Marx and Engels were concerned with the consequences of freedom for the working class. Granting that a nation's average wealth can increase under Smithian conditions, the rise of the average is purchased against an increase in variance, i.e., inequality. The rich get richer faster than the poor get poorer. To a Marxist, the average wealth of a nation is a deceptive concept, designed to mask the misery of the many. Dependence theories are post-Marxist. If for Marx the bourgeoisie oppressed the proletariat, for dependence theories post-industrial nations oppress pre-industrial nations.

Enter psychological capitalism. In a new Psychological Science paper, Rindermann & Thompson (RT) suggest that the smartest individuals in wealthy nations are smarter than the smartest individuals in poor nations. They call this idea "cognitive capitalism," but the term "psychological capitalism" is apter, I think, because RT also include the character trait of conscientiousness. The hardest working, most achiemenent motivated, and most persistent individuals in wealthy nations are working harder, are more motivated to achieve, and are more persistent than the hardest working, most achiemenent motivated, and most persistent individuals in poor nations.

This is a bold claim. Why? It is bold because RT need to show that (A) it is actually the thin end of the distribution's tail and not the average that drives wealth, and that (B) in a virtuous circle of psychological excellence, innovation, and national wealth, psychological excellence actually has some kind of primacy.

Consider A. RT survey data from 90 nations and they find huge correlations between a population's average psychological strength (measures of IQ and conscientiousness) and the average strength within the top 5%. This means that it is virtually impossible to isolate the unique statistical effect of the latter variable on other measures of interest, i.e., innovation, freedom, & wealth. RT reach deep into the statistical tool box to overcome this problem, and they assert that it is indeed the absolute psychological excellence among the top 5% that makes a nation wealthier than others. The critical intervening variable that translates psychological excellence into money is innovation in science and engineering.

What are the implications of this finding? For better or for worse, the finding emphasizes inequality. Suppose the entire distribution of psychological excellence were shifted up. If so, the grand average and the top 5% average would be perfetly confounded, and the cause of any increase in innovation or wealth would remain ambiguous. If, however, only the variance of the distribution were increased with the grand mean remaining the same, any improvements in the outcome measures could be attributed to the mean within the top 5%. Or so it seems. Notice that in this arrangement, the mean within the bottom 5% would also perfectly predict the outcome - albeit with a negative statistical sign. In other words, statistical analysis yields statistical answers. Any causal conclusions must bring additional knowledge or extra assumptions to bear. I think I may have mentioned that before.

Which brings me to B. RT suggest that psychological excellence drives innovation, which in turns produces wealth. That may be so but it leaves the question of where the differences - between nations - in top psychological excellence comes from in the first place. RT point to the virtuous circle, where national wealth loops back into exceptional excellence among the very best. But how does it do that? Here it gets interesting and controversial because questions of educational policy arise. Now that the nation has more money, how is it to be spent to discover, create, and foster talent in science and engineering? One approach is to try to lift all boats. If the grand population mean increases, so will the mean within the top 5%. But perhaps that is too expensive. Alternatively, a nation might try a system which seeks to identify the most talented early and train them selectively. This is elitist and repugnant to those who favor equal opportunity. I think there is a middle ground. In order to identify those who have the greatest potential in science and engineering, there must be excellent schooling for all, at least in the early stages. Such a system would allow the most talented and most motivated to emerge and become visible. They could then be trained for greater accomplishments.

I agree with RT that a virtuous cricle does not just pop into being. It needs to be set in motion. RT's theory of psychological capitalism suggests that a nation that is not wealthy at the moment may want to borrow money in order to create a creative class of individuals, which can then innovate and create wealth. An alternative is to become wealthy by other means first and then invest in human capital. Looking to history, I can think of examples of the former sequence, but I can't think of examples of the latter.

Note
[1] A commentator pointed out, and it should be noted here, that Smith did not argue that government should not tax economic activity. Smith also argued that in a capitalist economy wealth will be more fairly distributed than in a feudal economy.

Rindermann, H. & Thompson, J. (2011). Cognitive capitalism: The effect of cognitive ability on wealth, as mediated through scientific achievement and economic freedom. Psychological Science, 22. Published online 2 May 2011. Doi: 10.1177/0956797611407207