"Book Report: Wealth of Nations"

Wealth of Nations book cover

Wealth of Nations by Adam Smith

An Inquiry Into the Nature and Causes of the Wealth of Nations--yes, that's the full title--is one of the first pieces of literature written on economics (which technically was not even a field at the time). Adam Smith takes a 1700's world bubbling over with discovery, and attempts to explain monetary and behavioral trends, where they stem from, and what the future might hold. In doing so, he created one of the most influential texts of all time that is still widely referenced today.

While many of the examples throughout are significantly outdated, much of the wisdom is not pecuniary at all and, in a philosophical sense, is very applicable in our present world. It is the philosophy of_Wealth of Nations_that impacted me the most.

The first point Adam Smith makes, and refers to throughout the entire book, is that productivity is increased substantially by the "division of labor." Assigning simple minute tasks to individual workers allows them to become proficient quickly, and results in increased output overall. A thoughtful person might, however, be concerned that this narrowing of scope of a man's daily work could be detrimental to realizing human potential. Adam Smith recognizes the corephenomenon:

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labour. (Book I, Chapter II, p. 23)

In my view, this might have a domino effect over the course of an individual's life rendering a person stubborn and ignorant. Adam Smith agrees:

The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country, he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance, in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it. (Book V, Chapter I, pp. 429-30)

I believe within every person there is a desire to better not just one's condition, but, more importantly, to better oneself as a thing of value. It is this driving desire, I think, that has led to the great innovations mankind has imagined and produced in science, philosophy, and art. I feel that a man, when his eyes are opened to his own potential, tastes a power more addictive than money or fame. Smith describes a related scenario in_Wealth of Nations_ when he refers to the American colony leaders.

Almost every individual of the governing party in America, fills, at present in his own fancy, a station superior, not only to what he had ever filled before, but to what he had ever expected to fill; and unless some new object of ambition is presented either to him or to his leaders, if he has the ordinary spirit of a man, he will die in defence of that station. (Book IV, Chapter VII, p. 363)

In contrast to the individual aspiring to gain wisdom and improve his self- worth is the person who spends his life bathing himself in whatever riches he can attain. A "wantonness of plenty," Smith explains, is more appropriate when considering the "play-things of children than the serious pursuits of men."

Surely, hardly anyone can claim to be completely free of profligacy over the entire course of life, but there is a trap that we must be careful not to slip into. Smith hints at irony between the expenses we can afford on others versus our own selves.

In countries where a rich man can spend his revenue in no other way than by maintaining as many people as it can maintain, he is not apt to run out, and his benevolence it seems is seldom so violent as to attempt to maintain more than he can afford. But where he can spend the greatest revenue upon his own person, he frequently has no bounds to his expence, because he frequently has no bounds to his vanity, or to his affection for his own person. (Book III, Chapter IV, p. 267)

Smith notes that being overly generous to others, however, is not appropriate behavior either due to the effects it has on society. Money placed in unproductive hands, Smith writes, is immediately consumed and does not benefit the opulence of the public at all. There is surely, then, a balance between freely giving away all of one's riches, and self-indulgence.

An interesting factor of wealth is the envy it creates among those who don't have it, or who don't have "enough" of it. Smith argues that the evolution of government is a direct result of this envy:

The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. ... The acquisition of valuable and extensive property, therfore, necessarily requires the establishment of civil government. Where there is no property, or at least none that exceeds the value of two or three days labour, civil government is not so necessary. (Book V, Chapter I, p. 408)

Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor. (Book V, Chapter I, p. 413)

In government, at least in ours, it seems as if there are at least 2 differing views. One view that believes in tradition and austerity, and another that propones progression and expansive spending. In the United States--and I confess to generalize and stereotype--we have Republicans and Democrats. Apparently this a much more global situation than I knew, according to Smith:

In every society where the distinction of ranks has once been completely established, there have been always two different schemes or systems of morality current at the same time; of which the one may be called the strict or austere; the other the liberal, or, if you will, the loose system. The former is generally admired and revered by the common people: The latter is commonly more esteemed and adopted by what are called people of fashion. (Book V, Chapter I, p. 438)

I think Smith was really on to something here. He goes on to draw parallels between the adoption of religion and the moral strictness of "the common people."

In all, there is a wealth of knowledge in the Wealth of Nations, and it is intriguing to detect the similarities of the people of Adam Smith's world and the people of our own. Economic understanding may have changed greatly in 2+ centuries, but human nature, it seems, hasn't.

All page citations from:

Smith, A. (2008).Wealth of Nations. New York, NY: Oxford University Press.

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