Money and Markets: Essays in Honor of Leland B. Yeager

Ethnic conflict and the economics of social cooperation 225often used to refer to an aggregation of persons of the same ethnic family or race.This type of nation can be confined to one region of the world or spread out overmany regions commingling with several other “nations.”The historian E.J. Hobsbawm argues that throughout the seventeenth,eighteenth, and most of the nineteenth century it was the administrative meaningof nation-state – the one connected with territory and administration – that wasused by the leading writers.The other notion of “nation,” the one linked to ancestry and common descent,has only recently come to dominate discussion in the social sciences. Until quiterecently, it was believed that “small, and especially small and backward,nationalities had everything to gain by merging into greater nations, and makingtheir contributions to humanity through these” (Hobsbawm 1990: 34). Nationsthat emphasized “distinctions of birth” tended to be poor and remain poor. TheIndian caste system may be an important causal factor in the perpetuation ofIndian poverty on the subcontinent, for example (Van Den Berg 2001: 60–1).Smith explained that “there are no nations among whom wealth is likely tocontinue longer in the same families,” suggesting that the redistribution of wealth isquite common with the passing of time (Smith 1976 [1776]: 714). Smith arguedthat national prosperity depended on the skill of its workforce, which itselfdepended upon both the extent to which the division of labor had been extendedand the success of those efforts to repeal or defeat special-interest legislation. Smithsaw the “system of natural liberty” as a means of providing potentially immensebenefits to all men and women, regardless of ethnic origin, race, or status at birth.This liberal idea of universal rules that would benefit all people regardless of anytribal, racial, or especially ethnic roots has its origins in Greek Stoic thought and,later, Christian doctrine. The idea entered economics by way of the Salamancaneconomists and, after them, through the natural-law Protestant thinkers (Rothbard1995). Cosmopolitan thinking still dominates among leading social scientists.Surely this was Hayek’s view as it was the view of his mentor, Ludwig von Mises(Mises 1960 [1949]).2 Nationalism in the modern senseUntil the past century, nation-states were identified with territories generatingannual production, possessing a uniform currency, and conducting a coherentinternational economic policy embracing tariffs, subsidies, and treaties. In mucheconomic theory, that sense of the word “nationalism” still holds. According toWalker Connor, “the interutilization of nation and state [is a] careless use of terminology.”It may be better to separate the two ideas and rename whole subject areasby removing the word “international” and replacing it with the word “interstate.”Connor goes on to argue that terms like “national income, national wealth, nationalinterest, and the like, refer in fact to statal concerns” (Connor 1994 [1978]: 40).Modern welfare economics assigns measures to “national welfare” and theorizesabout the causal mechanisms that expand or retard those measures. It is difficult torecall any theoretical schema in the vast literature of what is termed “welfare