The Wealth of Nations by Adam Smith

An Inquiry into the Nature & Causes of the Wealth of Nations (Great Books of the Western World, #39)An Inquiry into the Nature & Causes of the Wealth of Nations by Adam Smith
My rating: 4 of 5 stars

I forget when I first became aware of the existence of Adam Smith and his famous work on economics, but I certainly knew about him by 1981, when Deng Xiaoping had started to nudge China away from its hardcore Maoist past, and I saw a cartoon in The New Yorker that showed two Chinese workers. One was saying to the other: “Adam Smith say: Buy cheap, sell dear.”

I regret that I don’t remember which cartoonist it was. But the caption highlighted the fact that Smith’s The Wealth of Nations was, in the popular imagination, the capitalist equivalent and counterweight to Karl Marx’s Capital. And indeed, what led me to The Wealth of Nations now was the fact that I was planning to tackle Marx’s book, and I thought I should probably read Smith’s earlier work first.

I’m glad that now I have, for one thing because, even though The Wealth of Nations is no cakewalk, and indeed was more difficult to read than I was expecting, it is a model of clarity and common sense compared with Capital, which I have now started reading. If I had to summarize my impression of Adam Smith based on reading his book, I would say that he comes across as an intelligent, perceptive, educated, and unassuming writer, even as he has strong viewpoints on things which he does not hesitate to voice. There is none of Marx’s arrogance, condescension, or defensiveness. My only criticism of the content is that as a 21st-century reader I sometimes felt I was getting too much detail about nuances of 18th-century British taxation and market prices; but quite possibly Smith never dreamed he would have readers in the 21st century.

He deserves them. It still makes an excellent introduction to economics and to “political economy” generally. In five “books” Smith sets out to explain:

how wealth is created
how stock or capital is accumulated
how and why different countries do or do not become wealthier
how governments try to influence economies
how governments finance their operations

Marx starts his work with a convoluted proof that the value of commodities is directly proportionate to the quantity of human labor that goes into their production. Smith starts his with a much more direct account of how wealth, or opulence, his preferred term, derives not so much from labor directly, but rather from the division of labor. As any task is broken down into its component steps and actions, and these are taken up by different people who specialize in those steps, productivity increases. If this productivity outstrips the growth of population, then there is an increase in wealth per person. Since people naturally incline toward the division of labor and its efficiencies, any society or government that wants to promote the increase of wealth simply needs to get out of people’s way. In a liberal society, anyway, it will happen by itself if people are left to their own devices.

Generally in world history, societies have not been liberal and people have not been left to themselves. But even when severely hampered by uncongenial governments and adverse circumstances, people have often managed to expand wealth. In Smith’s view, the natural survival instinct of the human being, coupled with a capacity for reason, make this inevitable. The number of improvident wastrels who cannot look after themselves and go to ruin is always relatively small.

In Smith’s view there are three types of revenue: the wages of labor, profit or the return on stock, and rent on land. In the world of economics these three classes play off against each other, in an environment created by governments, to produce the multifarious phenomena of the commercial world.

Along the way, Smith makes many interesting and trenchant observations, and sprinkles his text with stimulating and intriguing facts and surmises. For example, he notes that one of the effects of the prolonged expansion of wealth in a society over time is that its poorest members come to enjoy much better possessions than the poorest members of other societies, by virtue of the fact that the possessions of rich people tend over time to filter downward after their first owners are finished with them. Thus, in England, he says, many lower-income people live in quite nice buildings that once belonged to much more affluent people, and with nice, if old, furniture. He notes that one bed at a nearby inn was a wedding present to a former king of England! And one of my favorite of his surmises is on the superior nutritional value of potatoes over cereals. His evidence? That both the strong laborers at the bottom of English society, and the unfortunate but very attractive women who were driven to a life of prostitution there, tended to be Irish—and their superior physical attributes presumably had much to do with their nutrition back home!

He has much else to say about things as diverse as education, warfare, social morality, and nomadic societies. Whether you accept it all or not, it is all shrewdly observed and well thought out.

In addition, he is passionate about justice and about liberty. He is a true liberal in the best sense, and a sharp critic of clumsy, ham-fisted governments; of slack, ignorant landlords; and of rapacious, scheming businessmen.

All in all, not bad for a “bagman of free trade” (Marxist invective did indeed, it turns out, begin with Marx himself). Smith’s book has amply earned its place as volume 39 in the Britannica Great Books series, and is well worth the while of anyone seeking a liberal education.

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