Adam Smith is to economics as Isaac Newton is to physics, but there are problems.
The Greatest Book’s Ranking: #98/100
I made a deal with myself: when reading a book, it was okay not to finish and acceptable to skip less intriguing parts. I’m a drill master with much of my life as I timely complete things, seeing them through till the end. I was worried if I would feel satisfied taking this nonchalant attitude towards reading and whether it would effect what I could imbibe from it.
Consider me converted! Maybe I should be more shiftless with the other parts of my life (except my social life — I got that down).
The Wealth of Nations is one of those seminal books that as you read it, images of others pop into your head: founding fathers, economic professors, entrepreneurs. This book is endless, edifying prose explaining the basics of capitalism. It lays out the foundations for many principles that, just through observation, Adam Smith was able to uncover. With that said, he was someone writing in 1700s; I think he got a few things “wrong,” and he occasionally speaks out of both sides of his mouth.
And yes, you can skip many of the 700 pages and still be alright.
A man of the Scottish Enlightenment along with David Hume, Adam Smith had a well rounded education and dabbled in a bit of everything. The Wealth of Nations took around ten years to produce. Its basis was observation and conversation with follow economists. Through post hoc reasoning, Smith saw connections and influences for events witnessed.
The object of Smith’s scorn was the economic principle of Mercantilism. Mercantilism is where governments aimed to make a positive balance of trade artificially by having more exports than imports via tariffs to increase their gold/silver reserves. Smith thought this was extremely short-sighted, and by focusing on increasing what would be considered GDP and taking advantage of other nation’s comparative advantages in trade, a nation would increase its wealth.
Where Smith might be lacking in graphs, numbers, spreadsheets, and data, he makes up for with countless examples and explanations. This can get quite wordy: he likes to bludgeon you to death with his arguments via an avalanche of prose. He also has, in a rather annoying sense, a tendency to use, which can be quite hard to follow, long sentences with many commas, which never helps for clarity, that make it much more difficult, however the case, to follow.
Then there is the terminology 😍.
Division of Labor.
The first power house of wealth: division of labor. Instead of being in a small village where one person has to see through, from beginning to end, the production of a good, it is much better to have specialities that work on a specific part of the process. This team work is able to exponentially produce more goods at less costs, thus a win for everyone.
His famous example is the production of pins. I might be obtuse here, but I actually don’t know what type of pin he is exactly talking about. Push pins? Safety pins? Bowling pins? But anyways, if one person had to handle the entire production, they would only make 10 or so pins a day. If those people specialized, each person could make 4,800 pins a day — a HUGE increase in productivity.
Smith is concerned where this mind numbing specialization ends up though:
“The man whose whole life is spent in performing a few simple operations...generally becomes as stupid and ignorant as it is possible for a human creature to become.”
I guess you win some and lose some 😅.
Supply and Demand Dictate Price.
In a system without interference from the government, the price people are willing to pay for a product at market is it’s appropriate price. I think this nugget is pretty powerful to think about: what determines the natural price of a bake-yourself-at home-pizza that you decide to eat in one setting and hate yourself for?
Well, there is an effectual demand — demand of people who can actually purchase the good. Then there is supply — how much of the good comes to market. If one of these things get wonky, then the market price will change from the natural price. The market will then self-correct however: if their is an increase in demand, more people will enter production to bring that good to the market, thus decreasing the market price back to the natural price of the good.
Self-Interest – Not So Fast.
A healthy bit of selfishness makes the system go round. In probably the most often quoted part of the book, Adam Smith describes the libertarian case for economics:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
This is a compelling yet simple explanation for a system, but I think it is incomplete. Yes, I do go to work because it gives me wealth to do things for myself. However, this paints the human as the cold, calculating, rational creature. If there was one fault of the enlightenment, it was how far rationality can get us. We all do things that are not in our self-interest, monetary or otherwise.
Economics relied on this “self-interest” angle for hundreds of years until research in the past generation showed how awful we are at doing that. The cognitive wiring of our brain allows for so many logical fallacies (check out this website for a whole list of them). While self-interest is true some of the time, it is not able to explain the wide breadth of human choice.
Slavery Rebuttal – Weak Sauce.
Smith was anti-slavery, but the angle he took was too cerebral:
“From the experience of all ages and nations, I believe, that the work done by free men comes cheaper in the end than the work performed by slaves. Whatever work he does, beyond what is sufficient to purchase his own maintenance, can be squeezed out of him by violence only, and not by any interest of his own.”
Never mind that the institution of slavery makes a race a lesser, quarantining them away as subhuman without wants, desires, or ability; it’s bad because the price of this shirt is too damn high! Smith does think slaves deserve liberty and freedom, but I don’t like how he got there via a balance sheet.
This kind of pure logic has also been used in defense of slavery. As being southern-raised, I heard the argument that slaves were treated well because it would not be judicious to treat your property poorly by whipping it and working it to death — why would you damage your own investment? This meant that the stories of mistreatment of slaves were gross exaggerations and isolated incidents.
It is grotesque to try and reverse engineer an explanation for awful things that clearly did happen. I think this has the same problem as Smith’s self-interest claim: not everything is a market transaction. There is a humanistic route of thought that leads to emancipation that doesn’t rely on supply and demand.
While I didn’t care to read copious pages on silver, I did like reading about the roots of modern economic thought.
Other People’s Takes:
- Prometheus Unbound: “Thus capitalism, though based in selfishness and specialization, also has the curious (if unintended) effect of uniting human beings in a vast web of cooperative and mutually beneficial enterprises.”
- Melziibaby: “While Adam Smith was the first to indirectly give rise to the classical theory of economic thought his colluded ideas were exactly that, ideas collected from other persons and published.”
- Elpidio Valdes: “So, we start with all the wonders of the division of labor and end with all they misery which such a system produces.”