Saturday, May 19, 2012

HOW THE WORLD (REALLY) WORKS

One of the things that I regret from writing my first book is what I left out. Perhaps the biggest omission was leaving out Friedrich List. Who the hell is Friedrich List you ask? Good question.



In the pantheon of giant thinkers who studied and then tried to explain how our world works in the 19th and 20th centuries Friedrich List (1789-1846) ranks up there with Adam Smith and Karl Marx. We all know that the ideas that drove Adam Smith helped set the groundwork for the liberal revolution(s) that gave us our free market economies (and the American and French revolutions). We also know that Karl Marx's criticisms of market capitalism set the stage for the socialist revolutions of the 20th century.


Artwork from Artonfix.com

Unfortunately the ideas of Adam Smith have been used and abused to such a degree that the U.S. economy is currently dominated by reckless market players who treat the economy like a giant casino. For his part the writings of Marx were used to set up totalitarian states that got virtually everything wrong about incentives and the human condition.

The end result is that while the U.S. economy seems poised to collapse on its own debt and derivative-driven stupidity (again), the Soviet and Chinese experiments with "worker utopias" have been relegated to the dustbins of history.

The problem we have at the beginning of the 21st century is that adherents and zealots on both sides of the Smith-Marx continuum largely ignore key pieces of history and have not given much thought to how the world really works. Instead they blindly believe in misapplied theories of markets and people, as if the human condition is dominated by some kind of rational homo economicus man.


Those who claim some kind of intellectual bond with either Adam Smith or Karl Marx seem to believe that universal rules of profit and material production drive the human condition when this simply is not the case. Incredibly extremists on both sides ironically find common ground with one another because both see a shrinking (or "withering") state as ideal because of how a rational new man emerges to guide society (yes, they are much closer on this then either cares to admit).

I bring all of this up because a discussion on FB I had this morning got me thinking about what I should have mentioned in my first book.

Specifically, I should have been much more forceful explaining that how most people (especially market players) think the world works is not actually how it really works. Simply put, the state creates the conditions under which societies and markets prosper. If we understood this my guess is that we wouldn't be in the position we find ourselves in today: Praying that the Germans will save the day in Europe ... and hoping that Wall Street doesn't fall off an economic cliff (again) and then drag the rest of the world down with yet another "unforeseen" market collapse.

This article - "How the World Works" - from James Fallows goes a long way in explaining why politicians and market players in America are getting things so wrong. As you will see, it's not so much that they don't know as much as they never learned how the world really works.

- Mark

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