Adam Smith And The Stationary State

I have just purchased another book, surprise! The title of this one is “The Great Degeneration: How Institutions Decay and Economies Die.” The author is Niall Ferguson, and I have found it enlightening. I read an excerpt of the book in the WSJ, and it has already got me thinking.

Early in the book he discusses why social mobility has declined in the United States over the past thirty years. He argues that although our nation was once known as the land of opportunity, “today, if you were born to parents in the bottom income quintile, you have just a 5 percent chance of getting into the top quintile without a college degree.” A cognitive elite has formed in this country, “educated at exclusive private universities, intermarried and congregated in a few super zip codes,” ensuring this “new caste, equipped with the wealth and power to override the effects of mean reversion in human reproduction, so that even their dimmer progeny inherit their lifestyle.” Sounds like we are going back to the medieval era.

This is not a new argument; Adam Smith discussed this in his classic 1776 work, Wealth of the Nations. He described what he called a stationary state as a “formally wealthy country that had ceased to grow,” and was socially regressive. Smith said this was evidenced first by wages being held miserably low. Smith also describes three conditions of a country, progressive, stationary, and declining. “The progressive state is in reality the cheerful and the hearty state to all the different orders of society. The stationary is dull; the declining melancholy.”

Another characteristic of the stationary state involves the ability of a “corrupt and monopolistic elite to exploit the system of law and administration to their own advantage.” Smith states, “In every different branch, the oppression of the poor must establish the monopoly of the rich, who, by engrossing the whole trade to themselves, will be able to make very large profits.”

As I read those characteristics I am amazed at the prophetic nature of the comments, and their accuracy in relation to the current condition of our country. I think these descriptors should be a red flag. It should motivate us to take action. Ferguson argues that the “great recession is merely a symptom of a more profound great degeneration.” Now, I don’t think he is saying that we are in a irreversible condition. However, with a stagnated political system, he loss of democratic freedoms, and our move to a centrally planned economy (I know this is a debatable comment) my fear is we will not pull out of this stationary condition. The rats on the ship will circle their wagons and hold their resources even tighter not allowing the free market to allow a return of social mobility (I know mixing my metaphors). This is not a prophetic statement, just a warning. As I go through this book, I’ll share with you my thoughts. I hope you see the one take away from today’s thought though – the danger of degeneration is real, which means we need to pay attention. We need to work that much harder to break out of the stagnation that has been thrust upon us. We need to think creatively and innovatively to break the bonds of stagnation, and it is not just about money. In other words we need to recapture our entrepreneurial strategy.

And that is my thought for the day!

 

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