
- State 4 is a city with a minor port
- State 5 is a city with a major port
A people in State 1 will likely not have any technical skills nor even speak the national language. But they will likely have some agricultural skills or skills in extracting natural resources. In this ‘rude state’, this will be their most important capital, source of revenue, and the center of their economy:
In the African case, the unskilled rural areas (State 1) of the Ivory Coast can produce cocoa beans. They can then look for more advanced societies (State 2) of bean grinders and roasters in towns to process the beans.
Those roasters can look for still more advanced societies in cities (State 3) to liquify the beans into chocolate butter for making chocolates. Those cocoa processors can then turn to commercial cities and ports (State 4 or 5) to export those chocolates overseas.
In this solution, the revenue of chocolate-making mostly goes to the Ivory Coast, instead of to overseas interests, allowing the Ivory coast to build its capital and wealth.
Backward vs Advanced SocietiesAdam Smith classified the mentality of societies as either savage, barbaric, or advanced. He classified their economic state as either backward, stagnating, or advancing. He called savage and barbaric ones as rude:
From Destroyed to Affluent
The development of the rude state will then depend on the nature of the people, with some cultures being able to develop faster. Regardless of culture, Smith guarantees that by allowing profit-sharing or giving the people the proceeds of their own work, industry and development can be sped up. While profit sharing is the main expedient to speed up development,grain-based valuation andpool clearing are the main expedients to prevent the society from sliding backwards during economic crises.