The economic question of greatest importance to Adam Smith remains the economic question of greatest importance today: what causes wealth? What conditions best encourage economic growth and widespread prosperity?
The general answer is easy: private property rights and freedom of contract. When everyone enjoys the right to acquire, own, use, and exchange property rights voluntarily, free markets result. And free markets, in turn, promote an ever-deeper division of labor and increasingly complex commercial and industrial arrangements. The consequence is widespread and increasing prosperity.
And we know now-in the aftermath of the appalling carnage and destitution spawned by the several varieties of twentieth-century socialism-that a necessary condition for prosperity is that government be reasonably limited. People create wealth only insofar as they are free.
Imagine a skyscraper; call it the Prosperity Tower. Now imagine, hanging next to this skyscraper, a giant wrecking ball. It starts to swing. The wrecking ball pounds the skyscraper. The building is probably sturdy enough to remain standing and functional if it suffers only one or a few hits. But if the wrecking ball keeps swinging relentlessly, the Prosperity Tower eventually will collapse.
From the rubble, enterprising and energetic people-entrepreneurs, financiers, architects, construction workers-begin to rebuild the Prosperity Tower. They complete a few floors when the wrecking ball again starts to swing. It destroys the nascent building.
Hoping against hope, these or other energetic and enterprising people again undertake a rebuilding effort. As before, they complete the early stages of the construction and then the wrecking ball again swings into its awful action, demolishing the fruits of their efforts.
Eventually, the mere threat of a swinging wrecking ball will discourage anyone from attempting to rebuild the Prosperity Tower. Even if the wrecking ball itself is currently hanging idle, its history of swinging into action whenever the Prosperity Tower begins to reach skyward will ensure against the Tower’s construction.
Government is like a wrecking ball. Taxation robs producers of the fruits of their efforts, and regulation substitutes the centrally imposed and politically inspired commands of the few for the decentralized, richly textured, and voluntary plans of the many. Economic prosperity is assaulted. Too many such assaults turn the Prosperity Tower into rubble.
For prosperity, freedom is indeed necessary. But freedom is not sufficient.
For a skyscraper to reach for the heavens, not only must its skyward path remain free of swinging wrecking balls; individuals must also possess the creativity, trust, and gumption necessary to build the tower. No matter how minimal the threat of swinging wrecking balls, a skyscraper will not arise without positive and creative actions by individuals.
Entrepreneurs must envision the use and possibility of the skyscraper; architects must design it; investors must see its promise as well as see the trustworthiness of the builders; suppliers must produce and make available reliable amounts of millions of different building materials; contractors, subcontractors, and hundreds of construction workers must each contribute their own unique skills and their individual initiatives toward the project.
The amount of creativity, cooperation, and effort required to build a skyscraper is so vast as to be beyond description. Yet each fragment of this creativity, cooperation, and effort necessarily is contributed by an individual-an individual who could choose to refuse to contribute. If too many individuals make this choice, no skyscraper will be built.
The necessity of positive and creative individual human actions is often overlooked in the Western industrialized world-even by champions of free markets and liberty. I’ve heard too many of my fellow economists blithely predict that pro-freedom changes in the constitutions and statutes of places such as the former Soviet empire and sub-Saharan Africa will quickly create prosperity.
But when the wrecking ball stops swinging, the Prosperity Tower doesn’t automatically arise as a force of nature. Prosperity requires also a culture and a set of norms that promote commerce, enterprise, and industry. It is true that such culture and norms are likely to emerge when freedom reigns, but in places where people have long been unfree, the culture and norms necessary for economic growth do not materialize instantaneously with pro-freedom changes in the constitution and statute books. Such cultural change takes time.
People long unfree do not immediately learn those intricate norms and rules necessary for civilization, for example, the norm of recognizing that strangers who speak different languages and who worship different gods are nonetheless people with whom mutually advantageous trade is possible, or the rule of keeping promises to others even when breaking promises might yield short-run personal benefits.
Without such norms and rules, and without the desire for material gain, merely stopping the wrecking ball of government intervention from swinging will not cause the Prosperity Tower to arise.
Lest I be misunderstood, I express complete agreement with one of my great heroes, Thomas Babington Macaulay, who wrote: "Many politicians of our time are in the habit of laying it down as a self-evident proposition, that no people ought to be free till they are fit to use their freedom. The maxim is worthy of the fool in the old story, who resolved not to go into the water till he learned to swim. If men are to wait for liberty till they become wise and good in slavery, they may indeed wait for ever."
But Macaulay also understood that changes in social norms are every bit as important as "public measures"-changes in constitutions and statute books-for peace and progress.
In places long unfree we must be patient in letting freedom do its work. The failure of Albania, Bulgaria, Uzbekistan, and other newly freed places to quickly become prosperous is no indictment of freedom. The slowness and rockiness of their progress toward prosperity is an unavoidable consequence of their long slavery. These peoples must learn over time to be free and successful. And they will do so as long as no wrecking ball pounds them too harshly.
Donald Boudreaux is chairman of the economics department of George Mason University and former president of FEE.