Author:Mingardi, Alberto
Position:Peter Bauer's views on capital formation - Critical essay

For many years, P. T. Bauer (1915-2002) was the "dissenter on development." Among other dissents, he demonstrated that foreign aid was ineffective. Today that view is held in higher regard than in his day, thanks to numerous contemporary scholars, but Bauer is seldom recognized as its originator. (1) An exception is Nobel Laureate Angus Deaton, who acknowledged Bauer was right on foreign aid and population. In The Great Escape: Health, Wealth, and the Origins of Inequality, Deaton (2011: 273) writes that Bauer was the first to show that "the hydraulic approach to aid is wrong, and fixing poverty is nothing like fixing a broken car."

Peter Bauer was an eccentric figure. His father was a bookmaker in Budapest. Happily, "one of his clients suggested to him that his industrious son might benefit from a British university education, possibly Cambridge." Having "no contacts" in that country, he "simply turned up" in Cambridge in March 1934 and "presented himself at half a dozen colleges." His journey as an economist began when he entered Caius College. He had little English and "found it very difficult to follow the lectures of even ordinary conversation." He "never read a book on economics or economic history before coming to Cambridge" (The Caian 1985: 33). Forty-nine years later he was raised to the peerage by Margaret Thatcher.

Basil Yamey has remarked that it was "largely by accident that Bauer's interest turned" to development economics (Yamey 1987: 21). After working in "a London firm prominent in the Malayan rubber industry," he "used a research fellowship to study that industry, and at the same time was commissioned by the British Colonial Office to prepare a report on rubber smallholdings" in Malaysia (ibid., 22). This research project resulted in his book The Rubber Industry (Bauer 1948). (2)

While economists' concern for "development" dates back to Adam Smith, "the term 'economic development' was rarely used before the 1940s" (Meier 1984: 6). From the beginning, Bauer was the dissenting voice within the field. A few years later the young Bauer was again summoned by the Colonial Office to study trading activities in West Africa with special reference to monopolistic tendencies. The result was a study of unusual length and scope for an empirical work of this kind: West African Trade (Bauer 1954). This work perfectly represents Bauer's many talents. It is profoundly empirical: it showers the reader with facts. It is argumentatively sharp: Bauer refutes one economic fallacy after the other. It is learned and fully conversant with the history of economic thought. Bauer was a most perceptive reader of Adam Smith's The Wealth of Nations, in a time when Smithian scholarship was not as ubiquitous as it is today. He was indeed a follower of the great Scot: Smith's understanding of men as "trading animals" pervades Bauer's thinking.

After the publication of West African Trade, Bauer found himself at the center of a battle surging around the concept of "economic development." While undoubtedly a pioneer of these investigations, Bauer has long been considered a "fringe" thinker. This has clearly to do with his politics. To paraphrase Deirdre McCloskey, Bauer thought economic growth required that people should be allowed to have a go, to be at freedom to follow their intuitions and needs rather than being "nudged" in the direction of this or that particular productive effort by government masters. (3)

Bauer--and his long time coaudior and friend, Basil Yamey (4)--were that rare thing: development scholars with no ambition toward social engineering. This didn't make them popular in a profession monopolized by wannabe central planners.

While Bauer's views on foreign aid and development grew out of his field research, they retain an importance that goes beyond the scope of development economics. In fact, they account for a forceful refutation of the historically crucial concept of "primitive accumulation," which was alas commonplace in development economics and informed the concept of the "vicious circle of poverty," Bauer's bete noire. As Curzon-Price (2002: 82-83) noted, "Although Marxism as a normative, prescriptive policy has failed ... the positive Marxist assertion that the possession of wealth is the result of exploitation still holds great sway. It is doubtless the most durable of all the fallacies that Lord Bauer spent his long and distinguished career exposing." This article aims to illustrate that point.

The Myth of Primitive Accumulation

The question of how industrial capitalism came about has been with us for a long time. As you need capital to have factories and industrial establishments, the idea of a "primitive" or original accumulation of capital seemed reasonable to many. Since a single capitalist needs somehow to get hold of resources to invest before moving on with his entrepreneurial plan, why shouldn't the same be true for society at large? Shouldn't a society be thriftily saving so that it can transfer those savings into capital which can in turn generate development? While there are obvious differences between persons and groups, this idea appeals to us as we know many important processes in life are indeed cumulative, starting with that piling up of notions after notions that we call "learning."

Adam Smith is sometimes seen as the originator of the idea of "primitive accumulation." In the introduction to the second book of The Wealth of Nations, Smith ([1776] 1981: 276-78) somewhat casually notes that an "accumulation of stock must, in the nature of things, be previous to the division of labour." Smith's point is that "in that rude state of society in which there is no division of labour, in which exchanges are seldom made, and in which every man provides everything for himself, it is not necessary that any stock should be accumulated or stored up beforehand, in order to carry on the business of the society." But as labor becomes more and more subdivided, everyone needs to have "a stock of goods of different kinds," stored somewhere, in order to concentrate exclusively on his or her own activities.

This vignette is familiar and commonsensical: when the savage "is hungry, he goes to the forest to hunt; when his coat is worn out, he clothes himself with the skin of the first large animal he kills: and when his hut begins to go to ruin, he repairs it, as well as he can, with the trees and the turf that are nearest it" (Smith [1776] 1981: 277). But when the civilized man who knows how to manage his trade, and little else, demands something, he must be able to rely upon other people's produce. Coexisting labor is what makes, for Smith, a commercial society and offers the hope of economic growth. The more labor coexists (the more extended the market is), the better it is.

In spite of Wikipedia's claim that "Adam Smith's account of primitive-original accumulation depicted a peaceful process, in which some workers laboured more diligently than others and gradually built up wealth, eventually leaving the less diligent workers to accept living wages for their labour," Smith is hardly an originator of the idea of primitive accumulation. The biblical Parable of the Talents (Matthew 25:14-30), for example, speaks of accumulated wealth to be invested.

But for Karl Marx it was very important to assume that Smith was the originator. Marx ([1890] 2002: 2068) begins his treatment of the subject by pointing out that "original [i.e., primitive] accumulation plays in Political Economy about the same part as original sin in theology." Primitive accumulation plays the role of a foundational myth justifying that "through painful toil you will eat food from it all the days of your life" (Gen 3:17). In a note to Chapter 7, Marx makes fun of British economist Robert Torrens who, "by a wonderful feat of logical acumen ... has discovered, in this stone of the savage the origin of capital." He quotes Torrens noting, "In the first stone which he [the savage] flings at the wild animal he pursues, in the first stick that he seizes to strike down the fruit which hangs above his reach, we see the appropriation of one article for the purpose of aiding in the acquisition of another, and thus discover the origin of capital" (ibid., 2375). (5)

And yet the concept may in fact have come from Marx. For him, primitive accumulation is key to "proving" that

the process, therefore, that clears the way for the capitalist system, can be none other than the process which takes away from the labourer the possession of his means of production; a process that transforms, on the one hand, the social means of subsistence and of production into capital, on the other, the immethate producers into wage labourers. The so-called original accumulation, therefore, is nothing else than the historical process of divorcing the producer from the means of production. It appears as "original,"...

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