Video and Transcript – Adam Lecture Series, Maria Pia Paganelli

[Allen Dalton] Good evening. Welcome to the fourth annual Adam Smith Lecture sponsored by the Boise State University economics department. My name is Allen Dalton; I’m a faculty member in the economics department. I would ask you to take a moment to silence your cell phones – let’s see, now mine’s silenced. At the conclusion of our speaker’s presentation, there will be a Q&A period. We do have a mic that’s in the middle of this row if you’d just like to line up. If you start doing a monologue, it’ll get turned off by the people in the booth back there, so try to keep your comments as brief as possible and get to your question so we can move on to the next question.

Also, at the end of tonight’s speech, those of you here for extra credit or mandatory for my students, make sure you turn in your extra credit slip to members of the Boise State Economics Association who are at the entrance to the ballroom. Finally, at the conclusion of tonight’s speech, the last slide in Professor Paganelli’s lecture will be a link to a survey for the Institute for Humane Studies, which happens to provide the money to bring Professor Paganelli here tonight and who has been our sponsor for all four Adam Smith lectures so we want to gratefully acknowledge their help.

The Economics Department established the Adam Smith lecture in order to bring to the Boise State campus nationally and internationally recognized scholars who have deepened our understanding and extended the worth of Adam Smith. Adam Smith, the 18th-century Scottish moral philosopher, established his reputation with two works: The Theory of Moral Sentiments and The Wealth of Nations; which continue to enlighten and inform us concerning the two spheres of interaction that humans engage in. First, the intimate sphere of personal exchange typified by friendships, family, and voluntary non-market institutions such as clubs and churches. And then second, the impersonal sphere market exchange, which gives occasion to the specialization and division of labor which Smith emphasized has produced the wealth we enjoy as modern citizens of the world. Especially in those nations that have embraced markets and the necessary underlying institutions of the rule of law and private property.

It is my great honor to introduce tonight’s speaker, one who has considerably added to our understanding of Adam Smith. Maria Pia Paganelli earned both her BA and MA in political science from the Catholic University of the Sacred Heart in Milan, Italy. Wishing to discover the United States, she applied to various political science and economics programs in the U.S. with the hopes of studying international relations and international economics. Accepted by George Mason University into its master’s and Ph.D. programs, Maria earned her MA in economics in 1999 and her Ph.D. in 2002. Her dissertation being topics on 18th-century money, robust and fragile models of money and man. She began her scholarly career in the economics department of Yeshiva University of New York City in 2001 and moved to Trinity University San Antonio, Texas in 2010. Maria has held visiting scholar or associate faculty positions at various institutions over this period, including New York University, Duke University, the University of Glasgow, Keio University in Tokyo, and Catholic University of the Sacred Heart in Milan. Maria Pia Paganelli is currently a professor of economics at Trinity University and was recently elected as the president of the International Adam Smith Society, a society designed to encourage scholarship from many disciplinary perspectives on Adam Smith’s writings. As well as in topics and issues connected with his writings and to provide a forum for the sharing of research and scholarship relating to Adam Smith. Next month, unfortunately, in Tokyo the 2020 conference was slated – we’re still hoping that it will go on, but today Maria learned that some people have canceled because they don’t want to get to Tokyo and then not be able to return home because of the coronavirus.

Maria is the author of numerous scholarly articles and books on Adam Smith, David Hume, Jean-Jacques Rousseau, Monetary Theory and money, trust, experimental economics, behavioral economics, and one of my favorite papers, which compares the two Smith’s: The Nobel laureate Ronan Smith who was our first speaker in this series with Adam Smith. Her 2009 paper appearing in the history of political economy entitled “The Adam Smith Problem in Reverse: self-interest in Adam Smith’s Wealth of Nations in the Theory of Moral Sentiments” was awarded the best article of the year by the European Society for the History of Economic Thought. And just this month — this is hot off the presses — her most recent publication came out, “The Rutledge Guide: Guidebook to Smith’s Wealth of Nations.” If I’d known that it was going to be published this month, we would have had the bookstore out here selling them. But you know where you can get these from, Jeff Bezos. Tonight, Professor Paganelli will share her consideration on why read “The Wealth of Nations” today. Please welcome the 2020 Adam Smith lecturer, Professor Maria Pia Paganelli.

[Applause]

[Maria Pia Paganelli] Thank you so much; it’s a great pleasure for me to be here. So tonight, we are going to see why we should read Adam Smith’s “Wealth of Nations.” I already gave you a little bit of a presentation on Smith, that’s a man or a statue of him in Edinburgh, Scotland, because Adam Smith was from Scotland, was born, raised, lived most of his life and died in Scotland. He indeed was the author of the Theory Moral Sentiments as well as The Wealth of Nations and was a professor at the University of Glasgow for a few years. He was teaching moral philosophy, which also included jurisprudence; he was not teaching economics because it didn’t exist at the time. So he was teaching moral philosophy, was teaching jurisprudence, which is basically law and then he became a commissioner of the customs office in Edinburgh. He lived most of his life with his mother, who died only a few years before he did. In between being a professor at the University of Glasgow and a customs officer in Edinburgh, he became a private tutor of one of the noblemen or the son of a nobleman in Scotland and at the time, Nobles would be educated privately; this is why you have a private tutor and you don’t go to university like everybody else and the education would consist in the grand tour of Europe. So Smith and the young count went to Europe. They went to France for some time; Smith was bored to death, so bored that he writes home saying I just can’t stand this here anymore – not that these are my words, but he would say I’m very bored. I don’t know what to do, so to pass the time I start to write a book. That book happened to be published in 1776 and is The Wealth of Nations, a book born out of boredom.

Published in 1776, and then I was asked why should I read it today. It’s an old book, it’s a quite old book and well, we can think of several reasons, some books are old, and we still read them, but then we can think, well, we can read it maybe because of his policy prescription, and maybe that’s not the best reason to read The Wealth of Nations. I’m going to read something that a commentator wrote a while ago, “the Smithing principles of free competition were developed against a particularly storica background, this museum word has been changed beyond recognition.” It indeed has been, so if you look at the policy prescription that you have in the Wealth of Nations they are meant for 1776. They’re meant for an audience that lived under the British Empire. Today, the British Empire does not exist anymore. Britain worked itself out of the European Union; there is a chance that they lose Scotland and Ireland as well- very different backgrounds. Today, we have democracy, and democracy was not an option in Smith’s time, it was landed aristocracy that had the power to enter parliament. Today, we’re thinking about, or this we’re discussing in the U.S., in Europe, that’s much more common- nationalized health care. In Smith’s time, that was not something to even remotely think of. There were poor houses, which were places as sort of prisons where you put the poor people to work for forced labor. Very different background. Smith is worried about how to transport live cattle from England to Ireland and what are the effects on the economy if you liberalize the trade of live cattle from England to Ireland and vice versa. His answer is none because it’s too expensive to transport live cattle. We’re talking in a time in which the steam engine is still not present. Today, we’re thinking about sending tourists to Mars, not exactly the same technology that we have. Smith is thinking in terms of competitive bank of issues. What this means is that each bank can print their own money because this is still money that is backed by a commodity that can be converted into gold or silver. Today, that kind of money does not exist anymore. If you open your own bank and try to issue money, you are going to go to jail because today, in most countries, the issuing of currency is monopolized by a central bank, so much so that even in Britain, if you have a 20-pound note, you have others made face on it. Very different institutional background.

Adam Smith writes in 1776 that his policy prescriptions or one of his hopes is to incorporate the colonies into Britain so that the North American colonies would become part of Britain. Not quite in that direction, a few months after the publication of The Wealth of Nations and you know exactly what happened. So the policy prescriptions Smith is offering us are not policy prescriptions that fit in any possible way or our own environment, so if I had to tell you why to read The Wealth of Nations, I wouldn’t suggest you do it to look for policy prescriptions unless you are interested in what kind of policy prescriptions were present in the 18th century but not for application of them today. Then, well, Smith is considered the father of economics so let’s use The Wealth of Nations to learn economics. This is a comment that Cannan wrote, Cannan is probably the editor of The Wealth of Nations, like he is the most important, the deepest scholar of the Western nation; he’s long dead. Nevertheless, he is still like the best reader of Smith. He is one of the best readers of Smith. This is what he says about The Wealth of Nations, “very little of Adam Smith’s scheme of economics has been left standing by subsequent inquirer’s. No one now holds his theory of value, his account of capital is seen to be hopelessly confused, and his theory of distribution is explained as an ill-assorted union between his own theory of prices and the physiocrats’ fanciful Economic Table. His classification of incomes is found to involve a misguided attempt to alter the ordinary useful and well-recognized meaning of words and a mixing up of classification according to source with classification according to method or manner of receipt. His opinions about taxation and its incidence are extremely crude, and his history is based on insufficient information and disfigured by bias.” This is the most important scholar of Adam Smith, commenting on the economics of The Wealth of Nations.

Now, professors here, would you use the textbook that has these kinds of descriptions? So, maybe if you’re looking to learn economics, that may not be the best place. So why else should you read The Wealth of Nations? Well, some of you may associate the name of Adam Smith with ideology. Okay, so let’s read Adam Smith because of his ideological positions. Now, this is a comment that James Buchanan made about Smith’s ideological position. “If Adam Smith were alive today, it would be a long distance from the modern libertarian anarchist and even from the spousal of the minimal state described by Robert Nozick.” So if you’re looking for a libertarian, somebody from the right, Smith not so well, that’s not the best place to look. There are better options than looking at Adam Smith. Look at it from the left, if you’re looking for somebody that supports left this position, not even there because people from the left condemn Smith for not being anti-capitalist enough. So, if you’re looking for an ideological support, Smith is probably the wrong place to look because it’s not going to work either from the right or from the left. So why read Adam Smith? I was talking with Roy Weintraub, who’s a historian of economics at Duke. He was commenting on a paper I was writing on a completely different topic on Smith, but on a different situation, and he said, “Maria, you know that what you’re telling is that Adam Smith is like the Bible.” I’m like, “am I?” I didn’t mean to, but that sort of stuck with me, the fact that his comment was you’re saying that Adam Smith is like the Bible. It’s like, okay, what do you mean by like a Bible? Not that every word is coming from God, but that the Bible is a living book. It’s a book that speaks to generations, different generations. It is a book that has been read for centuries and centuries and still can be read. Even if the context is different, we are still able to get something out of it. Regardless of whether you believe in it, regardless of whether you think that the content is correct or not, there is still something that you can get out of it, and it’s still a book that is read, and it should be read. In that sense, the Bible is a living book because it speaks to all generations of all times, just like The Wealth of Nations is a book to speak to all generations at all times in essence is a living book. Another historian of economics, Hugo da Gama Cerqueira, is Brazilian, and he told me once that The Wealth of Nations is what Italo Calvino calls a classic. I assumed that he thought because I’m Italian, I know Calvino, I didn’t. So, I had to look up what is a classic for Calvino just to understand this comment that he made, and here’s what Covino says about a Classic, “a classic is a book which with each rereading offers as much of a sense of discovery as a first reading.” And I think that actually fits The Wealth of Nations pretty well. It is a book that you can read once, you read twice, you read three times and there’s still something that you find that you didn’t find the first time. Calvino also said that a classic is a book which never exhausts all he had to say to his reader, and this is why you can read it over and over again, and a classic is the term given to any book, which comes to represent the whole universe. A book on a par with an ancient talisman and I like that definition, just because I’ve been spending a lot of time working on Smith and the idea that you have a book that represents the whole universe. So I think part of the way of thinking about The Wealth of Nations is to think of it as this ancient talisman represents the whole universe. Why? My thought is that because it is a book about ideas, it’s not a book about policy prescription, it is not a book about economic theory itself, it is not a book about ideology, it is a book about ideas and in particular, it’s a book about big ideas. It’s a book that asks big questions, and those questions are so big that we’re asked in the past, we’re asked during Smith’s time and are still asked today, they’re the same questions that we ask. It’s not an accident that the full title of The Wealth of Nations is an inquiry into the nature and causes of the wealth of nations. We tend to forget the first part of the title because we always work with The Wealth of Nations, but exactly inquiry is not a theory, it is not a system, and it is not principles. It’s an inquiry, it’s a book about questions about asking big questions, but you can tell me, “Maria, this is all we do in economics or in any scientific fields, we ask questions, so there’s nothing new about what Smith does and what we do because we’re all asking questions as a matter of fact if you don’t have a question you don’t have a publication.” So today, if you pick up any economic journals, you find a bunch of questions but the kind of question that we ask today are and just pick a random article from the American Economic Review, “Evolving Choice Inconsistencies in Choice Prescription Drug Insurance” that’s the kind of question that we ask today. And then Smith asks what are the nature and causes of the wealth of nations. Big questions, not just small questions. Small questions are very very important, don’t take me wrong, they’re super important because you need to have that kind of knowledge of the choice of prescription drug insurance, but it’s not a question that two hundred and fifty years from now, we are going to ask again. It’s a question that we ask today; we get the answer and that’s it. What are the nature and causes of the wealth of nations are questions that we are always going to ask. We’re asking today and we will ask 250 years from now and you can say, “Maria, you just picked like the smallest topic possible in an American Economic Review.” If you look at the recent Nobel prize-winner, they’re talking about wealth and poverty too – yes, but they’re actually not talking about wealth creation or poverty. It is the experimental approach. The recent Nobel Prize winners won because of their randomized control experiments, not because of the topic itself. It just happened that it applied to poverty, but their interest is randomized control.

Again, Smith cares about big questions. I want to say that we care about this question, too. We don’t care necessarily about these answers because the answers are kind of specific but the questions are still relevant. So, what is this big question that he asks when he asks what are the nature and causes of the wealth of nations? I think that the question he’s asking is how would the just system which is also promoting the wellbeing of humankind look like, given the imperfect and non-perfectible nature of humankind. How do we get there and how would we preserve it? Underlying the fact that he’s asking how would the just system that promotes wellbeing look like. The book is about the wealth of nations, so why do we care about wealth? I think that the answer comes from Ulisses. Ulisses is an artist that works with clay in the mountains of Brazil. It’s a very, very remote part of Brazil, it’s very poor, it’s very isolated and Ulisses sculpted this. And when I saw it, I was puzzled because it is a woman on a cross. It’s the first time that I had ever seen a woman on the cross and I’m like Ulisses, “what is this? Why do you have a woman on a cross?” And he said, “because I wanted to represent the suffering that we have out here because out here in the mountains of Brazil, we are very, very poor, we are forgotten by everybody, and we have to work very, very hard to try to stay alive. This woman is suffering because of the condition in which the poverty in which she lives. She has a little angel on her side, which is her little child, who died and in his account, whenever a small baby dies, it goes straight to heaven and becomes an angel and then stays with the parents to protect them, but the woman on the cross is suffering because she lost her child because she was so poor that she was not able to take care of the child.” So Ulysses is capturing the suffering that poverty brings, the suffering that implies being like on a cross and the death of your child because you are not able to support your child. And I want to say that is The Wealth of Nations, Ulisses is dealing exactly with the same problems that Adam Smith is dealing with. Ulisses may not know anything about that, probably doesn’t even know how to read, but nevertheless, he is facing the same problems as Smith is facing. This is how Smith opens The Wealth of Nations, this is the introduction that he writes for the book: “some countries are so miserably poor that from mere want, they are frequently reduced, or, at least, think themself reduced, to the necessity sometimes of directly destroying and sometimes of abandoning their infants, their old people, and those afflicted by lingering diseases, to perish with hunger or to be devoured by wild beasts.” You are forced to leave your child to be devoured by wild beasts. That is a striking, powerful image. You’re not- well, your child died. Yeah, too bad. Here you have this image of your parents, your grandparents dying of starvation, or being devoured by a wild beast; it’s a brutal image, and you’re forced to let them die because you’re so miserably poor that you can’t afford to keep them alive. Smith repeats this several times in The Wealth of Nations. It tells us there are some parts of the world in which you are forced to drown your children, like you drowned puppies. It tells us that in the highlands of Scotland, which is a very poor part of the country at the time, a woman would bear 20 children just to see two of them survive. That is because of poverty and what happens when you have wealth. That first paragraph, sorry, first chapter of the first book of The Wealth of Nations it tells us in rich countries a poor worker can live better than (side note: the language is not politically correct today but at the time, it was not offensive) in a rich country a poor worker can live better than an African King, the absolute master of the lives and liberties of ten thousand naked savages. Again, savages here is not meant in a derogatory way. It is a technical term that was commonly used in the 18th century, so don’t take it as offensive because it’s read and it didn’t mean to offend at the time at least, but here the idea is to compare. It opens the introduction with the introduction of the western nations by telling us poverty kills you, poverty forces you to kill your children, to kill your elderly, to kill your sick, you have to abandon them and be devoured by wild beasts, the children, the infants, the elderly, and the sick. The three weakest groups in society. They’re the ones that are suffering the most unjustly they’ve done nothing wrong, they just happen to be poor and not be able to survive. You introduce wealth and what happens: a poor worker is better off and is much better off than an African King. I’m going to talk about the absolute master in a little, in a second, but just keep it in mind. It is not just that a poor worker is better off and can live better than an African King but the African King is also the absolute master of the life of thousands of people. So, what are the institutions, the channels of our passions to promote justice and wealth? The two go hand in hand, you can’t have wealth without justice or you can’t have justice without wealth because if you don’t have wealth, those children are dying unjustly, your elderly are going to be abandoned unjustly. Those institutions Smith tells us are commercial institutions. He tells us that commerce manufacturers gradually introduced order and good government and with them, liberty and security of individuals among the inhabitants of the country who had before lived in a continuous state of war with their neighbors and a servile dependency upon their superior. So what Smith is telling us is that the difference between being able to keep your children alive or your elderly alive or you’re sick alive is the presence of wealth and wealth comes when you let commerce and manufacture flourish and when they do, they bring with them order and good government and with them liberty and security. So, that the African King was the master of the life of thousands that survived dependency breaks. When you introduce commerce, because when you don’t have commerce, you have one master. If they don’t like you, you’re out of luck. When you have commerce, you have a thousand masters. If one of them doesn’t like you, not a big deal- that’s freedom. So, how do we get there? Smith says we have a natural propensity to truck, barter and exchange. This natural propensity to truck, barter and exchange is what allows us to exchange to divide our labor and to prosper. It is the silent revolution of commerce, it is silent because nobody plans it, nobody designs it; it just happens without any conscious plan. He comes just because we are naturally embedded; we’re not only equipped with this propensity to truck, barter and exchange. This natural propensity to truck, barter and exchange allows us to break the servile dependency of the feudal system or any systems that are not commercial systems, if you let them be. But, Smith is a very cautious observer of reality. He says it’s not all pink, it’s not that we put our heart glasses with pink lenses and say, “oh, commerce and that’s it, everybody lives happily ever after.” Smith is very conscious of the fact that when you have wealth, you also have problems because wealth attracts a lot of greed. So if you have a big pile of wealth, a big profit opportunity, you say, whoa, that’s for me. You’re going to elbow your way and step over others in order to get that wealth, so Smith is very aware of the fact that whenever there are very large profit opportunities there are also very strong incentives to behave in ways that benefit yourself at the expense of everybody else. He strongly condemns that kind of behavior. Smith defines the wealth of nations as a violent attack against the whole commercial system of Great Britain and against the clamor of big merchants and manufacturers. Why is he saying that a violent attack that is making against the commercial system, Britain, because as big merchant manufacturers try to get monopoly power for themselves, try to limit the market, want to decrease competition, so they can profit at the expense of everybody else. Smith is willing to claim that the entire British Empire is a product of what we call today crony capitalism and lobbying. The entire British Empire is an empire based on monopoly power given to few merchants and manufacturers and this is why he is claiming that the wealth of nations is a violent attack against the commercial system of Great Britain because the big merchant manufacturers get monopoly powers for themselves, are rich of themselves at the expense of everybody else and that is unjust. So I think I agree with you, Buchanan, in saying that Adam Smith wants to have a just system. I’m going to read this quote “Adam Smith considered The Wealth of Nations to be a demonstration that the “system of natural liberty,” which emerge from fundamentally normative criteria of justice, could also meet efficiency criteria. Smith may well have conceived his masterpiece to be an argument to the effect that the system which was acknowledged to embody justice could also be efficient.” Justice comes first and just happens to be efficient. Those are the big questions that Smith is asking. They’re not technical questions, I mean there are also some technical questions, don’t take me wrong, but he’s asking big questions, in the breath of those questions because they’re technical questions linked with a moral component. He cares about not just efficiency; he cares about a just system that happens to be efficient. And so I strongly encourage you to read The Wealth of Nations, to work with big ideas, technical knowledge is very important but is not enough. Developing technical skills is great, but don’t narrow yourself too much. Think big, ask big questions, work with big ideas, and then you may even trust the silent revolution of commerce and competition that may bring us wealth. Thank you.

[Applause]

[Student asked a question, but the microphone didn’t work.]

[Maria Pia Paganelli] I don’t think that Smith would see the two as separable, so there is the government, the market, the state and society. The two always come hand-in-hand, so there are different levels of wealth, different kinds of societies and different ways of production. There are typical of different societies and they come with different institutions, different justice systems, different levels of government and different forms of government. Smith tells us if you live in hunting societies in a hunting society, property not quite there, mostly because you hunt. You eat whatever you’ve hunted, and if you have leftovers, it’s going to rot, so property you can’t accumulate property simply because it rots. So what kind of institution are you going to have there? Well, you’re not going to have a very developed court system with property rights, enforcement with property law or contract law because it’s completely irrelevant. Because you’re not going to trade that much because you don’t have that much property to begin with, but when you change society, when you are in a society in which you do have, say a more agricultural-based society in which you do have property or things that do last, then property becomes more important. To defend the property you start to develop a legal system, property law and contract law and the two have to go hand-in-hand. You can’t have an agricultural society without a proper court system, but it would make no sense to try to have a hunting society with a fully developed legal system; it just doesn’t matter, so for Smith, the two move hand-in-hand- you can’t separate the two. There is a very strong, Richard Wagner would say, entanglement between the social and economic or the political.

[Student] First of all, thank you for coming and speaking. We appreciate it. I wanted to ask you about the slide you had talking about the “violent attack,” was this viewed by governments at the time, as a really disruptive idea to how they functioned? Were they in some sense afraid of Adam Smith?

[Maria Pia Paganelli] They should have. That’s actually a very good question because in a sense, Smith was, I wouldn’t be so strong to say a rebel for his time, an intellectual rebel, but he was definitely at the center. Smith rights against mercantilism in a time in which mercantilism is a predominant economic theory. Smith writes against monopolies when everybody is praising monopolies. Smith writes against the empire at the peak of the British Empire. Smith writes against slavery in a time in which slavery is extremely popular. Smith writes against taxation without representation in a time in which taxation is given without representation. He writes against established churches. He writes against undoubted universities, so he’s a big dissenter. He is not a conformist in his time. Was he seen as a threat? No, just because the Scottish Enlightenment is a time in which there is a lot of openness to ideas, so there is a possibility to have discussions with very different opinions and very different points of view, but he’s definitely not somebody who conforms to the standard of this time.

[Student] Thanks for coming to speak here. So, my question is related to the slide you had up before the last questioner, related to the relationship between commerce and good government. The way that, let’s see, yeah, there it is [the last slide is pulled up]. So, that seems a little reductionist to me since we always have the propensity to truck, barter and so forth, and yet that hasn’t always introduced order and good government. So, how do you sort of disentangle the complicated relationship there, and what role do you think ideas play in the development of liberalism and order and good government?

[Maria Pia Paganelli] That’s an excellent question, actually. So, indeed, we always had, I mean, if it’s part of our nature, our propensity to truck, barter and exchange, but only now we live, at least part of the world, live in societies that can actually enjoy the results of commercial society of commerce. So the story that Smith tells us in the part of The Wealth of Nations where this comes from is a story about accidents, so it tells us, in theory, this is how we should develop. In practice, we haven’t developed that way at all. We actually develop in the opposite way that the theory tells us he says the order is inverted. Why? Because of accidents. By accident, the Roman Empire fell, and the reason why it fell was because of the barbaric invasion. According to Smith, so the barbaric invasion push people out of the country. They cluster them into cities. The countryside is abandoned rather than developing agriculture before you develop manufacturers, and then you develop trade, you cluster people in cities. The way to survive is to have long distance trade. Long distance trade eventually brings manufacturers, and eventually, manufacturing brings wealth to the countryside so it’s inverted order. Started by accident, so the story that he tells us is not necessarily linked with ideas and yet there is something to it because the ability to think, the freedom to think that you have again in the Scottish Enlightenment or with the collapse of the Fidel system is a freedom that allows you to develop certain way of understanding the world that makes it better off. One of the amazing things of the Scottish Enlightenment- think of Scotland in the 1700s. It’s the end of the world, like it’s a very backward country. It’s considered barbarians, and the Scotts are considered barbarians by the English, right? Because those are people that have like nothing, and yet you unify Scotland and England. Scotland has access to trade and started to trade not just with England but also with the colonies. It booms. Smith lives in a time of major economic boom. You have some of the major innovation both at the technical level as well as the scientific level and the steam engine that I mentioned before was invented in Scotland during Smith’s life by a friend of his. The fact that you have enough wealth to be able to think, to be able to dedicate yourself to the creation of new things, allows you to develop not just technical innovation but also innovation of the way you think. When you start to see that there are other things aside, the strict dictates whatever it is given to you, and you have to believe, but you can actually learn it and then see what is true or not, but nevertheless, the ability to test it yourself to learn it yourself is a privilege in a sense that comes with this booming of wealth. So, he indirectly tells you that the two go hand in hand. Hume is more explicit with it. Hume is much more direct in saying that, again, the language of the 18th century it is quite difficult for us today, but at the time, again, it was not meant as offensive, but that barbarians would not have any refined arts or refined thinkers right, so it’s something that whenever you have enough wealth whenever you have commerce you refine all the arts, all aspect of human being just flourish not just one, so the two go hand in hand. Exactly, Hume more explicitly than Smith.

[Student] Hi. I believe you mentioned earlier that Adam Smith was actually against the colonies, like going off on their own, but based on his views, it seems like he would be in support of them and like looking for their own justice, incorporation of colonies, so would you think that he was against them because of his views or what do you think his reasoning was against that?

[Maria Pia Paganelli] So, Smith saw the British Empire as a product of mercantilists, so as a product of monopoly power and the way to eliminate it is his option number one, first choice, incorporate the colonies so now you would be a British citizen if his idea actually would have taken place, so full representation of the colonies in British Parliament and full incorporation just like with Scotland, right. Scotland and England were separated. They incorporated, and became part of Great Britain. Similarly, you should incorporate North American colony, Ireland and East India. Large market, so Smith tells us the division of labor is limited by the extent of the market. Now you have this immense market- it is fabulous. He is also very conscious of the fact that this is not going to be politically feasible, the incorporation of the colonies is not going to work and if you actually thought it through, he says North American colonies are growing much faster than Britain because of the institutions that they have there are more freedom there’s many, there are less impediments to entrepreneurship and they’re growing so fast Smith says and how you know it because again, children. In Britain, a widow with four children will never marry again because you have four mouths to feed- can’t afford it. In North American colonies, a widow with four children, poof, remarries in a heartbeat because those four children are eight arms that can actually work and that tells you how fast the economy is growing in the North American colonies. It’s growing so fast, Smith says, that within a century or so of the incorporation, there’s going to be more tax revenue coming from the colonies from the former colonies and from Britain and usually whenever you have more tax revenue coming from a specific part or country you tend to move the capital there so he actually suggests that if there is an incorporation of the North American colony with Britain then eventually the capital of the Empire, the seat of the Empire will actually move to North America. Political again, he is aware that that’s not feasible. His second best is let the colony go. They are too expensive to maintain. They are not gonna pay taxes. They are paying a little bit of taxes but not enough, and so Britain has the whole burden of their defense. That’s not a good idea because it gives us nothing in return, and they’re very costly to maintain- let them go, and then he said this is also not politically feasible, so what do you expect, they’re going to fight and indeed The Wealth of Nations was published in March 1776. July, they started to fight- that’s his position with the colonies.

[Student] Hi. Thank you for the lecture; it was extremely interesting. So, I have two questions. The first is what did Smith have to say about the illegal framework of copyright and more generally, intellectual property. Did he consider it to be rent-seeking, or was it a valuable engine for economic growth? The second question is, can China continue to maintain economic growth today without democratization and an independent judiciary? Thank you.

[Maria Pia Paganelli] So, copyright laws are quite different at the time then from today. Smith says that there are ways to encourage innovation; the best way is competition. Competition would always bring you innovation without any hesitation. It’s always going to be innovation with competition. If you really want to try to get innovation in some specific area, you can have prizes, little badges, as the prizes, that’s about the extent of what I think is handling in the copyrights. Now he had some issues, in a sense with his own intellectual property rights because he had some debate with a contemporary and he claimed that this other person stole his ideas. So there was some like, this is mine, this is yours, but nevertheless, it is not something that
he, at that time, whereas especially direct property rights was not something that you would actually have as well-defined as we have today.

In terms of China, China is very interesting because Smith talks a lot about China and Smith says China is a very rich country and yet is stationary- it doesn’t grow. So, at the beginning, I mentioned that there are some societies in which there is a level of poverty that forces you to drown your children like puppies. That’s China. It’s a very wealthy country but it’s stationary, doesn’t grow, it’s flat. So people, if you read Marco Polo and you read the diaries of people that come back today in this time, they describe the same China, it’s no growth. Why is that despite having a very wealthy population- in straightest at least, there’s some people that are very wealthy and then you have the very, very poor? That is the case because the Mandarin system is such that under the presence of justice, the Mandarins go and take from the workers. So you work, but the fruits of your labor do not come to you. Mandarin takes it from you, so very bad laws, very bad institutions, flat economic growth. Can you change it? Smith doesn’t give us the way through which you change it. The way in which the description in which the process of change happens again is from this book, book three of The Wealth of Nations, which is more of an accidental thing, but nevertheless, if you are able to get out of a system that prevents you from enjoying the fruits of your labor and using those words because those are the words that Smith actually uses if you let workers enjoy the fruits of their labor, then you will allow for growth so usually whenever you see economies that do not grow, or they go backward it’s because workers cannot keep the fruits of their labor. Whenever you’re able to earn and keep what you earn, you have all the incentives to work, to be productive and to be innovative. Once you have that, then Smith thinks things make their way through. So again, the system that he describes for Britain is that Britain is very rich and it’s growing not as much as North American colonies but it’s still growing despite the monopolies, despite the Empire, despite all this limitation that you have because our drive, our desire to earn, our desire to better our condition is so strong that can break a lot of the limitation, a lot of the constraints that we have, not all of them though because some of the legal constraints are too strong to break.

[Student] Real brief, thanks again for coming. This is terrific. I’m a little perplexed by the rise globally of nationalism and the pushback against globalization. In my opinion, this is nothing more than a division of labor. On a grand scale, true- Adam Smith could not have imagined airplanes, supertankers, the iPhone or Nasdaq, but in my opinion, to fight against this, it is, at best, stupid and at worst, incredibly inefficient. It’s going back to having the individual making the pen. What do you think the Smithsonian view on that is?

[Maria Pia Paganelli] So, the division of labor is fantastic. It is a tool that we have to increase opulence- Smith’s word, like to become wealthy. Without the division of labor, you can’t get wealthy because you had to make everything yourself, which means that you make basically nothing, extremely little. So we do need to have division of labor, but division of labor by itself is not enough. You need to trade. Otherwise, you have a bunch of pins, but you can’t eat those pins. The division of labor is always associated with the extent of the market, the trade, so whenever you’re limiting trade, you’re limiting their ability to divide labor, which means you’re limiting your ability to actually grow. So this is why the question before, why incorporate the colonies? Because you extend the market. Why are marcantel such an evil power? Because they limit the market. What you want to grow economically is to expand your markets. The larger the markets you have, the more you can divide your labor. The more labor you divide, the more you can specialize and be more productive. Now, one of the problems that you have, which is a problem mercantilist that Smith describes, is they want to limit the trade because they want to have high profit for themselves, but how do you do it? Well, first of all, you claim that you know how to become rich, which is true, because if you’re a merchant or manufacturer, you know how to make profit for yourself, that doesn’t necessarily translate into you know how to make a country rich, Smith says. You know how to make yourself rich, but because you know how to make yourself rich, you make people believe that you also know how to make a country rich and then you start transforming the friends that are your trading partners and they should be your friends, into enemies. Smith tells us because Smith also faced a lot of nationalism at this time and he was able to blame these nationalist attitudes to merchants and manufacturers. So France is your enemy, as opposed to your trading partner, because if you buy French products, then you don’t buy my product, so they must be enemies. So you have the rhetoric of the merchants and manufacturers that rather than tell them that a rich Frenchman is actually a good customer from you and it’s good that they become richer, say no, if France is richer than me, that’s awful, I have to be a richer. So Smith says that there is a rhetoric embedded in mercantilism that transforms what ought to be your natural friend into an enemy.

[Allen Dalton] Any other questions? Thank you.

[Applause]