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Friday, April 17, 2015

On the Centennial of the Birth of a Giant

John James Cowperthwaite (April 25, 1915–January 21, 2006)

April 25, 2015, marks a century since John James Cowperthwaite entered the world. It’s a birthdate that deserves celebration everywhere.

I suggest April 25 as Cowperthwaite Day, to be observed on every continent by men and women who revere the blessings of a free economy and the courage of those who work to put it in practice.

In an important sense, free economies don’t have “architects.” However, the “planned chaos” of socialist economies has lots of architects. Some are well-meaning busybodies eager to knead other human beings like dough on a social kneading board. Others are presumptuous con artists who savor the power their plans require.

By contrast, Cowperthwaite freed his fellow citizens to build an organic, spontaneous economy from the ground up instead of imposing on them a contrivance from the top down. More than any other individual, he was responsible for the miracle of the Hong Kong economy. Unlike the plans of socialist central planners, Cowperthwaite’s plan actually worked.

I’ve written previously about Cowperthwaite’s background and accomplishments. When he passed away in 2006, the Lion Rock Institute of Hong Kong paid tribute to him. On this occasion in 2015 of the centennial of his birth, I’d like to highlight his legacy by sharing his own words with our readers.

Cowperthwaite knew that a collective abstraction such as “society” hides the living, breathing, decision-making individuals who compose it:

I do not think that when one is speaking of hardships or benefits one can reasonably speak in terms of classes or social groups but only in terms of individuals.

After World War II, as his own Britain veered sharply toward socialism, Cowperthwaite understood what Friedrich Hayek described so well as the planners’ “pretense of knowledge.” He put his faith in free people investing their own money and energies, not in bureaucrats spending that of others:

Government should not in general interfere with the course of the economy merely on the strength of its own commercial judgment. If we cannot rely on the judgment of individual businessmen, taking their own risks, we have no future anyway.

At a time when much of the world was infatuated with the notion that smart people with computers could plan an economy, Cowperthwaite scoffed at the notion:

They cannot believe that anything can work efficiently unless it has been programmed by a computer and have lost faith in the forces of the market and the human actions and reactions that make it up. But no computer has yet been devised which will produce accurate results from a diet of opinion and emotion. We suffer a great deal today from the bogus certainties and precisions of the pseudo-sciences which include all the social sciences including economics. An article I recently read referred to the academic’s “infernal economic arithmetic which ignores human responses.” Technology is admirable on the factory floor but largely irrelevant to human affairs.

He argued that free markets were far more flexible and responsive than the artifices of government:

I still believe that, in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.

He kept taxes low (and tariffs nonexistent) because he knew incentives matter:

One of these is an increasing awareness of the benefits to our economy, particularly in terms of investment and enterprise, both local and from overseas, of not having the inquisitorial type of tax system inevitably associated with a full income tax. Another is that even I, who have always believed in the vigor of our economy under our present tax regime, have been surprised by the growth of revenue generated at our present tax rates.

(He was a Laffer-curve advocate before there was a Laffer.)

Resource-poor Hong Kong, Cowperthwaite surmised, needed to attract capital to develop, and capital goes and stays where it’s safe. Making war on capital and capitalists ensures perpetual poverty:

Simply put, money comes here and stays here because it can go if it wants to go. Try to hedge it around with prohibitions, and it would go and we could not stop it; and no more would come. I am afraid that I do not believe that any body of men can have enough knowledge of the past, the present and the future to establish “development priorities” — which presumably means procuring some developments as being good and prohibiting others as being bad…. We enjoy a considerable net inflow of capital and I am sure that a condition of its coming, and staying, is that it is free to flow out again. It is also important for Hong Kong's status as a financial center that there should be a maximum freedom of capital movement both in and out.

He turned up his nose at proposals to use the tax-and-spending power of government for molding social behavior:

What gives me concern…is the implication that the people of Hong Kong have to be given a reward, like children, for being good last year, and bribed, like children, into being good next year. I myself repudiate this paternalistic, indeed colonialist, attitude as a gross insult to our people.

He didn’t much care for the mystical elixir of budget deficits to “stimulate” the economy:

I will not be proposing a course which has been under some public discussion recently — deficit financing. It is wholly inappropriate to our economic situation.… Keynes was not writing with our situation in mind. In this hard world we have to earn before we spend.

Finally, Cowperthwaite rejected crony capitalism. If you accused him of being “pro-business,” he would likely respond by emphasizing he was “pro-enterprise,” meaning he supported a free, competitive environment for all instead of favors for the politically well-connected few:

I must confess my distaste for any proposal to use public funds for the support of selected, and thereby, privileged, industrialists, the more particularly if this is to be based on bureaucratic views of what is good and what is bad by way of industrial development.

In a global context, Hong Kong is a speck. At 426 square miles, it’s about 40 square miles smaller than New York City. But no socialist economy of any size anywhere can boast economic growth that is remotely comparable and sustained. To this day, thanks to Cowperthwaite, Hong Kong’s economic freedom proves the immense power of a good example, however small. As Cowperthwaite himself once said, “A glimmer of light is better than no illumination at all.”

For additional information on Hong Kong and Cowperthwaite, see these articles from past issues of the Freeman:

  • Lawrence W. Reed is FEE's President Emeritus, having previously served for nearly 11 years as FEE’s president (2008-2019). He is also FEE's Humphreys Family Senior Fellow and Ron Manners Global Ambassador for Liberty. His Facebook page is here and his personal website is