From Prosperity to Paralysis: Adam Smith's Timeless Warnings and the West's Modern Malaise.

In two seldom-quoted passages of "The Wealth of Nations," Adam Smith delineates the "Stationary State" — the condition of a once affluent nation that has ceased to grow. Smith identified two primary characteristics of this state: social regression and economic stagnation. These elements starkly contrast the dynamic, progressive economies that exhibit robust growth and widespread prosperity.

Smith observed that wages for the majority are deplorably low in a stationary state. He elucidates: "Though the wealth of a country should be great, yet if it has been long stationary, we must not expect to find the wages of labor very high. In the progressive state, while society is advancing to further acquisition, rather than when it has acquired its full complement of riches, the condition of the laboring poor, the great body of the people, seems to be the happiest and the most comfortable. It is hard to stay stationary and miserable in a declining state. The progressive state is cheerful and hearty; to all the orders society offers, stationery is dull: the declining melancholy. Smith's analysis underscores the disparity between economic states, highlighting how progress fosters a cheerful and hearty society while stagnation engenders a dull and oppressive environment.

According to Smith, the second hallmark of the stationary state is the dominance of a corrupt and monopolistic elite who exploit the legal and administrative systems to their advantage. Smith states: "In a country too, where, though the rich or the owners of large capitals enjoy a good deal of security, the poor or the owners of small capitals enjoy scarce any, but are liable, under the pretense of justice to be pillaged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it can never be equal to what the nature and extent of that business might admit." In every other branch, the oppression of the poor must establish the monopoly of the rich, who can make huge profits. They are monopolizing all the profits from the entire business for themselves. Will's observations reveal a systemic flaw where the rich secure their position through monopolistic practices, further entrenching economic disparity and stifling broader economic participation.

In Smith's era, China exemplified a "long stationary" state — an "opulent" country that had ceased to grow. He attributed this stasis to defective "laws and institutions," particularly its bureaucratic inefficiencies. Smith's prescription for curing China's stagnation included more free trade, encouragement for small businesses, reduced bureaucracy, and curtailing crony capitalism. These reforms, he noted, were already invigorating the economies of the British Isles and its American colonies.

Contrasting Smith's observations with contemporary realities, a striking reversal is evident. Today, Western economies exhibit signs of a stationary state, while China demonstrates rapid growth. The modern Western world faces similar stagnation issues, with entrenched institutions and regulatory frameworks that inhibit dynamic economic activity.

Reflecting on Smith's insights, it becomes clear that "laws and institutions" significantly influence stagnation and growth. The central thesis asserts that what held for China in Smith's time now applies to much of the Western world. Our current economic woes are symptomatic of a deeper malaise — a profound "Great Degeneration" driven by outdated and dysfunctional institutional frameworks.

Adam Smith's concept of the stationary state offers a timeless framework for understanding economic stagnation. His analysis underscores the critical role of effective laws and institutions in fostering economic growth and social equity. As the Western world grapples with contemporary economic challenges, revisiting Smith's insights could provide valuable guidance in crafting policies that revitalize growth and address systemic inequities. By realigning our institutional frameworks to encourage innovation, competition, and broad-based economic participation, we can aspire to transition from a stationary state to a vibrant, progressive economy.

Source: https://www.amazon.com/Wealth-Nations-Adam-Smith/dp/1604598913

https://en.wikipedia.org/wiki/Economic_history_of_China_before_1912