In 1776, Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations. It was the heyday of the Enlightenment, when many European intellectuals believed they had unlocked the secrets to progress. According to the popular interpretation of Smith, human nature leads to prosperity. Pursuing our self-interest generates trade, cooperation, specialization, and productivity growth, so long as we are not impeded by irrational government policies such as trade barriers or state-sanctioned monopolies. Because free markets allocate resources efficiently, the government’s most important job is to ensure a minimal set of rights and otherwise stay out of the way—a central principle of the liberal Enlightenment political philosophy that helped inspire American democracy.
More than 200 years later, however, it is clear that human societies do not progress inevitably toward greater wealth. Creating the conditions in which self-interest will foster economic development is harder than optimistic Enlightenment thinkers believed. Economic growth is not predestined: Many countries have seen long-term declines in standards of living, as did Argentina in the twentieth century. Others, such as large parts of Africa, seem mired in strife and poverty. With even the United States and Western Europe facing economic stagnation, burdensome debt levels, unfavorable demographics, and rising global competition, it seems that sustained stability and prosperity may be the historical exception rather than the rule.
Keep reading: James Kwak for Democracy Journal: Failure Is an Option.
