Each issue of The Region has
carried an interview with a leader from within the Federal Reserve
or with someone whose work or ideas have been of interest to our
policymakers. In planning this issue, we decided that Adam Smith,
who many consider the father of modern economics, would make a
perfect interview. Needless to say, speaking with Mr. Smith is
a bit of a problem, and for the obvious reason. To solve the problem,
we contacted Professor Edwin G. West, a renowned expert on Adam
Smith to serve as our "medium."
Currently, West is professor emeritus at Carleton University,
Ottawa, where his areas of expertise are public finance, public
choice and the history of economic thought, particularly with
respect to the work of Adam Smith.
His book, Adam Smith and Modern Economics: From Market
Behaviour to Public Choice, was published by Edward Elgar
in 1990. In the area of the history of economic thought, his article, "Joint Supply Theory before Mill," will appear in History
of Political Economy, finance.
Professor West, who received his doctorate in economics from
London University, will have two special American editions of
earlier works published in the near future by the Liberty Fund: Education and the State(1970) and Education
and the Industrial Revolution(1975).
Region: In The Wealth of Nations you spoke of the
invisible hand that guides the marketplace and said that unencumbered
markets should work well. Since then we have had many "experiments"
with different approaches to national economies, which have yielded
a wealth of information. In light of the evidence, do you feel vindicated?
Smith: Before addressing what you call "experiments"
with different approaches to national economies, let me remind you that
there was quite a variety in my own day. Like other members of the Scottish
School I was trying to establish what you now call a comparative systems
approach, and you will find in my The Wealth of Nations a
wide survey of many forms of societies, including Greek republics, democracies,
monarchies, federal governments, governments of mercantile companies,
the American colonies and established churches. I was attempting to determine
what bearing these institutional differences had upon relative economic
success. But what was also new was that such success was measured in terms
of per capita, not per monarch, per company or per church success.
Your question presents my central hypothesis as being that "unencumbered"
markets work best. In The Wealth of Nations my understanding
of freedom from "encumbrance" is summarized in my call for "natural
liberty." This condition presumes a well designed constitution, respect
for the rule of law and the absence of any preferential treatment of special
interests. Allow me to quote from The Wealth of Nations (Book 4, Chapter
All systems either of preference or of restraint, therefore, being
thus completely taken away, the obvious and simple system of natural
liberty establishes itself of its own accord. Every man, as long as
he does not violate the laws of justice, is left perfectly free to
pursue his own interest his own way, and to bring both his industry
and capital into competition with those of any other man, or order
of men. The sovereign is completely discharged from a duty, in the
attempting to perform which no human wisdom or knowledge could ever
be sufficient; the duty of superintending the industry of private
people, and of directing it towards the employments most suitable
to the interest of society.
The last sentence of this quotation, suitably rephrased, could, I believe,
be used as an appropriate epitaph for the socialist regimes that collapsed
in the 1980s and '90s. Acting like sovereigns, their principal committees
had indeed been exposed to innumerable delusions. They failed to realize
that no human wisdom or knowledge could ever be sufficient for "superintending
the industry of private interests of society."
In my own day I diagnosed many similar problems where natural liberty
was shunned. I showed that this situation was associated, for instance,
with the disastrous attempt at government by the East India Company in the
18th century, and with the onerous system of taxation of the poor in
The last part of your question asks whether, in view of the experience
of 20th century experiments, my predictions have been vindicated. I would
answer yes especially on the issue of liberty. In a 1991 article, Scully
and Slottje selected a total of 15 attributes of economic freedom. These
included freedoms of property, international financial transactions,
movement, information, peaceful assembly and communication through the
print media. A special feature of the analysis was the weighting of the
attributes in their construction of an index of economic liberty. After
constructing a number of summary indexes, the authors found each of them to
be robust. All the rankings indicated that economic growth and real
domestic product per capita are positively correlated with economic
liberty. So I do indeed feel vindicated!
Region: How well can we expect markets to function in countries where
profit and entrepreneurship have really never been part of the cultural
fabric? Specifically, what are the prospects for Russia?
Smith: The useful pursuit of profit by entrepreneurs in a competitive
market is hindered most, not by natural cultural differences but by despotic
and short-sighted governments, which, in their greed for revenues, tax
away any and all surpluses almost before they appear. I argued in The
Wealth of Nations that markets evolve because of the propensity
in human nature to "truck, barter, and exchange." This propensity,
I suggested, is "common to all men." It is governments that
artificially suppress it.
Soon after following their natural instincts to trade with each other,
individuals will just as naturally begin to attempt to devise mutually
acceptable rules of behavior such as common law respect for contracts.
Constitutional arrangements that protect both individuals and their
property can also be expected because without a firm and predictable legal
framework the market system cannot thrive. To quote again from The Wealth
of Nations (Book 5, Chapter 3):
Commerce and manufactures can seldom flourish long in any state which
does not enjoy a regular administration of justice, in which people
do not feel themselves secure in the possession of their property,
in which the faith of contracts is not supported by law, and in which
the authority of the state is not supposed to be regularly employed
in enforcing the payment of debts from all those who are able to pay.
Witness, in contrast, the situation in Russia where today there is simply
no legal basis for prosecuting the crime of fraud.
It is probably true to say that in successful market economies the
evolution of rules from the bottom up, rather than imposition from the top
down, encourages a kind of ideology that constrains people to behave in
moral and predictable ways. They include honesty, fair play and adherence
to professional ethics that sees it to be unworthy of us to cheat, bribe or
misuse the authority of the state for selfish purposes.
Compared with Poland, Czechoslovakia and Hungary, Russia has been much further
and longer away from the ideology just described. It will, therefore,
be much more difficult to establish in that country a fully fledged market
economy. Russian leaders, in fact, still see "reforms" as top-down engineering
programs. Whereas in Poland reform was started by the opposition and by
people outside the party, in Russia everything was started by the "apparatchiks."
The term "reform" indeed now seems to have been redefined to
mean a revival of statism. The worst example of it is the present attempt
of Mr. Gerashchenko at the central bank to inflate the Russian economy
to provide cash bailouts to defunct industries that make goods no one
wants to buy.
Perhaps the most serious shortcoming of a regime that tries to plan
and control thousands of economic decisions is that resources are diverted
from fulfilling government's most basic responsibility: the protection
of citizens from theft and personal assault. It is, thus, not surprising
that, in his first State of the Nation address (in February 1994), President
Boris Yeltsin singled out lawlessness in Russia as "the problem of
the year." It is certainly an ominous situation when virtually all
Russian shops, cafes and restaurants pay for private protection, as do
70 percent to 80 percent of larger commercial enterprises and banks.
Optimists can always be found, however. Referring to the obligation
to pay protection money, one Moscow citizen recently observed, "We
are at about the level of the U.S. in the 1930s. Three years ago we were
at the level of the 1920s. So that is progress!"
Region: Much of today's economic thinking in the United States and the
United Kingdom is based upon your ideas. Some would argue that in other
parts of the world, especially Asia, the economic premises are different.
They say that the Adam Smith, Anglo-American, economic philosophy has come
to be nearly sacred and tolerates no other point of view: It insists upon a
fair process and would label any other political economic approach as
cheating. Have we become obsessed with a level playing field and failed to
understand the essence of economic reasoning beyond the Anglo-American
Smith: Are the economic premises in America different from those in
Asia? It depends on which particular part of the continent you have
in mind. One Asian country, in fact, comes much closer to my ideal
market economy than does modern America. Hong Kong has had considerably
more economic freedom than the United States since the 1950s. There
have been no tariffs and no import or export quotas except those
such as textile export quotas forced upon Hong Kong by US protectionists.
Americans, therefore, do not always favor the level playing field
as the quotation assumes. Taxes in Hong Kong have ranged between
10 percent and 20 percent of the national income, which is very
much lower than in the United States where government spending is
now about 44 percent of the national income. Besides this there
is an absence of price controls, and Hong Kong does not have America's
minimum wage laws. As well there has been little evidence of the
suppression of human freedoms such as freedom of speech and the
press. It is true that there has been little in the way of political
representation but I was never impressed, anyway, by the ability
of democracy to foster economic prosperity. As it is, the level
of per capita income in Hong Kong has quadrupled since the 1950s
despite a tenfold increase of population; and all this happened
without anything in the way of foreign aid.
Milton Friedman finds a remarkable contrast between Hong Kong and
India which latter country, he says, received political freedom from the
British but subsequently witnessed little in the way of economic freedom.
The democracy established in India was used subsequently to churn out
legislation that imposed extensive controls over imports, exports, foreign
exchange, prices and wages. The result, Friedman argues, is that the
standard of life for the great bulk of the Indians has hardly risen
compared with 40 years ago.
With regard to China, one certainly has to recognize impressive growth
recently. But this has been due partly to the "catching up"
phenomenon (experienced also in Japan), and partly to a desire to avoid
the fate of the Soviet Union, a desire which has forced Beijing to allow
more freedom to the provinces. Chinese leaders, indeed, had to abandon
an economic austerity program soon after they introduced it in the summer
of 1993 because the central government was unable to impose the program
on the provinces, especially in the market-oriented southern regions close
to Hong Kong. The World Bank, meanwhile, reports that the Chinese provinces
are increasing trade outside China's borders and doing less business with
other provinces. This development seems another sign of growing local
Region: Certainly, free market principles are evident in Asian economies,
some of which, as you mention, seem more interested than the United
States in maintaining a level playing field. However, isn't it also
true that some Asian countriesJapan, for exampleascribe
to an approach to economic development that emphasizes government
action to stimulate industry? Granted, Japan has had its economic
troubles in recent years, as all countries do, but does its general
success give credence to the theory that government should actively
work to stimulate industry?
Smith: It is true that Japan has an "industrial policy,"
but this amounts to general measures to enhance the environment of industry
rather than selective interventions on the European model. The most important
general measure down to the 1990s has been that of constraining the size
of the non-market sector. Japan has a smaller public sector than the other
major developed countries and its internal economy is highly competitive.
Both factors surely help to explain its superior rate of growth down through
There is one aspect of Japanese policy, however, that conflicts with
my principle of natural liberty. Japan has used controls to reduce imports
with the apparent aim of reducing workers' living standards in order to
devote more national resources to industrial investment. The aim has been a
higher rate of growth than otherwise would have occurred. Insofar as it has
succeeded the result has been what I used to call a derangement, but what
you now term a misallocation of resources. The allocation in this case has
failed to conform to people's rate of preference for present over future
With regard to industrial organization it has been to Japan's credit
to have pioneered "lean production methods" in which workers
are organized as teams. Within each team each worker can use his/her individual
initiative to identify places where improvements can take place. This
development is quite consistent with my system of free market. Competition
between types of industrial organization can occur as well as competition
between products. The fact that the lean production system has survived
the competition demonstrates its worth.
People often have the impression that Japan is much different because
of its concept of "lifetime attachment" to one employer. What
needs to be emphasized is that because earnings have been allowed to fluctuate
with economic conditions, Japan's rate of unemployment has been much less
than in other industrial countries. Workers receive bonuses paid out of
profits in good years but these are reduced or removed in bad years. This
element of profit sharing, meanwhile, encourages workers to identify with
and support the aims of the whole enterprise. In this spirit they are
much more ready to change their jobs within the firm when the need arises.
In many European countries, in contrast, the labor/managerial relationship
has become unnecessarily adversarial and, under the banners of "job
demarcation" and "job protection" many occupational tasks
are continued long after their economic justification has become questionable.
Region: Turning to banking, do you still feel that banking is an exception to your free market ideas?
Smith: I never believed that banking was a strong exception to my free
market ideas. I always insisted that the state should assume no supervision
over entry into the banking business. It should, in fact, encourage the
erection of as many banking enterprises as possible, and it should give
monopolies to none. The main qualification I made to this reasoning was
that the state should restrict the size of paper notes to a minimum of
5 pounds so that relatively poor people would be protected from overissue
by some "beggarly bankers."
Let me remind you of the summary of my general position which is
contained in the last paragraph of Book 2, Chapter 2, of my book The Wealth
If bankers are restrained from issuing any circulating bank notes,
or notes payable to the bearer, for less than a certain sum; and if
they are subjected to the obligation of an immediate and unconditional
payment of such bank notes as soon as presented, their trade may,
with safety to the publick, be rendered in all other respects perfectly
free. The late multiplication of banking companies in both parts of
the united kingdom, an event by which many people have been much alarmed,
instead of diminishing, increases the security of the publick. It
obliges all of them to be more circumspect in their conduct, and,
by not extending their currency beyond its due proportion to their
cash, to guard themselves against those malicious runs, which the
rivalship of so many competitors is always ready to bring upon them.
It restrains the circulation of each particular company within a narrower
circle, and reduces their circulating notes to a smaller number. By
dividing the whole circulation into a greater number of parts, the
failure of any one company, an accident which, in the course of things,
must sometimes happen, becomes of less consequence to the publick.
This free competition too obliges all bankers to be more liberal in
their dealings with their customers, lest their rivals should carry
them away. In general, if any branch of the trade, or any division
of labour, be advantageous to the publick, the freer and more general
the competition, it will always be the more so.
Region: Are modern-day banks properly regulated?
Smith: The first answer that many observers would make
is that in the United States of America intrastate banking laws
restrict banks to operate within the state or county in which they
are chartered. This prevents them from obtaining the economies of
scale available to a branch banking system which offers a larger
ability to diversify risks and to operate an interbranch reserve
market. These are valid points but I believe the banks are improperly
regulated in a much more profound sense. Government regulations
have restricted the free trade in money. In the 19th century, many
people came to believe that a state-sponsored monopoly in the note
issue was an indispensable condition for monetary stability because
private issuers had no incentive to restrict their issue. My argument
(in the last quotation above) about the automatic stabilizing function
of competition and free markets was completely lost sight of. The
striking fact is that subsequent experience has shown that the danger
of overissue is far greater with central banking! Countries that
had relatively free banking systemsScotland, Canada, Swedenexperienced
no major problems of overissue. In contrast, England, with its heavily
restricted note issue after 1844, experienced serious monetary crises
soon after. The subsequent establishment of central banking throughout
the world, in fact, has been associated with historically unprecedented
rates of inflation. I repeat my point that the most reliable regulator
is not government but the operation of competition in the free market.
If a banking organization becomes inefficient with its note issue,
people should be able to resort to a competing issue. If such were
the case it would imply that most of current banking regulations
would be abolished altogether.
Region: Have you any observations on current levels and types of taxation compared with your day?
Smith: I would conjecture that in the late 18th century, taxation in
Britain was typically around the ratio of 5 percent to 8 percent
of gross national product (GNP). In the United States today annual
taxation accounts for about 40 percent, although this figure would
be higher if we factored in US government deficits which imply postponed
(future) taxation. My 18th century colleagues, Hume, Stewart, Ferguson,
Millar and Kames, would have thought such levels of taxation impossible
in a free country. And we would never have predicted the extent
of the penetration of your governments into every detail of personal
and commercial life. In The Wealth of Nations (p. 853)
I wrote (in reference to England):
The tax upon shops, it was intended, should be the same on all shops.
It could not well have been otherwise. It would have been impossible
to proportion with tolerable exactness the tax upon a shop to the
extent of the trade carried on in it, without such an inquisition
as would have been altogether insupportable in a free country.
I also wrote:
An inquisition into everyman's private circumstances, and an inquisition
which, in order to accommodate the tax to them, watched over all the
fluctuations of his fortune, would be a source of such continual and
endless vexation as no people could support.
So the fact that people in the United States now support an income tax
system that obliges them to report every detail of their private income
would provoke utter surprise among my associates. But perhaps it is
too strong to imply that every American willingly accepts the present
Region: In the light of your last statement, would you comment
on our modern phenomenon of the "underground economy"?
Smith: The extent of your underground economy seems positively
correlated with the share of taxes in GNP. Most researchers agree that
the "hidden" economy in the United States grew significantly
as a percentage of the national economy during 1970-1990, a period when
the share of taxes was steadily increasing. According to one study the
underground economy could have reached a quarter or more of the gross
national product (over $1 trillion) by the early 1980s.
Is this trend to be deplored? Not necessarily. The underground economy
can be a useful restraint on Leviathan governments, and is therefore of
potential benefit to all taxpayers. In my Lectures on Jurisprudence I
No doubt the raising of a very exorbitant tax, as the raising as
much in peace as in war, of the half or even the fifth of the wealth
of the nation, would, as well as any gross abuse of power, justify
resistance in the people.
One aspect of the underground economy that was most evident in my day was the
practice of smuggling. The Wealth of Nations (pp. 881-882)
The high duties which have been imposed upon the importation of many
different sorts of foreign goods ... have in many cases served only
to reduce the revenue of the customs below what more moderate duties
would have afforded.
An example of this same phenomenon occurred recently in Canada. The raising
of exorbitant taxes on cigarettes led to such an extent of smuggling
that by the beginning of 1994 it was estimated that three out of every
four cartons consumed in Quebec were illegal imports. Governments were
accordingly forced to cut tobacco taxes in such a drastic manner that
a pack of cigarettes immediately fell by 45 percent within one month.
Citizens obviously need to have emergency avenues against official
exploitation because, as I say in The Wealth of Nations (p. 861):
There is no art which one government sooner learns of another than
that of draining money from the pockets of the people.
Certainly there is a legitimate role for government in a market system;
but this assertion does not automatically answer the question as to
the exact size and scope of that role. Meanwhile it is imperative to
resist letting government bureaucrats have the decisive voice on the
issue of government size.
Region: Is it true that much of the increased size of government
since your day is due to the subsequently recognized need to redistribute
income, a need that indeed found "revolutionary" intellectual
support in the writings of some of the classical economists who succeeded
Smith: I believe that the main intellectual revolution you are speaking of
was that pioneered by John Stuart Mill in his Principles of Political Economy (published in 1848).
The most fundamental change in political
economy that appeared in this work was Mill's attempted separation of
production from distribution (Part I of Mill's book is devoted to
Production and Part II to Distribution). This was indeed a complete change
from my reasoning. Mill treated the products of industrial society as
almost pre-existing entities like manna from heaven, to be distributed by
those in authority. The laws of production, Mill argued, have the
properties of inexorable natural laws whereas the laws of distribution are
subject to human invention and institutions. And if the laws of
distribution are man-made then existing property relations can be
interfered with on the principle of equity. It was in this way that Mill
introduced the search for practical means of redistribution as a crucial
part of the political economist's task. The practical problem was to
determine which institutions of property would be established by an
unprejudiced legislature, absolutely impartial between the possessors of
property and the non-possessors.
My response is as follows: First I would seriously question Mill's confidence
in finding a legislature that is "unprejudiced" and "absolutely
impartial" concerning the redistribution of property. Second, and
more important, I must point to the reduced incentives to create property
once such redistribution is decreed. Wealth does not fall like manna from
heaven. If government announces it will redistribute it once produced
it is not likely that much of it will be produced. Mill's ultra rationalism
leads him to neglect real world practices and institutions that are strong
constraints on his egalitarian plans, plans that required substantial
taxation of the owners of wealth. In The Wealth of Nations (p. 927) I make reference to "the greater part of merchants and manufacturers"
transferring their capitals out of their home country after being "continually
exposed to the [excessive] mortifying and vexatious visits of the tax-gatherers."
Mill's abstract intellectualism severely underestimates this type of potential
for citizen resistance to taxation. And it has been Mill's approach and
influence, no doubt, that has led to the neglect by many economists, until
recently, of the serious dimensions of that other avenue of citizen escape:
the underground economy.
Region: But if, Mr. Smith, you are reluctant to see a redistributive role for government, are you not in danger of being labeled insensitive to the situation of the poor and one who is an apologist for selfish behavior?
Smith: When measuring the current record of redistribution via government
we should be careful to include the effects of regulations as well as the
effects of money transfers. Food stamps, for example, might well be thought
to enable the poor to eat better. Simultaneously, however, government
sponsors agricultural marketing boards that artificially raise the price of
the poor's food, while tariffs prevent them from obtaining access to the
cheapest world sources, forcing them, for instance, to pay twice the world
price for sugar. The elaborate machinery of the welfare state, meanwhile,
which allegedly does so much for the poor, is handled by a bureaucracy that
charges excessively high costs for its inferior service. Much of the
government machinery for the protection of the poor may thus have the
effect of being largely redistribution from the ruled to the rulers. And
since even the poor pay taxes (e.g., on every can of beer, pack of
cigarettes or gallon of gasoline), they are being coerced into paying for
the high bureaucratic costs of the machinery that is supposed to help them
As for the suggestion that I may be insensitive to the existence of
poverty, I should point out that in my day I was considered a radical in
the championship of the poor. First, my judgment of The Wealth of Nations in terms of the prosperity of all individuals within them was a departure
from the current practice of measuring prosperity in an aggregate, national
or collective sense. Second, my arguments explicitly defended the poor
against the rent seeking of dominant special interests. I see no diminution
in the need for such protections in the United States today.
As one final example of modern sophistry concerning regulations that
are heralded as protections for the poor, consider legislated minimum wages
in the United States. The legislation restricts a worker from the full
ability to price himself/herself into the labor market and therefore
increases the probability of his/her unemployment. My 18th century
arguments against such restriction seem to me as valid as ever:
The property which every man has in his own labour, as it is the
original foundation of all other property, so it is the most sacred
and inviolable. The patrimony of a poor man lies in the strength and
dexterity of his hands; and to hinder him from employing this strength
and dexterity in what manner he thinks proper without injury to his
neighbor, is a plain violation of this most sacred property. It is
a manifest encroachment upon the just liberty both of the workman,
and of those who might be disposed to employ him. As it hinders the
one from working at what he thinks proper, so it hinders the others
from employing whom they think proper ... The affected anxiety of
the lawgiver ... is evidently as impertinent as it is oppressive.
(The Wealth of Nations p. 138.)
The main special interest that succeeds in lobbying for the legislated
minimum wage are the trade unions who are motivated to protect their
members from the competition of cheaper labor. The same unions, meanwhile,
typically negotiate above-market rates of wages for workers lucky enough
to get some of the unavoidably limited jobs. This is another area, incidentally,
where I have my differences with J.S. Mill who was a strong supporter
of the evolving 19th century trade union movement and its legislative
Region: But isn't it true, Mr. Smith, that even you saw some government role in education, a role that can be seen mainly as protective of the poor?
Smith: I deliberated long and hard on this issue and my final position on it should be observed carefully. Although expenditure on institutions for education and religious instruction is no doubt beneficial to the whole society, I concluded, and while it may be defrayed by the general contribution of the whole society, it might perhaps with equal propriety and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either one or the other. (The Wealth of Nations p. 815.)
I always wanted the parents, even poor parents, to pay fees covering
some significant part of the costs, and if there was to be some non-parent
support, I recommended voluntary contributions from the immediate
neighbors. This was not therefore an argument in favor of state education
as so many writers tend to believe.
All the classical economists that followed me (except Marx) shared my insistence
that education should never be provided free. My point was that
where fees are charged, the decision of a parent to transfer an
offspring from a less efficient to a more efficient school, places
immediate and meaningful pressure on the inferior supplier because
the tuition funds automatically follow the child. The principals
of US government schools, in contrast, face no such direct economic
pressure. Indeed the unions of teachers in such schools usually
ensure that when the student population of one school shrinks, jobs
for the "losing" teachers are created elsewhere in the system.
With regard to the need to protect the low-income families it
must be emphasized that currently they typically receive the worst
of the US government-provided schooling, especially in downtown
ghetto areas. But these families, however poor, still contribute
taxes for the education offered by their government monopoly schools.
If the revenue collected from them via these taxes (a poor parent,
like everybody else, pays the taxes over his/her lifetime) was instead
collected in tuition fees payable at the door of a school freely
chosen by them, performance would increase dramatically. New policies
recently adopted in an attempt to raise the efficiency of US education
include revised curricula, more teacher training, teacher certification,
merit pay, school-based management and open enrollment. But they
are all largely beside the point. None of them has met with any
marked success and some have simply raised costs still further.
It will be obvious from my reasoning that no real improvement will
occur until the price mechanism is reintroduced into schooling,
with or without the help of education vouchers. But, of course,
the educational establishment quickly closes ranks on this proposal,
a proposal which it fears (quite correctly) will undermine its very
comfortable monopoly position.
It is noteworthy that Japan presently seems to be surpassing all other
countries in terms of student achievement, especially at the high school
level. More interesting still, the examination lead of Japanese over
American students grows at an astonishing rate between the ages of 15 and
18 years. But observe that both public and private Japanese senior high
schools charge fees, the highest being in private schools. In the cities
about 50 percent of high schools are private and charge fees averaging
$2,400 or 60 percent of the cost, the remainder being covered by central
government subsidies paid on a per capita enrollment basis. Loans are
available from a government-supported scholarship foundation to help
families meet the fees at both public and private schools. Notice,
meanwhile, that school attendance in Japan for this age group is not
compulsory. Yet some 94 percent continue their education voluntarily and
willingly pay the fees.
It is consistent with my reasoning to argue that it is because these
Japanese schools offer education at a positive price that large elements of
competition have appeared in the system. The family's freedom of choice is
enhanced also by the fact that, as well as being able to choose a private
school if it dislikes the state offering, it has the legal right to quit
formal education altogether when the child reaches 15 years of age.
Japan's superiority in teenage educational achievement is no doubt
attributable to several cultural factors besides the educational
competition induced by its positive price (tuition) system. But nobody can
fail to be impressed by the fact, for instance, that only a fraction of the
top 1 percent of 18-year old Americans now does better in math than the
average Japanese of the same age.
Region: Some modern writers are angry at President Reagan for
having introduced his policies in the 1980s using the authority of your
book The Wealth of Nations. The complaint is that, because
of your numerous and weighty qualifications to the virtues of your "invisible
hand," your position was far less laissez-faire than Reagan's. Do
Smith: To be minimally consistent with the recommended political
economy in The Wealth of Nations, President Reagan would
have had to abolish all of the following: minimum wages, tariffs, export
subsidies, agricultural marketing boards, taxes on capital, "free"
education at government schools and the whole US system of central banking.
Had Reagan succeeded in doing so, he would certainly, no doubt, have invited
the description of an extreme advocate of laissez-faire. But since he
didn't, the writers' complaint you speak of has no foundation whatsoever.
Region: Thank you, Mr. Smith.
The Wealth of Nations, via Bibliomaina