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Adam Smith on the Nature of Wealth [1]
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Date: 2023-07-29
Everything for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.
It would be too ridiculous to go about seriously to prove, that wealth does not consist in money or in gold and silver, but in what money purchases. No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged.
Adam Smith, Wealth of Nations
Smith was the first modern economist. He published on the eve of the American Revolution, and greatly influenced the Colonials against British Imperial economic tyranny. He and the Revolutionaries applied his theory to
Mercantilism, the hypothesis that the only purpose of colonies and international trade is to enrich the home country, and especially the already rich there
Physiocracy, the hypothesis that the wealth of nations derived solely from the value of "land agriculture" or "land development" and that agricultural products should be highly priced for the benefit of aristocratic landowners
Taxation without representation
The Navigation Acts, requiring ships from the Colonies to land in England, no matter what their actual destinations
The Stamp Act
Tea
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My son, Certifiable Genius
Smith in a Nutshell
TL;DR Wealth is not money, but what money buys. The cause of wealth is productivity. This comes from the efficiencies of the division of labor, and from capital—factory machinery, and improvements to land such as irrigation systems. It is necessary, to support these efficiencies, to provide living wages to the workers, and a sufficient return on capital investments to fund the next round of investment in production and innovation. Unearned profits, especially subsidies and other favors from government, are a blight on any economy. All the rest, including regulation of coinage, is detail, but there is a lot of it.
The Masters of Mankind
The rich and powerful had a near-monopoly on economic theory in Europe during the Age of Empires, and used it to claim, as I mentioned above, that the sole purpose of national economic laws was to enrich the aristocratic landowners and business owners of the nation, and to harm other countries. These are the hypotheses of Mercantilism, dominant in the UK, and Physiocracy, dominant in France.
Empires
The world exists to be plundered. Ancient civilizations are of no interest or concern to the Imperialists. They may be destroyed at will, as they were in Africa and the Americas. Muslim civilization and some of the civilizations of Asia were much more robust, and could be plundered but not destroyed.
Mercantilism
Mercantilism often focused on the ruler's wealth, accumulation of gold, or the balance of trade.
Spain went much, much further with such ideas, with disastrous results that it has still not recovered from. Their version of the theory was that their riches consisted of gold, silver, and jewels from South America, which they were on no account to let go of. So it became law that none of it could be spent outside the Spanish Empire. The result was that everybody who was anybody went to South America to make a fortune. Only the few left behind made or grew anything, and nothing could be bought and imported from elsewhere. This led directly to monstrous inflation, the decay of productivity in every form, and ultimately the downfall of the Spanish Armada and all of Spanish sea power. Smith gave this rolling disaster an entire chapter, which we will come back to some time.
British and American Whigs
Many embraced parts of Smith’s teachings, giving rise to the Free Trade Whig movement, taking different forms in the UK and the US. Unfortunately the British Whigs became utterly doctrinaire about Free Trade, refusing all aid to Ireland during the potato famine, and even continuing food exports from Ireland throughout. In the US it was the railroads that pushed Whig doctrines. (Abraham Lincoln was both a national railroad lawyer of great renown and a one-term Whig Congressman.) The South was bitterly, implacably opposed to both the Whigs and the Republicans who came after them.
This is the doctrine that the wealth of nations derived solely from the value of "land agriculture" or "land development" and that agricultural products should be highly priced. This focus on productive assets and the work needed to profit from them was in sharp contrast with the Mercantilists, but was still severely blinkered.
Market Fundamentalism
In response to Smith, bogus economists set about to change the public image of his teachings into ultra-Laissez-Faire, which in modern times gave rise to Market Fundamentalism: Markets and corporations, in this view, can do no wrong. Regulation is a crime. Their only imperative is profit, and nobody, especially not government, can say them nay. International economics is either a zero-sum game of the US vs. everybody, or an unalloyed blessing because corporations can always find cheaper suppliers in countries without labor and environmental protections.
Unfortunately, this effort at propaganda has had considerable success, so that many Progressives think they should not read Smith and take action on the issues he highlighted. Nevertheless, those who do get it persisted, and now we are in the majority.
Parties of Big Business
In the United States there has almost always been a political Party of Big Business Greed, often mixed with religion and wide-ranging hatred.
Federalists, who started fading in 1800 by demonizing “that filthy atheist” Thomas Jefferson, and vanished away in 1815.
Whigs, who fractured over the Fugitive Slave Act, and sank without trace in 1854.
Republicans, first enemies of slavery and then of free labor—in both cases complaining of “unfair competition”, and demanding that the government help them crush both.
Yes, hypocrisy is fundamental to their programs.
Themes in Wealth of Nations
This is far too big and consequential a book to cover in one Diary. We will come back from time to time to look at particular ways of advancing public wealth, and ways that the rich try to prevent it. This is a good time for this discussion, with the probability of Democratic wins in 2024, so that we won’t have to take it any more.
Productivity, starting with division of labor
Theft of the productive gains of all of society
The benefits of competition
The evils of subsidies
The evils of protectionism
How the Spanish Empire destroyed itself by a fixation on gold, silver, and jewels, rather than the production of necessities or trade goods
The evils of monopoly-inspired legislation
Warfare
Class
Education
All of the evils that Smith documented stand in sharp contrast to Bidenomics.
x Bidenomics is about increasing competition.
When companies have to compete, it means lower prices, fairer wages, and more innovation. pic.twitter.com/V9jhpGad06 — Joe Biden (@JoeBiden) July 24, 2023
It is also about rebuilding the US economy from the middle out and the bottom up, which is having astonishing success. At least the pundits who constantly predict recessions are astonished.
Future Diaries
We will examine a number of economic theories and hypotheses, and the books that laid them out. Please feel free to suggest others.
[END]
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