By MoneyMorning.com.au
Yesterday we included a quote from Paul Howes, complimenting the South Korean government on their foresight on throwing billions into developing the brand ‘Samsung’.
But Howes, like many statists and central planners have made a common mistake. They wrongly credit economic and human progress with the increased role of government during the past 200 years.
In reality, they’ve put the cart before the horse. It’s not the gradual increases in government intervention that spurred progress. What spurred progress was the end of Europe’s feudal system of government, and the discovery of the New World and free markets.
18th century French writer Voltaire wrote of the feudal state that it was ‘a device for taking money out of one set of pockets and putting it into another.’
Sound familiar?
So it’s no coincidence that, as feudalism ended and individuals gained more freedom, human progress finally took off. It was like a coiled spring waiting to be sprung…a jack-in-the-box with the lid forced shut, until suddenly the promise of freedom and opportunity beckoned.
But for centuries there was no freedom or social mobility.
Kings ruled their kingdom, and occasionally kings fought with other kings, or fought with princes who grew impatient of waiting to become kings.
Lords of the manor ruled their vast landed estates… land assigned to them by the king or wrestled from other Lords or handed down through generations. For centuries the land was unimproved and unexploited – no factories, no productive labour force…just gardens, lakes and follies.
Beneath them were the merchants and tradesmen. The buyers and sellers of goods and the makers of goods. The men who passed on both name and occupation to their children: Carpenter, Cooper, Baker, Smith, Butcher and many others.
At the bottom came those who were little more than slaves…the serfs. They grew crops for the Lords and were allowed to keep enough food for subsistence living.
Everyone knew their place. There was no social mobility. Serfs didn’t become merchants or tradesmen. Merchants or tradesmen didn’t become Lords. Lords didn’t become kings.
There was no progress or improvement in the standard of living because no-one knew the concept of wanting to do better for themselves.
Bottom line: There was no incentive for anyone to do more than was necessary to maintain their current standard of living.
The Rise of the Entrepreneur
Yet gradually, human spirit prevailed. As the saying goes, ‘You can’t keep a good man down.’
But by the 17th and early 18th centuries, people that we would today call the middle class began to think there was more to life than knowing their place.
The spring had sprung, and there was no going back.
Now, we’re certainly not saying that these ‘middle classes’ were freedom fighters. They didn’t fight against the established systems in order to achieve universal suffrage.
And remember, revolutions are rarely begun by the working class or poor. They mostly begin when those who seek more power, or grow tired of not having it.
So, they fought out of self-interest. But it also drew in those who saw the opportunity to perhaps do something no-one else had ever done – the opportunity to rise above their station.
Within a generation plain old ‘middle class’ merchants and tradesmen became entrepreneurs.
Perhaps the first modern entrepreneurs. They saw the opportunities that economic freedom (or at least relatively more freedom) could offer and they took advantage of it.
And the effect didn’t take long. Progress began to march further ahead as the Industrial Revolution took hold in England and then throughout Europe.
The steam engine…the spinning jenny…iron foundries…manufacturing…machine tools… chemical discoveries…gas, glass, and agriculture machinery.
The list goes on.
None of it, not one jot of these innovations, inventions and improvements was created by an act of parliament or ministerial decree.
They were created by entrepreneurs, through trial and error. Those who trialled and got it right are remembered centuries later: Michael Faraday, James Watt and George Stephenson.
Those who trialled and failed have been forgotten. And yet their presence and efforts are just as important, because without failure there isn’t success and there isn’t progress.
The Industrial Revolution was a creation of human activity and ingenuity. It certainly wasn’t about governments picking winners.
In fact, when the bureaucrats do try to create innovations by legislation, it’s usually a disaster.
For instance, take the Longitude Act of 1714.
It was passed by the U.K. parliament in that year. The aim was to solve the problem of calculating longitude while at sea. The difficulty of making this calculation is seen in a letter from Amerigo Vespucci, a 15th century explorer
‘As to longitude, I declare that I found so much difficulty in determining it that I was put to great pains to ascertain the east-west distance I had covered. The final result of my labours was that I found nothing better to do than to watch for and take observations at night of the conjunction of one planet with another, and especially of the conjunction of the moon with the other planets, because the moon is swifter in her course than any other planet. I compared my observations with an almanac.
After I had made experiments many nights, one night, the twenty-third of August 1499, there was a conjunction of the moon with Mars, which according to the almanac was to occur at midnight or a half hour before. I found that…at midnight Mars’s position was three and a half degrees to the east.’
That’s a lot of effort.
Eventually, the U.K. created the Board of Longitude to solve the problem. It was created in 1714 by an Act of Parliament. But it wasn’t until 1773 that the Board finally recognized the work of John Harrison and his marine chronometer…14 years after Harrison had proved that his design worked.
Yet still, when anything goes wrong in an economy, the people and the press turn to the State for help.
Investing in a Free Market
But it’s not the slow creep of increased government powers that created so much wealth and progress from the 18th century onwards. Instead it was the end of centuries of human oppression and the reduction in government involvement.
That’s the story of progress and success. Not dim-witted bureaucrats, unionists and politicians trying to pick winners.
But ultimately, although it may not always seem like it, we’re positive about the future. This is simply because we believe that, in the end, human spirit and the urge to be free will always overcome oppression and control by the State.
That’s a world we want to live in, and it’s also a world we want to invest in. We hope you do too.
In this coming issue of Australian Small-Cap Investigator, we’re researching the stocks that we believe have the most to gain from a shift away from central planning and back towards more open and free markets.
Kris Sayce
Editor, Money Morning
From the Archives…
The Hard Lesson of a Stock Trader: No Pain, No Gain
2012-06-29 – Kris Sayce
How Gold Prices Look Set to Climb As Banks Crumble
2012-06-28 – Peter Krauth
‘Big Wednesday’ For the Aussie Dollar
2012-06-27 – Dr. Alex Cowie
Three Reasons Why Silver Could Take Off in 2012
2012-06-26 – Dr. Alex Cowie
Who is Winning the Battle Between the Bulls and Bears?
2012-06-25 – Kris Sayce
How Progress Came From the Free Market
Tradervox.com (Dublin) – The Australian and New Zealand dollars fell from their two-month high registered yesterday as stocks in the world market fell. The demand for riskier assets reduced as investors await the ECB and BOE rate decisions scheduled to be announced later today. The kiwi reversed it two-day advance against the yen before reports that may indicate a drop in the German Factory orders. Further, the south pacific currencies dropped as economists predict the least advance in US payrolls in more than two years. However, investors will also be waiting to hear what Australian Treasurer Wayne Swan has to say about trading the Chinese currency and the Aussie next week.
Tradervox.com (Dublin) – The Bank of England and the European Central Bank are set to signal the start of a zero-rate era, as they move to shove their respective economies to growth. The market has seen an increased number of central banks around the world cutting interest rates as the global economy continues to worsen. The BOE and ECB officials will be making their rate decisions later today where major changes are expected.
