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The Wealth of Nations

The rapid pace of change has created a world filled with excitement and energy. At the same time, it’s created a world filled with anxiety and fear. At the intersection of both of these is hatred, distrust, disrespect, and every other force you can think of which can divide people.  Rather than bring us together, closeness has us running to define boxes to hide in, regardless of how small.

The great force which should unite but instead often confuses and separates is the driving force of our time: technology. That one simple word is the savior and excuse all at the same time. But what is it, really?

Who will replace him when he’s ready to rest?

The word “technology”simply means “The study of skill”. As surely as there has not been time for our mammal frames to evolve since this thing called “civilization” has developed, everything has changed. The only difference between modern humans and primitive pre-civilization is everything that has been learned, everything that has been written down. What has evolved in 10,000 years is skill, broadly defined. And we have to study that history to study the skill so that we know where it has taken us – extending the lines off into the future as the only good approximation of a plan we can possibly have.

It’s not as hard as it sounds. Businesses and nations do it all the time. It just requires you to open your mind and forget about the tribal boxes of comforting identity which we have all come to rely on.

Adam Smith, 1723-1790

In the precipitous year 1776, a man named Adam Smith wrote a book called The Wealth of Nations. It was a primer on mercantilism and the proper role of the state for developing a society which had the skills necessary to participate in a universal “free market”. It should be clear to anyone paying attention that Smith outlined this mythical free market as an ideal which is created by laws and proper attention to detail, but sadly it wasn’t. His work is often quoted out of context as if it is a bible on proto-Libertarianism.

In 1867 Karl Marx wrote the first volume of Capital, a work which primarily outlines the role of finance in creating various stages of industrialization. He stretched his historical analysis into what he saw as a logical future, envisioning “the withering away of the state” as mechanization increasingly produced far more than what could be consumed and an era of abundance replaced the scarcity carefully measured out by this thing we call “money”. His work was equally misunderstood and misapplied to the point where Marx himself said, toward the end of his life, “The last thing on this earth I would want to be known as is a Marxist.”

Karl Marx

These two may see like polar opposites, but they are in fact the yin and yang of a complete whole. Any failure to see the relationship between these works is purely a product of a politics of division and tribalism.

The truth is that developing nations have a model which incorporates both, first developed in Japan. The Marxist analysis of industrial history, moving from heavy to light to virtual, is matched with a careful development of a market where citizens are taught the skills necessary to join it on an equal footing, more or less.

This model has been applied in South Korea, China, Vietnam, Malaysia, and Indonesia to name a few nations. At times you see it in South Africa and Brazil as well.

Did you get our jobs?

The central precept of this model is the gradual development of skills. These include social and literary skills for the population as well as a gradual accumulation of various engineering and management skills for the technocracy. Nothing comes immediately – the progress is a careful, long march over generations.

This is critical to understand because not only is this the one aspect of globalism which is not American, it is the one aspect which seems to have utterly escaped American realization.

The US had the classic “first mover” advantage after WWII in that we were the only intact, developed nation left. In a classic business like retail, this is huge. The development of the brand name sticks in people’s minds as the premier mark of quality and they keep coming back to the pioneer as much out of habit as anything. First mover advantage can be insurmountable in the right industry.

We live in a world of technology, however, not retail. While there is still a first mover advantage, there is also a built in disadvantage.

Reinvent or die.

Consider, for example, Apple. It is a company which has completely re-invented itself at least twice, and is in the process of pulling off that trick once more. It is the most valuable company in the world as a result. IBM, by contrast, was very slow to change and has fallen off of nearly everyone’s radar. It did, however, successfully become the go-to company for large servers and network backbone, a critical role that has created a stable, if smallish niche. Xerox was a company which actually invented the graphical user interface at their Palo Alto Research Center, but failed to appreciate what they had. That company no longer exists.

These three define the first mover disadvantage. Any successful company naturally emphasizes its core – the values, products, and indeed skills which make them what they are. By playing to their strength, they naturally play to their weakness, becoming inflexible in a changing world. Technology is not retail in that relationships are not as important as moving with the new technologies, the new skills, which re-define themselves constantly.

Nations operate under the same rules in a technology driven world. First mover is both a blessing and a curse.

Forget time – money is what really flies

There is a great wealth in the global US Dollar standard, through which roughly 85% of global trade is denoted in Dollars. It means that our prices are stable. It has also meant that as long as trade is expanding there is an increasing hunger for more Dollars, meaning we can run deficits as long as we want with little consequence.

But this same situation means that we have little to no control over our own currency, and we have almost no ability to engage in a currency war by which we lower the cost of our goods for the purpose of protecting jobs.

Worst of all, the more we retreat to our core values the more peril we find ourselves in, much like Xerox. For example, if anyone thinks that one of the biggest problems with this nation is that we simply don’t produce enough coal they are dangerously idiotic.

Food. We need it. Every day.

That’s not to say that there isn’t a place for critical resource development. Every nation’s security depends on critical resources which are not imported and thus subject to currency swings.  Price stability for the basic staples of modern life is a foundation for a modern economy to build on. These naturally include food, water, and energy. One of the critical problems in Egypt is that 60% of their food is imported, for example, which meant that a banking crisis turned into famine quickly. It cost Hosni Mubarak his job.

How does one understand equally the lessons of Smith and Marx? The answer is obvious.

The free market is a critical way of allocating resources and providing opportunity in the long run. In the short run it is actually at dis-equilibrium constantly, discovering a shortage here which can be filled by a surplus or increase in production there. It gradually moves everything to commodity status, lowering prices and boosting overall efficiency.

It’s hard to see the endgame, especially when it’s not all back & white.

But, as John Maynard Keynes observed, in the long run we are all dead.

Most people operate in the hungrier short term. We all have this habit of eating every day. We get sick or just plain lazy and make a point of enjoying our lives, at least if we can. We have kids to raise and a million things to do. The development of new skills by going back to school may have obvious long term benefits, but who honestly has the time?

A nation which makes sure that everyone has food, health care, and the space to raise the kids in a way where they all have the skills to reach the maximum of their potential is a nation that is genuinely ready for the power of the free market. A nation which fails to do so can only have a pale shadow of a genuinely free market with equal access guaranteed for all.  The free market is, after all, an artificial creation produced by convention, laws, and values rather than any natural process.  People constantly scrambling do not have the capacity to think in the long-term where the free market is born and lives happily.

The importance of space for strategic thinking cannot be over emphasized.  The value of this and every other nation on the planet is really only the skills and drive of its citizens.  The rest is just book-keeping and noise.

There’s always a fight. This one is more interesting.

In the end, was Smith or Marx right? Can American be made great again? How can our government create more jobs?

All of these questions are not only wrong, asking them is dangerous. They must simply be un-asked if we are to get anywhere at all. We live in an era of technology, which is to say that the nation which succeeds is the nation which studies skill – the nation which carefully identifies and cultivates skill. Sometimes that comes with public support and sometimes it comes through competition. Sometimes it works together and sometimes it takes the advantage off the field.

The wealth of nations in this era of technology is actually very well understood by the nations which are the hungriest. In that sense, the free market works remarkably well in ways that the fundamentalist acolytes are incapable of understanding. But it is true, and it is practiced every day.

Where the world learned so much from America, it is now time for America to learn from the rest of the world. It’s something like our music dying off in a vanilla corporate grab only to retreat overseas, returning to us later as The Beatles. It was the same, it was different. It was the future, it was the past. Mostly, it was just plain good.

We study history for the same reason we must study skill. The past tells us the way forward as surely as the brains which master it are the ones which can eventually master the changes which are surrounding us. The first step is to not just get out of the boxes which fear has sent us cowering into and realize that freedom, unity, and equality are always the only way forward.

It we learn anything from 1776, it must be that. That, and the Wealth of Nations.

11 thoughts on “The Wealth of Nations

    • All of that noise is only a distraction from what really matters. Until we get an actual vision and strategy in place the rest is just noise – and useful only to distract us from developing the appropriate strategy.

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  2. Hi Erik, there are many philosophical viewpoints on how to build a fair society and you’ve covered the Pigeon hole existence we all now live in nicely. However, I fear we will never have an equal society. Marxism is another good way to live and work together but again it fails in practice. I feel that we’ve been pushed into our boxes by the fractional reserve banking system, which is doomed and nothing more than a state run pyramid scheme. Commodity trading produces money for those who already have it but contributes nothing to an equal society, in fact, it contributes to the hardship of those at the bottom. We all would like to believe that we play our part by recycling and leaving the car at home, but in reality we don’t want to give up a piece of our box. I don’t know the answer; either mankind will destroy itself or an Asteroid will destroy us before we get there ourselves? So, make your box as comfortable as possible and hang on…. Thought provoking article Erik……

    • If you believe in Star Trek: The Next Generation there is a way out. 🙂
      The key is moving from a time of scarcity to a time of abundance. We already live in a time when there is enough food to feed the projected 10B people this planet will max out at. There is enough energy out there if we only learn how to capture it. Marx’s utopia is indeed at hand, probably in my lifetime.
      Will it be utopia? Oh, Hell no! I grew up in Miami and I’ve seen what humans can do with paradise. But things like “money” are really a way of regulating scarce resources – and when scarcity disappears the dire need for money goes with it. Capital costs have been falling steady for 20 years for a good reason.
      I do think this has a chance of sorting itself out, and that ST:TNG is largely correct in many ways. We’ll find a way to muck it up, sure, but I do think that abundance, not scarcity, is coming at us quickly. That will indeed change everything.
      Great comment, thank you!

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