Free Market: The History of an Idea

foreign [Music] so I will begin my little intro and then pass over to Professor Saul in a second uh it's great to have him here today particularly because of the snow and all the rest of it when the school didn't close and that was great so we're actually able to do this um I want to say a little bit about so Jake first of all it's a Cambridge PhD um spent some time hanging out at Princeton professor at USC has the title of Professor of history and accounting oh you're in the philosophy department so but you are a professor of history and accounting right that's kind of like the sort of the ultimate disc title in a way it's it's sort of that's fantastically awful so congrats congratulations it's I mean that's that's kind of I mean you know to be an accountant itself is you know it's not like John Major or the ex-british leader who's the only guy in human history his family ran away from the circus to become an accountant that that's actually true that really happened but anyway putting out to one side um super excited to have Jake here to talk about uh this book because you know I wrote one kind of like it a decade ago um not about the free market but when I heard the title I went oh damn I should have done that and then when I got the book I was even more intrigued because I thought I knew the history of the free market I mean I taught a class for many years called classic to political economy that started with lock and went through many of the greatest hits that you would expect and of course you know Smith features centrally Etc and you can do this kind of standard reading where you kind of go walk to human to Smith semester Ricardo slash Mill and then onwards and you go from there and that's there's how many clubs there's 15 chapters in the book um the last two chapters is that story and also all of the 20th century thinkers which get lionized and sort of talked about a lot in fact the vast majority of Jake's story takes place long before that kind of standard story and it's a much more Rich interesting and controversial story than I actually expected when I picked up the book uh the book therefore has annoyed a lot of people because it basically takes Saint Adam and suggests that he's perhaps not as Central as we thought and I think we're going to hear a bit about that today and why there was never any such thing as mercantilism and why everybody misunderstands Colbert and a whole bunch of other fun stuff and I have to thank Neil for actually doing the original introduction so I'm glad you're here so that's great so with that I shall pass over to Jake is there a is there a clicker is there yeah if there's a clicker that'd be awesome whoa okay I guess that's on uh oh not just on the off track again I know to go left or right we're good well thank you Mark thanks for having me um this book I'm going to explain sort of why I wrote this book um and this was kind of this has been this is a super personal book that is actually the sum of work I've been doing for years and years and years as I reached you know the age of like 87 I've been working on this book in many ways for like my entire adult life um and this book actually came out of the fact that for very weird reasons I spent more than 15 years in the archives of Jean-Baptiste Colbert and I'm going to talk about him in a minute and this is one of the reasons that I I decided to write this book free market the history I called it of a dream and my editors call it the history of an idea and I think that's caused a lot of chaos simply because I don't believe that the classic idea of General equilibrium of a self-correcting total Market exists obviously I believe in Market functions and Market mechanisms but I don't believe in the idea of General equilibrium I believe it's a dream um the other thing that happened as a historian this is kind of what I believe one should do is I looked around there really were no serious histories of free market thought we have histories of all sorts of political ideas and most times one of the things that I was trained to do was to look at traditions and Origins so you just literally take a thinker you look at their influences you look at the people that influence them and you can do a kind of genealogy okay um when we do political history we do that oh yeah okay okay so all right so the idea of the book do you think this is going to be more attractive to listeners no okay all right um so essentially no one had written the book this guy Murray rothbard who is one of these kind of Anne Rand spin-offs or he hated and Rand wrote a kind of clownish history of free market thought there are histories of economic thought by people like Eklund they're not really very serious none of these people are trained historians so as a historian I was like this is an amazing opportunity like no one's this is one of the biggest ideas of all time and there's no book on it there's no basic book now one of the other things that in the field that I really come from which is the history of political thought that we do is we do these genealogy so we know for example that Machiavelli is not a monarchist says he writes a book called The Prince so if you don't know anything about Machiavelli you might think wow he's for these really harsh princes and monarchs no it's the opposite why do we know that because why do we know he's a republican thinker because we did all this intellectual history housekeeping and as I went into the history of economic thought I found that almost none of that housekeeping was done or if it was done it was done in little pieces and never put together um I spent a lot of time these are Colbert's archives and they're heavily economic Colbert was actually trained to be an accountant one of the few leaders of a major State who is trained to be an accountant and I would actually argue that that was quite extraordinary for State Building my friends who were actually involved Jamie Galbraith who was involved with helping the Chinese in the the 90s build their economy said that accountants were everywhere but accountancy is often seen as this kind of very conservative thing it can also be very radical in certain circumstances but I was in Colbert's archives for a long long long long time and one of the things I never found was any unified idea of mercantilist thought and if you don't know what mercantilist thought is I don't either because it didn't exist but it's a modern concept that there's a fixed amount of wealth that states compete over usually through hoarding bullion hoarding gold and silver and they go to war over that there are over 10 000 pieces on pages well over ten thousand pages in Colbert's archive in fact Colbert creates one of the first large-scale modern archives that has become the National Library of France I have read through it numerous times there is nothing that really resembles a mercantilist theory in there he does talk about bullionism he doesn't believe that war is good business he missed that one so he was wrong about that you can make a lot of money off of War he actually believed that expanding manufacturing could create long-term growth that was Colbert's major project economically so there you have it you have the person at the economist twice a year likes to insult some economic or political figure by calling them a colbertis because they believe in a state-run economy but actually if you read Colbert Colbert says that the best form of trade is a liberty of Commerce however it should never be unfair or asymmetrical or one will lose and I was like wow that is not at all what I thought colbertism was there's no mention of the word mercantilism obviously Adam Smith will use the idea of the Mercantile system but that's not mercantilism and I'm like wow that's like a whole chapter in in you know teens like this is a major major idea that economists work with and I'm like if mercantilism didn't exist what does it mean for free market thought and so this is how I sort of ended up getting into this situation of being more and more interested in writing this book and the other thing that really got me was what I would call the Anglo-Saxon or anglo-dutch Narrative of economic Victory um there's an idea that somehow because England got richer that it's a counter model to France historically that absolutely makes no sense but we have this idea of a liberal free Britain against an illiberal France which is state-run which somehow fails but historically that's not actually true Britain is a smaller country and one of the things that happens in Britain is that it and as I'm going to show you um I'm going sort of off my thing here Britain actually has a moment where the state steps in big time to not only do protectionism but to bolster the shipping trade against the Dutch and it also turns out that the Dutch who are really the dream of the idea of a modern liberal economy created the first um multinational huge conglomerate company that was publicly traded the first publicly traded company well we've also discovered in the past few years that the state was running this company too and actually was founded by the state so we've got these narratives of this anglo-dutch model as opposed to a statist continental model which are completely untrue okay these guys had state-run economies and guess who saw that at the in the 17th century Colbert was watching and he said I'm going to do what the Dutch and English have done I'm going to copy them so actually colbertism is a rationalized just kind of programmed to copy Dutch and English State development strategies and I was like whoa okay that's also just goes against everything we've been told and if anything what happens is um the French France is a huge country it had come through religious and um Civil War many of its cities industrial base or proto-industrial base had been destroyed the and it has a very very dysfunctioning government governing system if you actually look at France's development as compared to England first of all they're completely intertwined they trade with each other more than any other countries they work with each other they their economies are kind of inseparable if you actually begin to study their economies you find that not only are they Inseparable but France did really well given what it was working with in fact it's such a success story that well the German states um early America they copy France they're not looking to copy the English model they understand that France had to build a model rather quickly of economic growth so people like Alexander Hamilton are sitting studying how the French built their economy later you'll get economies like the Japanese economy and then you'll get the Chinese economy all of these quick growth industrialized economies will be looking at a colbertist model so I'm like that's also not what we've been told we've been told that you had to have total economic liberalism and then you could just get rich too and yet that doesn't seem to happen in almost every place we get to you can take Taiwan for example which has had a remarkable level of economic freedom but it had an authoritarian government until quite recently which ran the country in a semi-futile way but they also managed to develop pretty quickly doing that um so everything we're told theoretically doesn't seem to work out either historically um or even now we don't see pure free markets creating wealth in the way we want them to create them so we're constantly stuck with this problem we're stuck with a conceptual tool that doesn't seem to work and we keep grinding our gears on it and we keep ending up with economic crashes inequality the things we're facing now ecological meltdown and we could keep being told that these Market things are going to solve it they keep not solving it we keep spinning our Wheels I believe this is conceptual this is why I wrote the book so we're stuck with these um mythologies and we actually have in the room um one of the people who's worked to undermine or to correct some of these mythologies the idea that a Protestant work ethic created these wealthier Protestant countries and that these kind of sad places like France and Spain and Bavaria you know that impoverished state of Bavaria that Catholic impoverished state of Bavaria were failures and I believe that Weber had a lot to do with this mythology Matt cadan and our colleague Margaret Jacob did a study of which Protestants in England were actually behind the Industrial Revolution not that many it was a very particular group of dissenting Protestants many of whom were deists so how you know a different kind of Protestants and maybe not even Christian many of them and they were sort of behind the bigger Force so there's there are these myths that it's startling that we live with today given the size of the University complex given the number of researchers we have we have sat passively with massive myths which as I've said keep seeming to trip us up and it doesn't make any sense um that brings us to Smith um so I wrote this book and I I think I wrote it quite naively what I said was that Colbert and I'm going to explain to you why really is the father of um or at least one of the it's not the father they're all these Italians doing it too but sort of one of these people has a remarkable vision of how to build a commercial market and that essentially Smith is given this title of being the father of capitalism and all this all modern economics and he's not and I wrote this book more or less explaining that we've got our myths or our stories inverted I was attacked in the American Press like really intensely attacked and as Mark will attest I'm attacked like a lot people are just attacking me all the time on the web and I'm like too nervous to handle this I thought I was a tough guy I realized I actually wanted public affection and adoration I don't like being attacked in public I want everyone to tell me that I'm great and like I don't necessarily with covet I don't want the hugs but I want like public you know assertions that I'm wonderful and everybody loves me to make up for an unhappy childhood so this book kind of backfired in my face because I was like whoa I wanted affection and instead I'm getting hate but I said what I believed and so I guess that's good um but it's pretty startling to me that saying Smith is not the father of modern economic success and that Colbert really is would be such a terrifying thing in America that there was such a kind of complex poised to attack anyone saying this while in Europe whether it be the financial times the guardian major newspapers in Holland no one has a problem with that I was like wow that's really interesting that's why I wrote the book but I find it really remarkable that we're still in this situation and that by the way if you say even to people well-known historians that Smith actually and I'm going to explain quickly really didn't understand modern economics at all I really don't think he understood it at all I think Smith is a kind of post-medieval neo-futile train wreck of an economic thinker and I don't think that's actually an extreme thing to say at all um people in America get really upset or laugh instead of just nodding their heads and going yeah right sure of course because Smith says this this is really an important line guys and you can't get away from this and Adam Smith um the labor of the farmer the labor of the farmer that's a disastrous view of economics and by the way this is his basic Vision in The Wealth of Nations you do not get rich as a country by focusing on your farming sector in the 16th century the Dutch are already moving farming out of Holland importing food and using their agricultural land to produce Industrial Products because they understand that farming is not how to get rich it's actually by manufacturers and shipping and they say this pretty clearly Peter Delacour says this pretty clearly in 1662 in his political maxims of Holland it's not like people didn't know this there are all these Italian thinkers in the 16th and 17th century saying you don't get rich on farming you get rich on cities artifice essentially a brain economy an artisanal proto-industrial manufacturing economy and the Italians are saying we got rich moving away from agriculture you want to get agriculture to a certain point but will not be the base of great wealth creation there are loads of thinkers saying this Smith says the opposite Smith Hedges and then says businessmen will help with this but they will be dependent on the production of your farming um and he goes in and sort of explains this you have to understand how remarkable that is that there were so many thinkers in the late 16th 17th and 18th century fighting against the idea that agrarian economy will produce wealth one of the most remarkable of these thinkers is Alexander Hamilton in his project on manufacturers if you read it and you read The Wealth of Nations carefully which I don't think anybody does and if they do they don't know anything about Scotland and about the context in which it was written so even if people read it it's very hard to understand what Smith is talking about when he talks about certain issues so obviously people in this room have read this book and many actually understand it's Scottish context but most economists really I don't not believe have and ignore remarkable things that Smith says but I thought I had another quote from Smith in there I guess that was it um there might be another quote somehow in there um Smith essentially I'll put it up in case you haven't read it um there's a whole line that Smith moves away from agrarian physiocratic Thinking by saying Merchants are not sterile but he really actually does more or less mirror their belief that without agriculture you can't have a productive economy Hamilton says the opposite and actually responds to Smith and says no agricultural won't get get you rich you need manufacturers for that you need Industries therefore you need a program of infant Industries and you need the state to do and he's actually quite you know he has a percentage of what the import tax should be and how much subsidy he says a very small amount I mean Hamilton's really smart about how much subsidy America will need to create its industry so I highly recommend not only reading a whole bunch about Scotland about land clearances about the age of oligarchy Smith lived with the greatest oligarchs of his time in Scotland they were incredibly powerful in in the parliament they were landowners baklow it's so hard to pronounce that name even if you spent a lifetime going to Scotland his wait is he an Earl the Earl of MacLeod is his Patron he teaches his son he lives in his house but cloud is part of a movement of great Scottish Lords who are actually clearing their land of crafters and peasants to make way for sheep and cattle which are more productive Smith believes that this modern commercial farming will be the way to wealth This Modern commercial farming also includes land clearances which with the Protestant um uh with the Protestant attacks by Louis XIV are two of the biggest sort of cleansing moments in Western European history where entire peoples are moved away murdered or cleansed Smith is very much involved with these guys there are oligarchic Lords they're agrarian but it's a new kind of agrarianism in which you're trying to sort of rationalize agrarianism into a business so he sees himself as remarkably modern once again cattle can help your economy but it turns out that spinning looms even 17 late 17th century ones will still actually produce more wealth Smith doesn't mention the loom in his work Colbert in the 17th century talks about it all the time um so so here is Smith has two visions of Colbert it's very interesting Smith talks about almost no one in The Wealth of Nations he talks about how bad Louis XIV is and that's a kind of Easy Shot Louis XIV is a creepy scary but very brilliant and Innovative Monarch but he this is one of these incredible lines it has ramifications today that we just haven't sort of begun to Grapple with and he talks about Colbert using too many regulations now there's evidence that this was true but the fact is you have to remember Smith was never involved with government he never ran a business he did some accounting for his college he helped the cloud do some Land Management he lived mostly with his mom um in kirkaldi and he looked at a nail Factory this nail Factory has become Mythic in the history of capitalism except it's a medieval nail Factory it's much less advanced than factories from the 1300s in in Italy Italy has massive factories it has the Arsenal in Venice huge factories using double entry bookkeeping full-on Proto you know industrial manufacturing being done and Smith's nail Factory which is Medieval is being celebrated I also wanted to add something else I didn't put this in the book but I also study the history of accounting I'm sorry it's actually really interesting and if you study medieval accounting you'll find that cost accounting um I don't know if you know what cost accounting examines it examines the the division of labor they just don't say it I believe one of the most brilliant things Smith did one of the two or so brilliant things that Smith did besides write a remarkable narrative which everybody bought and be a hustling Professor who managed to make money and be incredibly successful writing a really strange book was to actually write a narrative of cost accounting which actually is a really Scottish thing in the 18th century because people are counting he's accounting and he writes a narrative of how cost accounting Works no one had done that before that's this great division of labor thing but if you read medieval account books in Italy the division of labor is there it hasn't been theorized or really has it that it I'm not convinced it's as Innovative as one would think but Smith does actually understand that Colbert had remarkable governing capacity so Smith did see stuff but this is a guy again who hasn't seen State papers who hasn't run a business he is a professor of elite neostoic moral philosophy you have to be aware of what that means it's very elitist it has aristocratic underpinnings if you want to understand it read Cicero diafici's read Epictetus read Marcus Aurelius read Seneca and welcome to the world of aristocratic humanist learning as regurgitated by Smith um so basically what I then did is I went in to study Colbert okay and Colbert really really interests me by the way this is another sort of crazy book which mercantilism this is a definitive book um you know written by a Swede you always have to watch out because you think they're going to be nice and as my friend sophist Reiner is writing they're actually Sweden and Norway and Denmark filled with Nazis we like to think of them as not being like that but they they can be too so you have to be aware Hector writes this book it's a remarkable book and it's another book with just tons and tons and tons of data it's very convincing if you don't know anything else and he and an american guy named Woolsey cole really come up in the 30s with the idea of mercantilism and colbertism as being a counterweight to Liberal economics so much so that Keynes will go and adopt this while this book gets many many things right it is essentially overall not right and yet this is where we base some of our biggest economic Concepts it's from this book of 17th century history by a Swedish historian so I think that's also a remarkable thing we really need to look at how we get our Concepts and that goes primarily for economists who throw around these Concepts I forget his name at Harvard but he in his best-selling economics textbook has a huge thing that said Smith only like free markets which were the only kinds of things that work and he has a whole page or a quarter page saying Adam Smith would have loved Uber which actually isn't true at all Smith was suspicious of businessmen and companies because Smith didn't really understand Commerce although I guess he did understand the danger of monopolies and the dangers of what companies could do especially to people like his friend landed Lords he was less interested in the Working Man as he called it um I I recommend reading Smith looking at the history of uber and seeing if that statement has any bearing on reality it is in the best-selling economics textbook is it the best-selling economic textbook it's insane you just couldn't do that in history it's and that is what goes on I do I need to even say anymore it seems like Madness to me anyway um so what if they're completely misunderstood what if the story is inverted and basically what I want to sort of do is explain to you very quickly why Colbert is so interesting I'm not making myths about Colbert Colbert like to torture pamphlet makers you like to kill printers by sending them to the galleys and give them a slow death um if a writer in his Library wrote a book he didn't like he asked his face to be smashed in Colbert was a rough dude this is the 17th century by the way in the 18th century what were the laws if you stole a rabbit did you get your hands cut off in Britain it was something like that yeah yeah I mean the rule the law book that I read said that you know you steal a rabbit because you're hungry you get your hands or your arm locked off the 18th century is not Sweden in the 1970s but there's this kind of idea that it is these are rough players this is a very rough World filled with press gangs torture all sorts of stuff these are the people Smith is a professor during this time try to make some dough remember Smith spends his last 10 years as a tax collector as a remember he's a liberal arts professor and a bureaucrat and a tax collector that's the hero of neoliberalism think about that for a minute and mix that with an Ann ran drinks party um this is one of the most interesting images for me for economic history this is Colbert's vision of his library of the this is actually an 18th century version of what Colbert's library was you've got theology over where the books are but it's actually basically a sort of proto-industrial research operation based a lot on what we might think of as as the new Atlantis by Francis Bacon it's essentially how industry happens through knowledge and Science and if you look in the back at the cranes it gets you to engineering which is this kind of remarkable thing that Colbert sees as one of the the futures of economics Colbert is stuck with an economy that's agrarian it has no tax base it has had Civil War it's Urban centers have been destroyed by religious strife and he's got orders by Louis XIV to get him money so what he does is he does accounting reforms and he starts trying to centralize to make a state Ledger I'm writing a new book about this about balance sheets and governance it's a remarkable vision of what you need to sort of run a state but he does something else France is behind and so what he does is he sends his son and his brother off to study Holland England and Italy because they have Commerce and Industry and he wants to see how they do it and in his archive you start getting the blueprint of a country that is not developing well and you see the blueprint of how Colbert will develop France now I want to just cut to the chase there France will get mediocre development but when we look at the long-term Industrial Development of France which is the country that will follow England in Industrial Development and the reason it lags is quite complex some of it having to do with patent laws its class system all sorts of things but France is the number two industrialized country so it doesn't actually fail um many much of its growth at the at the beginning of the 19th century is based on the manufacturing work that was done in the 17th and 18th century so there is a long-term success story here what does Colbert do to create a market he starts funding science he pumps his money into science he pumps his money into scientific research but more than that he also he understands that science has a certain amount of authority this new science the king needs Authority but the king also has Authority he mixes a kind of publicity Campaign together to show France as the center of science there is Louis XIV um meeting the members of the Royal Academy of Science with the remarkable observatory in the background which still stands in Paris and it's like a private club now the French I don't really understand this is one of the most remarkable buildings in history it's not even open to the public no one really even uses it Colbert starts a funding Mechanics Work brings in foreign Scholars pays them huge amounts of money to be researchers for them I want you to think about this model funding a research institute and inviting foreign Scholars and paying them a lot of money this is what he thinks is going to make a country Rich obviously we know it's extremely dangerous to invite foreigners to study science and that's a scary thing right or is it a good thing I don't know we're still working on that right but one of the things he does is he starts advertising it so he starts creating huge numbers of Publications about French mechanics and he starts a large term project um wait a minute that's uh this is all out of out of whack here because I mean I want you to look at this propaganda machine these are the images coming out of France that are going to England and to Europe you have to understand the English really believe that France is this super Advanced country it's less advancing than Colbert shows but it is pretty Advanced that's a really remarkable undertaking here this is the engineering of this um of this Observatory why would you build an advertise and Observatory well because you're a colonial power and you're taking over the world not only do you have the authority to make maps also using highgens um uh pendulum clock so you've got the technology to actually make land claims and write Maps you do understand how important that is in an age of Empire so England's famous for having an Empire but France has a pretty big Empire too in fact France still has its Empire I mean France actually has Imperial Holdings all over the world while England's actually shedding any last illusions of Imperial Grandeur even in Great Britain right Mark um the other thing Colbert believes and he learns is from the Dutch is that you need a giant Diplomatic Corps that's literate in Commerce so they can write commercial treaties he says the Dutch are always writing these treaties by which we lose and he says look the Dutch are better than us oops they're they're Merchants are smarter their manufacturing is higher quality we can't beat them but what we can do is compete with them and so we're going to need not only to have the technology we're going to need to have the actual businesses the ports the boats but we're also going to have to have these experts in trade who can negotiate with the Dutch in the English and and he takes over the Diplomatic Corps with his brother that project has never been understood as a commercial project it's really a brilliant vision of Market building and this is what Colbert ends up doing Versailles by the way is also sort of seen as an economic failure um my colleague Jason Nguyen who's now in Toronto wrote a a PhD which is turning into a book but how not only is Versailles this remarkable scientific project but it becomes a project of advertising measurement so it's not just style and fashion which by the way who well who's the richest man in the world today by the way and it won't last but it's still revelatory I think I'll know so you have to say that and it's not Elon Musk our South African friend it's a french guy what does he sell he sells luxury this is the oldest industry this is Colbert comes up with an idea to Brand France as the center of the luxury industry today the richest man in the world is essentially the luxury master but as Le Monde has noted will France remain Rich selling handbags probably not that's not where the future lies but the present makes him actually richer than musk not some perhaps not a very serious character but maybe more serious people like Bezos who's essentially just a Salesman and understands how to do it with technology that's crazy you guys if you think about it right um this is Colbert's Vision Louis XIV and Colbert come up with a branding Vision but it's not just about the stuff it's also about selling these these measuring sticks and this is what Jason Nguyen showed is that all of Europe will adopt and I don't do I have a picture of the measure the measuring sticks actually in the first engraving um It's actually kind of wild I think this is this isn't the measuring stick it's somewhere else the measuring stick is what is what the Europeans will end up adopting the European continent which I have to note to you guys was until recently what's still really rich it got really rich it's not just England and Holland that got rich indeed Holland actually never had the Industrial Revolution it came extremely late it was actually the Germans that really pushed this the French were really important the French invent cars airplane Cinema lots of stuff happen in the non-anglo Dutch world and that's a crazy message I know to hear even here in we're still in I'm from Boston so but this isn't Massachusetts I always forget I was about to say here in Massachusetts but I've got to keep that Imperial Bostonian tendency down um this Market building project will Colbert creates this dictionary he pays for this thing to be created by the way also he creates Sango State Company still around today keep your eye on state companies Mark noted that the idea of um well I always for I'm blocking it out um creative destruction or whatever it's called actually you don't really want that Germany has old companies Japan is filled with companies that are 500 a thousand years old companies actually don't like creative destruction they like to kind of pretend that it's happening and retain their power there's an element to which creative destruction is real but it's also another crazy myth Sango Bao right now is one of the biggest polluters in the world talk about success um so Shipbuilding what Colbert also does is he starts writing commercial codes and get this he starts writing business manuals Colbert envisions not the first Manual of business but the first manual business for wide consumption the ours mercatoria goes back to the Middle Ages but the idea of creating a dictionary of Commerce is French the English by the way this is out of order but Colbert creates this dictionary of um arts and uh what's it called arts and crafts but basically of Industry the French the defining book of the Enlightenment is stolen from this book and the first copyright lawsuit is based on the the authors of the elsiko pedi stealing this from the state project the history of the state and all this has really been shrouded in other myths about how the enlightenment how Economic Development happened it's actually kind of crazy it's not me coming up here and telling you some wild socialist story this is actually a story of how the only secret was actually taken from state funded research it's kind of amazing um this dictionary of Commerce sorry um will turn into the best-selling English Manual of business and this is where we start getting the study of business from and if you read Malachi pastelweight and I highly recommend it I would say that he's in many ways one of the most revelatory and fascinating business writers of all time he talks about the the fear of the French taking over the entire economy of consumer goods and he said we have been seduced by all these things when we have our weddings and birthdays we want french wine French fashion French food we're buying all this French stuff England risks being inundated by this massive force that is France so 18th century France does not see France as the failure that it has been painted by economists today it sees it as the great power that starts really ending after the Seven Years War when France France's economy really starts getting into big trouble and they start lagging in industrialization there's no question that they end up coming in behind England in a big way but you have to understand that this project that Colbert does also what he does is he starts trying to train accountants because the French don't have Financial experts like the English do it is a project of Market building there what what we're finding is there is no such thing I went back historically to look for an organic modern Market a market that creates a certain amount of plus value wealth relatively quickly the medieval Italians the 16th and 17th century Dutch the 18th century French or 17th and 18th century French and English all actually do what we might call today development economics where the state gets involved to start up manufacturing and gets heavily involved with it um when you get to a point where countries like Britain and Holland call for free markets they have market ascendancy so it's very rare for example to have a country call for free markets when they do not have a symmetrical Market competition situation you guys that makes sense right so do you want a free market and total free trade when your manufacturing is not competitive now it's very it's hard for states to make manufacturing competitive these are things that we haven't completely mastered but remember that China had the biggest economic growth we've ever seen in a 30-year period And it did not follow it followed some market efficiency rules but the state was in there the whole time doing things how that will end well historically authoritarian governments are not great at very long-term wealth production that's one thing I have seen historically more open Society seem to do a lot better but that's also another story so basically what we get here and by the way what I wanted to show you were the Looms of who own um you get to hear about all these great industrial stories but you don't hear about the Looms of huon okay it turns out that the Looms of who all become the basis of the French Industrial Revolution which turns out to be a pretty big Industrial Revolution but I'm startled that there's no mythical story we have stories of what again because those guys really create the first ones but we don't have the other stories in our economic history textbooks of the other successes or let's say wealth creating moments and I find that also to be startling that's what I tried to do in the book um and so this is what the book tells you that the story you've been told is on its head it's upside down it's backwards it doesn't really rather than that it doesn't really meet up with reality okay and by the way the countries with the greatest wealth creation today are using more of a colbertis model mixed in with all sorts of efficiency stuff and companies like McKinsey where do they make their money right they make it in China they make it in Russia they make it in Saudi Arabia they make it tracking down dissidents mostly um and doing stuff like that but um um the fact is is that where the money is to be made is not always where you have free markets so I kind of leave you with that and I do want to know one more time that these ideas are such that when I express them in this country I was attacked literally and called illegitimate people said not to read my book I don't think my book is perfect but I do recommend checking it out because you will see lots of stuff in there which you might find really really interesting and you'll find economic thought in there you didn't know existed there's one last note books by physiocrats and free market thinkers were not best sellers people were buying books about manufacturing development those were the books that were selling and people were actually using and there's a a prince in Northern Italy who starts buying all these physiocratic books and he was called a physiocrat I went to his book catalog and by the end of it he had written in the margins none of this works all of this is nonsense and he ends up doing a colbertist model of development for the grand duchy of Tuscany Tuscany remaining one of the richest places in the world over a long period of time it's absolutely fascinating and yet that myth also persisted so I sort of leave you with this kind of dangerous message that we're running on these myths and we still are to the point where it's a scandal today to contradict him and I think that's something we all need to think about thank you very much [Applause] and as usual we will have microphones for questions so that the people following Along online can you hear what we're talking about who wants to go first we've got mics on both sides don't jump at once come on go on give it uh thank you so much very interesting uh talk I'm curious It's been a long time since I read the book but I know there's a book called War wine and taxes by economic historian John Nye and he argues you know based on his archival work that France was actually the free Trader when compared to Britain and I'm just sort of curious um you know what you can tell us about that thanks uh gosh I wish I had read that book um I mean free Trader to what extent Colbert says that the ideal form of trade is relatively free but based on symmetrical competition so you need to get to a developmental point where you can compete that seems to be it make economic sense um there are moments of high regulation but there's remember Colbert's idea is to free up trade by systematizing weights and measures currency and making roads and um and canals which he does one of the greatest projects of European economics and Engineering is Francis Canal system which is still being used and you can go on vacation and live in a houseboat in one of these canals um in that sense very possibly but by the way there are lots of canals being built in the Midlands and other places where people are claiming that free trade emerges on its own not without these huge State projects of of communication and circulation so there's a huge free trade story to be told in France but it's this free trade story it's people trading freely in certain circumstances with an enormous amount of backup from the state sometimes less sometimes more but there are stories in the book of what happens when the state tries to go for General equilibrium the idea that there should be no State involved in anything for example in the grain trade when that happens there are famines and riots and doesn't work out um because that's an essential good so I do think there's a story to be told a very subversive book could be written on free trade in early modern France good idea that's a good one that's a really good idea and you say it's already been written but I'm there's clearly a lot to be done there but what free trade action is of course free trade meaning something different than the Orthodox or I would say almost fanatical idea that we might have today of General equilibrium which if you know a case of General equilibrium working in a country I want you to tell me because I'll change my opinion like that if you can find one for me not yesterday's challenge hi um I think actually for bringing up General equilibrium so I'm really curious what is the role of Leon World here in this big picture um and I find it kind of surprising that you're talking about Adam Smith and Colbert so much because if you think of all the mainstream mathematical economics it's mostly focused on the work of walrus and the idea of free markets really is based on the work of Canada right by the way also your other boyfriend so I think that story is really cool but where does this why does this whole picture not appear here well first of all the people that start coming up with those ideas are usually late 17th century thinkers the first person who really comes up with an idea of General equilibrium is it's not actually the first there are others but a guy named Jean Doma who's a janzanist theologian lawyer who thinks a lot about the state involved with things but there's an old theory that goes back and this is a really old theory that goes back and is really focused on by our friend John Locke this goes back to the work of my friend Matt cadan here it's about original sin and what happens when um man and woman fall out of the Garden of Eden they're punished does anyone know besides Matt does anybody know what the punishment is for the original sin well that's one of them but there's it's even worse than that private property and labor those are those are the big punishments labor is the punishment Commerce is the ultimate sin that we get stuck with so the 17th century theologians are terrified of this idea that if you trade something you're committing a sin there's a lot of theology my book goes over it by the way taking you back to the idea this is crazy you guys that in Christianity wealth is considered sinful okay that's something that you have to struggle with on benevolent Street up here okay and with all the hope and benevolence of these religious colonies right um the idea that he comes up with and this is an idea that becomes very interesting in the 17th century is that if you trade with someone else the two sins cancel each other out and then that can create wealth this takes us very quickly to um people like Mandeville right in the Fable of the bees and that this idea that sinning will actually create uh something good something good can come out of all this sin so this idea of Perpetual trade and things correcting themselves is a very strong idea in the 17th and 18th centuries valhas comes up with a new school of mathematical economics to move away from the moralistic school that the physiocrats in Smith and by the way if you look at Kennedy's work of a Madman he tries to show how you can get a system in his tablet economic his economic tables that will be self-regulating it's based all on fantasy numbers by the way um and that books liberal economists are still trying to prove that book right today using Vol Rossi and Mathematics to prove an 18th century moral thinker correct so it's actually quite mad one of the things I'm trying to say is that valhas is not that original that he's coming out of a longer tradition and in fact there are ideas of General equilibrium within ciceronian moral thought very strong idea that the trading between two people of a high class who love each other who are friends and Senators can create Perpetual wealth Christianity has ideas of this too those people have been studied they don't seem very interesting to me what's interesting to me is that there's a much longer history that's been ignored and what that history actually says and the fact that and as I say in relation to people like balahasa I start the book with him is that we've still never seen that actually totally work except perhaps in Rome where there's this idea that this senatorial class of the Republic has just produced wealth since mythical times through virtuous people trading in a legal good way not for personal gain but that's Cicero by the way what is Smith he's a professor of ciceronianism what I do think is interesting in valhas is the ejection of morality from economic thinking and that is a big change and that's something worth keeping one's eye on and something that I think is very interesting um one thing that struck me as odd while reading The Wealth of Nations that I think you briefly mentioned was Smith's kind of mistrust of business people and he even like warned states to be wary of right the interest of business and I I read that and that I was kind of going like hold on that's not very neoliberal of him to say that um so what I was curious about is just like I guess why do you think he has been singled out as kind of like this father of free market thinking is it just because of like his analogies or his success peddling his own ideas or first he was very successful at peddling his ideas but at the time he was peddling them to this very powerful agrarian Elite however what happens is his his editors start realizing that he can be sold as a thinker for possibly a new industrial lead although that's going to take a while because The Agrarian thinking persists for a long time in the early 19th century Glory Leo a young scholar has written a brilliant book called Adam Smith In America which shows how Smith gets turned into something completely different by the way she was also savagely attacked and her book has a very standardized reading of what Smith is but showing how Smith has been turned into this pro-business guy got her loads of crazy attacks she's an untenured young person that's super uncool you can attack me because I can just go have a drink and for at least the next seven years tenure is going to exist um but but it's really uncool to do that to a young person and that's what happened to her when she pointed some of these things out in you know a book why does Smith not trust these businessmen well because he comes from an agrarian Elite in the late 18th century these guys this is the age of oligarchy they rule and so yes these these businessmen are very important but they still have to know who their masters are and their masters are these great landowners that run Parliament okay and so again you really have to understand the context especially in Scotland where they're really really powerful these guys um but of course anyone reading Cicero you know that in Cicero's world the greatest insult is Mercator or as he calls them syrians right it's an old insult isn't it still can go around today um so this idea of this this kind of low Merchant just looking after their own self you know making themselves Rich it's still seen as a sort of bad thing and Smith hopes that these lowly people who have these base sentiments the butcher the baker the Brewer will be pulled towards a better thing by the by the impartial spectator if you read carefully his theory of moral sentiments that is a stoic educated landowner who runs Parliament who is called the legislator and he has very clear definitions of who that that legislator is that's his friends those are his friends Smith was a member of a club on Argyle Smith is a member of a club in Argyle Street in Glasgow the the first pavement or as you call them your sidewalk installed and if anyone who wasn't a member of the club walked on the sidewalk the bailiffs came out and hit you with sticks context is super context is kind of important here's one right what about what about Hume right so Hume actually I mean the thing about Smith and Hume is you can shake it and find loads of different stuff right but Hume explicitly calls Merchants the most useful race of men yeah he finds them to be the connective tissue that brings together wealth that wealth really exists through the combination of merchants it's almost like you can imagine kind of network sociology right if we can just have these networks of merchants then this one does this and this one does this and it brings together this kind of capital which is intangible and that's what creates things right and that's Smith's body so why is math not picking up any of that what just just on the record whether I completely agree with human everything human's brilliant philosopher I mean Hume is a very serious guy um Hume is a free thinker and Hume is not out to make money as an author as Smith is and therefore he says what he thinks this gets him into fights with Smith Smith eventually yells at him about outing some of his more radical ideas remember we don't know if Smith was a Christian or not he never mentions any Christian language in any of his writing he mentions deist language now you can be a Christian deist but you can also just be a pure deist we suspect that's what Smith was because Hume comes out as an atheist he can't get a university job so you get some jobs in the Diplomatic Corps he gets some nice club and journal jobs in Edinburgh but he's a very serious philosopher and he comes out with ideas which are perhaps not appealing to the people in charge and he has this very bumpy career where it turns out that Smith is extremely careful and yells at him at a certain point you know don't get me involved with this and then he has to apologize to him um they're very different people they're very close friends how close we don't totally know but they're very very close but they're very very different Hume seems to look out for Smith as this kind of misguided person that needs help and he's the one that helps get him all of his entrees into Parisian intellectual Society I do believe that if you're interested in complex economic philosophy I'd much rather read Hume who talks about the jealousy of trade which is really interesting the hume's a real thinker I would read Hume I mean I get a hume's really fascinating and a fascinating thinker Smith I believe is a fascinating author he's a hedger and a hustler and he does incredibly well and think about do you guys know who Hume is have you read any Hume no but you know who Adam Smith is right haha so no it's true it's it's it's it's also it's the same in our profession today right who gets remembered is it the person that's done the brilliant piece of research or the person that makes a lot of noise um the right way and knows the right people and has good media connections anyway I think that's that book Still Remains to be well written because of all the burnings of papers because of the fights because of all these things it's been written as this happy wonderful relationship it's it that's another book that would be remarkably revelatory about economic thought about what free markets are should be what people thought they should be so that's yeah fantastic question and hasn't fully been answered yet anyone else this is just kind of a bit of trivia but and The Economist in the room can tell me if this story is apocryphal but when when Reagan's elected don't his economic advisors wear neck ties with Adam Smith profiles on them so what's that that there's a reinvention of Smith well this is what Gloria's book is all about she tells all these stories and it's a crazy story because this is an agrarian and what one Economist and I believe he's an agrarian late medieval economic thinker there's nothing that people in the late Middle Ages hadn't really come up with with this he's got remark I do think that his um his moral philosophy is pretty interesting he knows a lot about moral philosophy but how does he become the corporate thinker when he's against corporations as one person noted he doesn't seem to like any economic grouping of more than two people he's scared of any groupings of people but by the way there's an ideological reason for that it's called landed Blended people that's one person one estate or lots of Estates um how that happens Glory has shown in the United States I heark to it in the book and those passages have earned me an enormous amount of anxiety even though it's all true I mean it's ridiculous but um it's a crazy story but this book by Gloria by the way I want you to realize that there's the first time a book that has been written systematically looking at the reception and Reformation of Smith in American thought was just published that's how far behind we are by a junior scholar who is now being crucified it's crazy I mean I do think this really quite remarkable thank you Jake for a wonderfully entertaining and and enlightening um uh talk I'm wondering as as one of the few historians in the room um what it is about the nature of the historical profession perhaps in this country but even it seems on a wider cant that has in general avoided economic history and allowing economic history to take a kind of a protagonistic role certainly today uh you know the number of hires in economic history is kind of going down like pretty much every historic historian job as well but it seems to me I'm wondering is there something that is more highly ideological about economic history somehow even more ideological than other you know aspects of of our work that ends up allowing people to kind of not do the kind of deep you know engaged and be careful reading that that one has to do in order to understand the broader context so this is actually I'm writing a little article about this now it's fascinating when I was at Cambridge um if you look at the Cambridge School of political thought there's no economics there's no religion either this is Quentin Skinner's place no religion he writes an article about Thomas More famous article no religion it's kind of unusual right no economics one of the things I thought that it was snobbery because when I wrote my book on accounting all of my colleagues held their nose at the lowly book on accounting when I went back to Cambridge someone said oh Jacob's soul is an accounting historian no you know um and actually a young colleague of mine has written a thing on Barrel gauging and Isaac Newton he's called the battle boy no um so first I just thought it was snobbery but then I actually realized it was more than snobbery it is snobbery also mixed with huge economic interests that make sure people don't study this stuff and that if you do you get electrocuted pretty quickly um so that there has been a dearth of work on this there was this famous person ishvan hunt who I worked with at Cambridge that did economic history but you have to understand that he was a Jew Jewish think about that so was his other colleague Michael sonnensher and at Cambridge that was seen also perhaps not in the most favorable light so but there was another thing and that is there's a huge machine of writing this history and writing this mythology that has kept people from doing it there's another thing too as I've studied economic history um and the study of for example knowledge and knowledge circulation which you do too our field Hues to a neoliberal view of the Enlightenment of the of Robert darton's work of the free um circulation of free thought and information the state is not in darton's thing even habermas everybody's famous favorite German socialist has I would call a neoliberal vision of knowledge circulation the public sphere is public in so much as that the state is massively involved but that's not the story we've been told so there are all these aspects which I'm starting to realize I'm writing a small piece about it now but it's really really interesting how this so-called American professorial left is actually pretty neoliberal in its thought too and we've been kind of stuck with that one of the other things it just shows We've Just Begun as the humanities is being killed off right now right like Scottish Highlanders not put on boats and sent to you know Canadian or the Irish sea to sink I think people would like to do that with Humanities departments too it turns out we're just beginning our work it's just getting interesting we we know so little that's what blows me away is that we're still really in the dark on basic stuff and that's sort of fascinating I was like oh we knew it all no we barely know about these things or we have barely looked into them and started arguing about them in any serious way so we're still in a pretty primitive State when it comes to all that and our field is too I'm not leaving on a primitive State um a question from Alice who's watching from afar I'm going to sort of slightly change her question about uh off camera so to speak you said to me if you were looking for a to go back and think about finding a place about General like well everyone's actually and start and see it if you couldn't do it in 19th century England you can't do it anywhere or what about the cryptos feel was that a kind of you know General equilibrium fantasy from your point of view that of course it was just going to all Crash and Burn and the crypto Bros of just another version of the same propaganda's Wing without actually even realizing they are well I mean crypto is just an imaginary thing so that just can work you can sell imaginary stuff everybody's wearing t-shirts with logos on them when you get them on sale so I bought a shirt at J crew which was 75 I bought it from J crew for twenty dollars that means they're still making a profit the whole thing is imaginary the shirt is crypto as far as I'm concerned and by the way it's also that one shirt has polluted an entire Bangladeshi region literally I've read about it and I'm buying it there's all sorts of of magical thinking going on in economics um the crypto Bros entered into part of our market system but without State backing although State backing might be coming um and if a state decides to put its weight behind their imaginary stuff then it won't be so imaginary but for the moment it's it's still funny it's still imaginary as money actually is um again the crypto Bros actually drank their own Kool-Aid which but they're still drinking I've got lots of friends who are still you know um but it's just another imaginary thing I I still think t-shirts might be a better bet seriously people make a lot of money off of t-shirts seriously the known product last question who wants it no one go on a little bit off I'm very interested in development economics yeah you talked about it you mentioned that um there was the state behind many of these European countries developing from the 16th to the late 18th 19th century and then they can go for free markets or compete or whatever where you call it um what's left for developing countries today I mean meaning you know when they try to do that get the state behind then they haven't been able to get out to get the state back out in quite the same way I think um from the economy and and compete is it because it's a different time in history that they can't well most of these economies are coming out of a colonial structure they usually are weighed down with a human a huge amount of debt there are there are economies that have used developmental economics and done remarkably well China and other Asian places um but I mean getting this state out the problem is is they don't have Civil Society I mean this just gets back to Janice Robinson's work I mean you just have these places that don't have all the pieces that you need in a market Society or a market economy market economies are fully real they're really hard to build but if you're going into this indebted without all the pieces you end up getting your Elite living in Switzerland and she writes about this in the 60s it's it's the same problem I mean missing the institutions missing the institutions missing the capital and they're still being fed upon by dominant other states it's really really hard to build your way out that's why many of the Asian success stories are remarkable but remember China's still really pissed off now some of that pissed offness is nationalism others is post Colonial pissed offness they were colonized by everybody they were really really poor and now they're they're less poor and and heavily armed so um we're stuck with that situation but the global south I mean what does it take to build an economy these economies in the 17th century that were starting by the way I think all economics is developmental economics there's no such thing as non-developmental economics um they were starting with super complex economies that really begin in the late 1100s so massive developments if you look of these Mercantile cities that are also manufacturing cities and trade cities so that's a huge thing by the way as as some of my students just recently pointed out aren't they also just building you see massive wealth building on top of where the Roman Empire was literally just using the stones in certain places like Ravenna never even got knocked down you still have what sixth Century cities standing so you're building on a huge superstructure that's existed a really long time we could even make that argument in India and China you had Imperial superstructures which are still there and can be economically helpful that's a theory of mine it might not be completely true but yeah I'm not I I worry obviously everyone should be worried about the global South also with with economic crisis they how do you develop without the tools of development with economic with with you know constant climate crisis right so that's another question that we were talking about earlier it's going to be really really hard to do by the way development economics just got a lot harder with with these Super Storms and Rising seas and temperatures that's a nice note everything's gonna be fine kids thank you very much thank you thank you thank you

Channel: Watson Institute for International and Public Affairs

Views: 35,163

Keywords: Watson Institute, Watson International Institute, Brown University, Brown u, Brown, Public Affairs, Free Market, Jacob Soll, Milton Friedman, Cicero, MacArthur “Genius, University of Southern California

Id: A-_nI1ZipY4

Length: 71min 44sec (4304 seconds)

Published: Mon Mar 13 2023