Mac 1.1

Contents

1. The Wealth of Nations

(a) What is a Nation?
(b) What is Wealth?
(c) What is the Wealth of Nations?

2. Time Line

3. Global Knowledge-Based Economy

4. Concepts

What is wealth? What is a nation? And, according; what is 'the wealth of nations'? Through time the meaning of these terms has and continues to change and mutate.

First, what is a nation? Once upon a time a nation was a 'tribe'. A people of the same ethnicity, language and religion - a whole people but one often made up of different clans. Ancient Egypt, China, Persia and Greece were such nations; anyone outside was 'a barbarian'. Rome, on the other hand, began as a tribe - the Latins - but ended up an Imperium in which citizenship was not limited by blood, birth, language or religion.

The modern nation states of Europe essentially recapitulated the pattern of Rome beginning as ethnic tribes - the Franks (France), the Helvetica (Switzerland), the Huns (Hungary), the Swabians and the Saxons, (Swabia and Saxony are now 'lander' or provinces of modern Germany), the Russ (Russia) - but evolving from the 17th to the early 20th century into colonial empires on which the sun never set but progressively transformed after WWI into 'Nation States' (a term not introduced into American English until 1919) and then into the pan-national European Union.

Along the way, however, a related question arose. Is the 'nation' the people or the king or queen? David was anointed King of Israel through the will of God. So says the Old Testament. This served, in the West, as the basis for what became known as 'the Divine Right of Kings'. The Church of Rome fought and separated the secular powers of the King (or Emperor) from the spiritual keys of the kingdom given to St. Peter by Christ in the New Testament: "Pay unto Caesar what is Caesar's and unto God what is God's". The opposing principle merging the spiritual and secular roles of the monarchy held sway in the Eastern Roman or Byzantine Empire and is known as 'caesarpapism'. Henry VIII of England reverted to caesarpapism by returning the spiritual power to the King as head of the Church of England in 1534. One implication of the Nation as Monarch was that through marriage the territorial limits of a nation could, and often did, change through marriage among the royals. A more extensive description is available in my article: Christianity, Censorship and Copyright in English-speaking Cultures.

However, the people of England eventually answered the 'Divine Right of Kings' in 1648 by beheading King Charles I and starting the first modern republic, the short-lived 'Commonwealth' of Oliver Cromwell. This was followed, however, by the 'Restoration' of the monarchy in 1660 with its subsequent qualification as a 'constitutional' monarchy after the 'Glorious Revolution' of 1689. It was also accompanied by the Scientific Revolution that contained a theological message. Unlike other European states, England split not two but three ways – Protestant, Catholic and Anglican or Church of England. It was in these troubled times that Francis Bacon in 1605 called Scholars to come down from their ivory towers into the workshops of Mechanics to practice the instrumental experimental scientific method and force Nature to reveal her secrets. Fifty years later at the height of Cromwell’s Commonwealth Robert Boyle provided the metaphysical rationale for this new ‘experimental philosophy’ placing the laws of the geosphere in stasis above and beyond human and divine intervention. God having created the world according to His Laws withdrew. His other book, the Book of Nature, was therefore the legitimate subject of the experimental philosopher. This was the ‘Latitudinalist compromise’ (Jacob 1978). Its logo was Newton’s clockwork universe running on the calculus of motion. Secular and religious legitimacy for experimental philosophy was granted by charter to the Royal Society of London for the Improvement of Natural Knowledge in 1662 (Jacob 1978; Jacob & Jacob 1980). Theologically, this Revolution placed the material world beyond the opinion of popes, priests and philosophers. No longer would hot or cold be determined by the personal whim of a superior but rather by the thermostat. The machine became the measure of all things physical leading to us to today's Instrumental Realism (Idhe 1991).

The first successful Republican revolution was the American of 1776. It overthrew an ancient regime of subordination by birth but nonetheless adopted many of the Common Law legal traditions and precedents of their ancient masters especially business law. Henceforth, however, the individual, not the family, clan or bloodline would be the lodestone of society. This marked the culmination of a process beginning with the artist/engineer/humanist/scientist of the 15th century European Renaissance. The individual through creativity and talent erupted out of anonymity into celebrity. It continued during the Protestant Reformation of the 16th century when the individual was linked directly to the godhead without intermediation by pope, priest or philosopher. It accelerated with the Scientific Revolution of the 17th century with the ‘experimental philosopher’ who William Whewell, at the request of the poet Coleridge, renamed ‘scientist’ in 1833 (Snyder 2000) and continued with the 'author' in the 18th century, the 'inventor' in the 19th and the business 'entrepreneur' of the 20th century. This is known as the western Cult of the Genius.

The second Republican revolution, the French of 1789, threw out not just feudal overlords but also common law and religion. The French Revolutionaries re-thought Law from a Republican, secularist perspective. Like the Americans, they made the Individual, the Natural Person, the cornerstone of the political and social order. Thus the American Declaration of Independence announces: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”. The French Declaration of the Rights of Man and the Citizen of 1789 (Article 2) arguably goes further declaring: “The aim of all political association is the preservation of the natural and imprescriptible rights of man. These rights are liberty, property, security, and resistance to oppression.” [emphasis added]

The term natural indicates that Nature, not some divinity, is the scientific source from which these rights flow in an ideological sense. The word ‘ideology’ has many meanings today (Gerring 1997) but was coined simply enough by Condillac in 1797 to mean ‘the science of ideas’ (OED, ideology, 1b). Separation of Church and State was critical to both American and French revolutionaries but the French were atheists while the Americans were theists. A secular science of ideas to counter the awe and mystery of religious and metaphysical thought and ritual was part of the French revolutionary agenda to complete the overthrow of the ancient regime. In this sense an ideology is a 'secular' theology explaining the way the world works but without any necessary reference to a divinity.

The term imprescriptible indicates that no contract infringing such rights, even willingly signed, is enforceable by the courts, i.e., they cannot be signed away. They cannot be assigned, transferred or waived in favour of a Proprietor – Natural or Legal. The difference between Anglosphere Common Law and (what began as the Napoleonic Code but evolved into) the European Civil Code with respect to intellectual property is arguably one of the hottest international trade controversies - Disney vs. France, the United States vs. the 2005 UNESCO Convention on Cultural Diversity, etc. As I argue elsewhere, with respect to intellectual & cultural property the American is an unfinished Revolution. Please see my Preface: Intellectual & Cultural Property - Cult of the Genius.

Progressively, however, the franchise has been extended to all Natural Persons as citizens, discrimination under the law has been progressively eliminated and the concept of human rights become engrained into the polity. The concept of 'a republic', of course, dates back to ancient Greece and Rome. The modern republic, however, is grounded, more or less, not on common ethnicity, language or religion, but on 'the people' as a whole including all those born within the territorial limits of a Nation State (even the children of immigrants). Today, the vast majority of humanity takes for granted that 'the people' constitute the Nation even if a 'constitutional monarch' wears a token Crown. This is the triumph of democracy. Furthermore, with the end of the Market/Marx Wars the Communist Revolution collapsed. The previous Republican Revolution survives and a world divided and threatened with nuclear winter for almost half a century because of the disagreement between two schools of economic thought now rallies around the last ideology standing – market economics with its political and legal corollaries: popular democracy and private property. For our purposes macroeconomics functions at the level of the Nation State. For further information about the shifting sands of sovereignty on which it stands, please see: Chapter 13.0 The Nation-State, of my dissertation The Competitiveness of Nations in a Global Knowledge-based Economy.

If the meaning of Nation has changed through time, the meaning of wealth has also transformed. The common meaning of the word wealth as given by the Oxford Concise Dictionary is: n. riches, large possessions, opulence; being rich; abundance; a profusion or great quantity or display. A subtext to the definition, however, is more revealing. By subtext, I mean, in this case, the etymology or origin of the word. In the case of wealth the OED says: Middle English from well and weal, after health. And hence the concept of the 'commonwealth'.

In a subsistence 'hunter gatherer' economy, wealth is easily defined. In very simple terms, anyone with lots of food and other requirements for survival is wealthy; anyone without is poor (and usually unhealthy and soon dead). The Agricultural Revolution generated a significant surplus in the food supply permitting a higher order of division and specialization of labour than possible in a hunter gatherer society. Wealth began to include not just the necessities but also 'luxuries' like jewelry, precious stones and metals as well as land, skilled craftspersons and great buildings. An often overlooked parallel to the Agricultural Revolution was the 'Maritime Revolution', e.g. of the Amerindian culture of the northeast coast of North America (known as the Maritime Archaic culture) which 7,000 years ago enjoyed a significant food surplus through command of the seas. It has even been suggested that they sailed to Europe. Wealth was essentially gold, silver, land and labour - as serfs, slaves or retainers. With the Industrial Revolution and steam power, the concept of wealth changed yet again. This time it expanded to include manufacturing facilities vastly more complicated and diverse than the water and wind mills of the Agricultural Revolution and, in a sense, beyond human scale. It also ushered in a new form of wealth in the form of equity shares in limited liability corporations rather than outright ownership. As we will see, the concept of wealth today is becoming ever more complex as we move into a global knowledge-based economy.

Given that the concepts of Nation and Wealth have changed through time it should not be surprising that the concept of 'the wealth of nations' has similarly been transformed. When a Nation was identified as a Person, e.g. the king, as in the feudal system of medieval Europe, all persons and all property were subject to the Crown. Everything, all necessities and luxuries, were held by individuals in trust at the pleasure of the Crown. There was, in this sense, no absolute private property. For an anlysis of different forms of legal Property please see my article: Equity & Aboriginal Title. Thus it is not just under Communism that there is no private property. For example, when Pierre Elliot Trudeau repatriated the Canadian Constitution and introduced the Charter of Rights and Freedoms he was accused in some quarters (particularly in western Canada) of being a communist because the Charter does not include a constitutional guarantee of private property. Under a constitutional monarchy such as Canada such a guarantee is unconstitutional - ultra vires - because under a constitutional monarchy ultimately all persons and all property remain subjects of Her Majesty. There can be no absolute right to private property.

While technically everything and everyone belong to the Crown in Canada, from the time of King John and the Magna Carta in 1215 there was an every increasing split between the wealth of the Crown, the wealth of various groups including the 'common people' and the wealth of the nation itself. There were two reasons. First, the powers of the Crown were progressively limited by ‘rights’ granted first to the barons at Runnymeade in 1215 and then progressively to other ‘estates’ of the kingdom including the guild franchises of merchants and manufacturers. These ‘gild franchises’ were the first monopolies of the English-speaking world, monopolies against which Adam Smith bitterly complained and Thomas Jefferson feared.

Second, as the powers of the Estates grew the taxing authority of the monarchy declined. As Parliament increasingly refused to approve new taxes, monarchs realized they could raise money (and political favors) by granting charters to new groups or ‘companies’ including the Stationer's Company of London which held perpetual copyright on all printed works from the time of Queen Mary. The number of ‘monopolies’ soared, particularly during the early years of the reign of Mary's sister, Elizabeth I. Near the end of her reign, however, Crown grants of monopoly were increasingly:

…. adjudged against the "common right and public good," and "against the common law," because, being a monopoly, it was "against the liberty of the subject," and "against the commonwealth.” (Commons [1924] 1939, 226).

The process came to a head with the 1624 passage by Parliament of the Statute of Monopolies to abolish the power of such private monopolies. This was part of an evolutionary process whereby the Common Law courts progressively stripped the guilds of their monopoly powers and assumed responsibility for their regulation (Commons [1924] 1939, 230). However, while “the monopoly, the closed shop, and the private jurisdiction were gone … the economics and ethics remained” (Commons 1924, 230). Thus in English culture there was a growing distinction between the wealth of the Crown, the wealth of the Estates and the wealth of the Nation. However, the concept of the 'commonwealth' began to take hold by the end of the reign of Elizabeth I. In a sense, this concept of commonwealth is the precursor to what today we call macroeconomics with its aggregate measures of national income and output.

Until the 1930s there was no 'macroeconomics'. There was no 'national economy'. In effect, there were two relatively disconnected sectors: government (the monarch and/or Parliament) and the private sector (the people). Until that time it was only 'socialist' thought that saw a 'national' economy as a 'whole' but viewed in the context of 'workers of the world' rather than of the Nation.

At first this disconnect reflected the vision of the Nation as the private concern of a monarch and was 'proprietary' in nature. The monarch or Parliament was politically 'absolute' and economic policy was Mercantilist. How much gold, silver, land and slaves (or serfs) was the measure of national wealth. Sell as much and buy the least from foreign countries and build up ones bullion reserves. The people consisted of serfs, slaves, servants, commoners, soldiers and vassals or aristocrats - dukes, counts, barons, etc - who swore allegiance to the monarch who, in turn, made demands of, and granted privileges to them. National economic policy consisted, initially, of Crown grants of monopoly privilege to the monarch's favorites to fund the monarch's scheme, palaces, ventures and wars while taxes approved by Parliament were levied on the general population - including a head tax - to finance domestic peace, order and good government. Little concern was given to the well-being of 'the people'.

By the end of the 18th century, democratic government - constitutional monarchies and republics - arose. However, in response to the excesses of monarchial interference with the economy during the Mercantilist period, laissez faire (let the entrepreneur decide what to produce and not the Crown) & laissez passer (let workers move to work where they want, not to where guilds assign them) became the norm, that is, limited involvement by government in the economy. The central economic concept, however, remained 'class' and the question was the division of national income among the classes. Thus, on the one hand, the politics of the Republican Revolution made the individual as voter the foundation of the polity, in classical economics class remained the primary unit of analysis.

It was also believed that the market would self-adjust the business cycle. The mechanism of adjustment was called the Iron Law of Wages by David Ricardo. If workers earned more they would simply breed increasing the number of workers and thereby forcing wages down to a subsistence level. If wages were too low, workers would not reproduce reducing the number of workers forcing wages up which, in turn, would lead to more workers with wages again falling again to the subsistence level and so on.

By the mid-19th century 'Socialism' arose. Beyond Karl Marx & the Boys (Lenin, Stalin, Mao, Fidel, Pol Pot, et al), however, there are many forms of socialism with differing views of the relationship between 'the working class' and the rest of society. The history of the Labour Movement demonstrates such differences, e.g., the Knights of Labor. the Industrial Workers of the World or "Wobblies", Fabianism with its concept of Industrial Democracy, Syndicalism, Gomperism or business unionism, etc. What they share in common is a focus on class - the working class hero of John Lennon - not the individual.

Beginning in the 1870s the Marginalist Revolution in economic thought made the atomized consumer and producer maximizing utility and profit, respectively, subject to the constraints of budget and cost, respectively, the central unit of analysis. Its vision could be expressed in deductive logic based on simple assumptions and demonstrated in words, calculus (numbers) and geometry (graphs) satisfying Descartes' definition of a 'science'. It represented the marriage of the felicitous calculus of Jeremy Bentham and Newton's calculus of motion. In many ways it is the economic flip-side of the Republican Revolution doing away with 'class' in classical economics including Marxism and replacing it with the atomized constrained maximizing individual as consumer/producer. It also explains, among other things, why the Market/Marx Wars ended the way they did. It is the individual, not class, that matters because we are always both consumer and producer. For more information, please see my notes on The Marginalist Revolution.

Belief in the self-adjusting power of the marketplace continued to dominate economic thinking until the Great Depression of the 1930s. The economies of the industrialized world did not self-adjust to the first synchronous global downturn. Before if Germany was depressed France was inflated or if Britain experienced a downturn the the U.S. boomed while Japan continued to industrialize and joined the crowd. Unemployment was at very high (25-30%) during the Great Depression; social unrest and revolution was in the air. Many considered that Fascism in Italy, Nazism in Germany, Communism in Russia and the Imperial Japanese 'Co-Prosperity Sphere' offered answers to the suffering of the people. All were essentially authoritarian, racist and totalitarian in nature. In this sense the Second World War was in fact as much a war against racism as fascism. Furthermore, like the European colonial empires on which the sun never set, they advocated autarky rather than the comparative advantage of international trade as the answer to global economic problems. In this regard, the Cold War represented a similar attempt to attain autarky - no truck nor trade with the Commies or Capitalists, depending in which Bloc one lived.

The liberal democracies desperately sought an alternative. In politics, the United States elected Franklin Delanor Roosevelt as President in 1933 on the platform known as the 'New Deal'. In economics, John Maynard Keynes offered a new view of the economy requiring government to play an active role without exerting ownership or requiring corporatist dirigisme and retaining the free market as the primary economic institution. Macroeconomics was born. It is Keynes' model that we will examine in this class. It is arguably the 'standard model' of macroeconomic thought because even its critics use the same instruments of analysis introduced by Keynes. It focuses not on class or the individual consumer/producer but rather on functional aggregate categories such as consumption, savings, investment, government expenditure, etc. For more information, please see my notes on The Keynesian Revolution.

By the late 1970s Keynes' belief in government's ability to 'fine tune' the economy and the efficacy of its 'fiscal policy' - tax and spend - was questioned for reasons discussed later in this course. The policy focus shifted to the Monetarists who emphasized the role of the central bank in manipulating the money supply and the cost of money or the interest rate (r) to fine tune the economy. Similarly, fiscal policy was seen as inherently limited by the Rational Expectationalists who took exception to Keynes' key assumption about workers' price expectations resulting in sticky money wages - a subject to be discussed later in the course. With the recent 'Great Recession', however, Keynesian economics is being tested again but this time not with respect to 'fine tuning' but rather with respect to brute fiscal and monetary intervention to prevent another 'Great Depression'. Another critical difference with the 1930s is there is no viable ideological alternative to market economics. It is the last ideology standing. Please see my 214 Notes on Monetarists & Rational Expectationalists.

Please see the linked historic exhibit to which I will speak in class. For further and more recent analysis, please see my dissertation: The Competitiveness of Nations in a Global Knowledge-Based Economy. More will be said about this emerging economy and the role of intellectual property - copyright, patent, registered industrial design, trademark, 'know-how' and trade secrets - later in the course.