Analysis

The `Wealth of Nation`: from Antiquity to Adam Smith

The layout of a concept that is older than the establishment of economics as a branch of social sciences separated from political sciences.
Published by
Central Office
on March 22, 2024
on March 22, 2024
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pragyata.com
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Kautilya (left), in the 4th century BC Indian sub-continent, shared Adam Smith's (right) anti-mercantilist perception, believing that trade was not only desirable but mandatory in bringing cheaper and necessary products on the domestic market while exporting those that can be paid for more than on the domestic market.

It probably comes as a surprise to many readers that wealth or the accumulation of wealth is older than the establishment of economics as a branch of social sciences distinguished from political sciences (the so-called Political Economy). Beyond its antiquity, the 'wealth of the nation' has been thought of as acquired in different forms when we look at how Adam Smith defined it and how it was uncovered by his older predecessors. The present paper will attempt to analyze the gain of the `wealth of nation` from two perspectives (through trade and the division of labor) as presented by four authors trying to define its margins: Adam Smith in the 18th century, Plato in Ancient Greece, the 4th century BC Lord Shang in the Chinese territories of the modern PRC, and Kautilya in the 4th century BC Indian sub-continent. The layout of the research is designed to put forward differences and similarities in the way the wealth of nation was to be achieved according to its proponents, with the conclusion underlining the background that reasoned the existence of differences.

Probably the most well-known proponent of the wealth of nation to the public, Adam Smith considered that wealth was defined in an erroneous and rigid manner. This was due to the times when mercantilism was considered the main foreign and commercial policy of the state through which the nation became richer following the accumulation of gold and silver from a trade balance that was always in surplus (more exports than imports, with the former being paid in precious metals). But Smith didn't see the gold and silver accumulation as making his country or any other one wealthier, but only the increase in productivity based on the division of labor. Rather than seeing the international economic relations in a mercantilistic zero sum-game perspective, Adam Smith advanced his proposals for a free and fair-trade regime in which each nation organizes its production efficiently and exports abundance in exchange for imports of shortages that are in abundance in other parts of the world. The division of labor, rather than a short-sighted policy of exporting goods for gold and silver while limiting the payment with such precious metals by reducing imports, set the ground for increasing production. For Adam Smith, the organization of society on production segments based on each individual's skills and dexterities push the quantity supplied far beyond its capacity as brought about by the existence of only one individual producing everything. Adam Smith advocated this for every nation in order to increase its production capacity and trade it, not for precious metals accumulation, but for those imports of necessary goods that are either limited on the domestic market, or more expensive than those produced abroad, in a win-win economic exchange.

Now, let's turn to Plato's ideas on how to deliver a wealthy nation. Adam Smith agreed that the lack of regulation in production and trade might create inequality between those who employ the capital and those who are employed by the capital. However, by pursuing his own interest, the capitalist is pushed by the invisible hand towards promoting that of the society where he employs the resources, which is better off than the alternative of not being employed at all. But inequality could not be easily welcomed in the Platonic times of rigid class structure. The city-states of Ancient Greece used to have a strict population and division of economic life aimed at creating an optimum society based on laws and institutions. Out of this societal optimization, ''only a limited degree of inequality was to be permitted, lest wealth become a source of distraction and dissension''.[1] Moreover, rather than advocating trade on an aggregate level as Smith did, Plato described trade as an activity conducted only by ''resident aliens or slaves'', with agriculture being intended for citizens of the city-state.[2] Since the fear of inequality might disturb the order of an optimum society in Ancient Greek, Plato pushed for a regulated framework in which commerce can take place, with goods being ''sold at specified places and at only moderately profitable prices, to be fixed by the state''.[3] However, Plato agreed with Smith on the importance of the division of labor in increasing productivity in society but attributed it not based on each individual's skills and dexterity learned during life, but on those innate abilities. Rather than an individual taught to make a rod, while another is trained to manufacture a rope, as Smith would say, according to Plato, agriculture was in the nature of the citizens to be conducted, while trade and handicraft for alien residents and slaves.

In Asia, Kautilya and Lord Shang took a more mixed approach on the particularities and road map towards building a wealthy nation. Kautilya shared the Smithian anti-mercantilist perception, believing that trade was not only desirable but mandatory in bringing cheaper and necessary products on the domestic market while exporting those that can be paid for more than on the domestic market.[4] However, contrary to Smith and more in the Platonic veins, trade should be regulated - through import and export tariffs - in order to protect national monopolies and prevent helping foreign ones, as well as a way to accumulate revenues for the monarch.[5] On the division of labor, and contrary to both Plato and Smith, Kautilya advanced the separation of production based not on natural or learned skills, but divine customs. According to this, the society was to be divided into four varnas (family groups, each including several castes): Brahmin, Kshatriya, Vaishya, and Shudra, with the first two being responsible for bureaucratic activities, while the last ones being limited to agriculture, cattle-rearing, and trade.[6]

Debating between the Smithian approach of allowing trade to flow freely and the Platonic-Kautilyan views of regulating it, Lord Shang proved to be the harshest critic of trade, prohibiting it altogether. Reminiscent of Smith, Lord Shang advanced the idea that productivity is the foundation of wealth, but unlike the 18th century philosopher, he limited it only to agriculture, and without its surpluses being traded for shortages.[7] Since goods such as grain was considered more valuable than any other manufacturing exchange or money (especially in times of drought), the benefits from export become null, and even more, destructive if an agricultural product is changed for one handcrafted or in exchange for money.[8] The prohibition of trade went hand in hand with Lord Shang's vision on the division of labor, through which he authorized that production and economic agents be oriented especially towards agriculture with the other economic sectors being highly discouraged by the restriction of trade in non-agricultural goods.[9] [10] This could hardly be found in the Smithian, Platonic and Kautilyan thinking which did not discredit the non-agricultural sectors, but considered them complementary.

It is the conclusion of this paper that the differences in how trade and the division of labor was assessed by the four proponents of the wealth of nation was dependent on a specific time and place. In Ancient Greece, Plato not only lived in mercantilist times as described by Adam Smith, but contrary to Smith, the political arena was much more divided between several city-states, each competing more fiercely in shaping their trade policies in zero-sum terms.[11] Given these circumstances -unknown during Adam Smith- of continuous anarchy, it was more difficult for Plato to describe trade in liberal terms as Adam Smith. Moreover, the fragmentation of the society in Ancient Greece between citizens, slaves and alien residents (contrary to the much modern society that Adam Smith lived in almost two millennia later) pushed Plato towards a different perception of the division of labor, one much more oriented to natural skills, rather than learned dexterities, since non-citizens of the city-states of Ancient Greece never had the opportunity to learn these practices, but they had the ability to exercise them. Like Plato, Kautilya and Lord Shang lived in times of anarchy, with Kautilya fearing that the political defragmentation between the northern and southern kingdoms in the Indian subcontinent will lead to ''the law of the fishes according to which the bigger ones swallow the smaller ones."[12] Under these circumstances, trade should be allowed since one kingdom can possess what another one needs (natural resources and cheap products) but should be regulated in order not to make one kingdom more powerful than the other.[13] Additionally, tariffs on imports and exports were to be applied to raise the gains of the monarch, and therefore of the society overall since during Kautilya's times, there was no particular difference between the wealth of the monarch and that of the nation.[14] The division of labor according to Kautilya resembled the cultural tradition of Indian subcontinent still observable today. In the Chinese territories, the times of Warring States during Lord Shang was no more different in terms of anarchy, especially with the devolution of power between several feudal warlords.[15] But to stimulate the power of the state out of this anarchic framework, Lord Shang advocated for increasing the productivity in the agriculture sector by prohibiting trade in non-agriculture goods and pushing the labor towards agriculture by offering incentives.

 

Bibliography:

Waldauer, C., Zahka, W., and Pal, S. 1996 ‘Kautilya's Arthashastra: A Neglected Precursor to Classical Economics’, Indian Economic Review, vol. 31, no.1, pp. 101-108.

Spengler, J. J., 1969 ’Kautilya, Plato, Lord Shang: Comparative Political Economy’, Proceedings of the American Philosophical Society, vol. 113, issue 6.

Medema, S. G., and Samuels, W. J., 2000 A History of Economic Thought: The LSE Lectures, Princeton University Press.

[1] Spengler, J. J., 1969 ’Kautilya, Plato, Lord Shang: Comparative Political Economy’, Proceedings of the American Philosophical Society, vol. 113, issue 6, p. 451.

[2] Ibidem, p. 454.

[3] Ibidem.

[4] Waldauer, C., Zahka, W., and Pal, S. 1996 ‘Kautilya's Arthashastra: A Neglected Precursor to Classical Economics’, Indian Economic Review, vol. 31, no.1, p. 102.

[5] Ibidem.

[6] Spengler, J. J., 1969 ’Kautilya, Plato, Lord Shang: Comparative Political Economy’, Proceedings of the American Philosophical Society, vol. 113, issue 6, p. 452.

[7] Ibidem, p. 454.

[8] Ibidem.

[9] Ibidem, p. 453.

[10] Ibidem, p. 454.

[11] Spengler, J. J., 1969 ’Kautilya, Plato, Lord Shang: Comparative Political Economy’, Proceedings of the American Philosophical Society, vol. 113, issue 6, p. 451.

[12] Ibidem, p. 450.

[13] Waldauer, C., Zahka, W., and Pal, S. 1996 ‘Kautilya's Arthashastra: A Neglected Precursor to Classical Economics’, Indian Economic Review, vol. 31, no.1, p. 102.

[14] Ibidem, pp. 101-102.

[15] Spengler, J. J., 1969 ’Kautilya, Plato, Lord Shang: Comparative Political Economy’, Proceedings of the American Philosophical Society, vol. 113, issue 6, p. 450.

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