Superphysics
How to Prevent Economic Stagnation
October 17, 2019 2 minutes • 411 words
Table of contents
Stagnation is a common phenomenon in large and developed countries. It is called a ‘stationary’ state by Adam Smith and usually happens when everyone has achieved their natural state of wealth:
In a country fully peopled.. the competition for employment would necessarily be so great as to reduce wages to the minimum needed to keep up the number of labourers. The population would not increase since the country is already populous.
In a country fully stocked with as much business and stock as possible, the competition would everywhere be so great. It would reduce the ordinary profit as low as possible.
But perhaps no country has ever reached this degree of opulence. China seems to have been long stationary. But its riches might still be much inferior to what it could have been with other laws and institutions.
Prolonged Stagnation is Unnatural, Absolute Stagnation is Impossible
Smith gave examples of a stagnating and declining economy as well as the policies that caused them.
| Country | State | Causes | Source |
|---|---|---|---|
| Ming China | Stagnation | Wasteful governments | Book 5, Chap 3 |
| . | . | Weak environmental protection | Book 4, Chap 7 |
| British India | Declining | Lobbying by vested interests | Book 1, Chap 11 |
| . | . | Unregulated stock trading | Lectures, Chap 3 |
| . | . | High taxes on wages | Book 5, Chap 2 |
| . | . | Arbitrary minimum wages | Book 1, Chap 10 |
| . | . | Oppressive Intellectual Property Laws | Book 5, Chap 1 |
These wrong policies created an unnatural stagnation or decline, eventually leading to civil wars or revolutions.
- In China, the cause was the imperial system
- In India, the cause was the British mercantile system
Smith suggest the policy-fixes for each:
| Policy | Hoped-for Result |
|---|---|
| Government Frugality | Prevention of budget deficits |
| Stronger environmental protection | A stronger environmental as base of the economy |
| Rules against Lobbying | Prevention of monopoly |
| Regulated stock trading | Prevent Stock Bubbles |
| Zero taxes on wages | This ensures the economy will run |
| Natural wages | This ensures the economy will run |
| Oppressive Intellectual Property Laws | This encourages new technology |
Generally, the solution to the imperial system was a gradual relaxation of imperial laws in order to grant more representation to the citizens.
The solution to the mercantile system was to regulate the merchants and their institutions such as the stock market, customs, and intellectual property.
In Supereconomics, absolute stagnation is impossible because the first 3 laws naturally create dynamism. It is usually the Third and Fourth Laws that hinder this natural dynamism as a result of the Negative Force.
