Adam Smith. The Wealth of Nations. (New York: Fall River Press, 2022), 507 pages.
I read Adam Smith’s Wealth of Nations long ago but revisited it last week. The language is not modern; it was originally published in 1776, in the eighteenth century; English language has changed considerably since then. Nevertheless, if you stay with it, you can grasp the book’s message, language differences aside. I decided to write a review of the book.
No book is written in isolation; books are usually written in response to something going on in the environment. Adam Smith (1723-1790) wrote his famous book in response to events in his world.
The man is Scottish. He was educated at the University of Edinburgh and completed his graduate education at Oxford University, England, and returned to Scotland to teach at his Alma Mata.
At that time, there was no such thing as department of economics; there was a department of philosophy and the man considered himself a philosopher. His first book was on morality, it was titled “A theory of moral sentiment” and published in 1751. That book established his reputation as a serious scholar. His next book, The Wealth of Nations, made his name a household name; he and Thomas Malthus and David Ricardo helped establish a new academic discipline called economics (see Further reading).
Apparently, the book was written as a rejoinder to the then dominant book on English political philosophy. If you recall, in 1640s the English were struggling between nascent democracy and instituted autocracy. The king ruled supreme (under the aegis of a concept called Divine Right of Kings).
This was a period that the Protestant Revolution in England had shaken most English institutions. Prior to Martin Luther’s 1517 thesis arguing that the Catholic Church did not have divine right to interpret the Bible for all people, the people simply accepted whatever the Bishop of Rome and his College of Cardinals told them were the words of God. Luther introduced the idea that the individual has the right to read the bible and interpret it for himself; the man brought chaos to where the Church gave people certainty, albeit prejudiced one.
In the mid-1400s, Europeans had learnt how to print from the Chinese and Guttenberg had establish his Printing Press in Germany, so the Bible could now be mass printed instead of having monks laboriously writing each copy by hand. Books, especially the Bible were now available to literate people.
When people have access to books, they can challenge their hitherto accepted social institutions. The Puritans challenged the right of their king, Charles, to rule them in an authoritarian manner. Englishmen were restive. Indeed, the Puritan, Oliver Cromwell and his followers seized Parliament and ruled without reference to the king and his House of Lords. (In 1215, the King had grudgingly allowed the Lords to regularly gather and advise him, especially on taxation matters, the Magna Carter).
England was divided into two warring parties: royalists and anti-royalists (puritans). This was a period of social unrest and insecurity.
THOMAS HOBBES ABSOLUTISM AS THE ANSWER
Thomas Hobbes found himself in this situation where law and order had broken down (he fled from the country and from outside it wrote his magnus opus). People lived as if they were in the jungle; this is like what exists in contemporary Nigeria; each person looked after his self-interests; no one cared for the good of other people.
In the state of nature, each person looked after his good and did not mind fighting with other people for access to public goods; thus, all were at war with all, and life became “nasty, brutish, and short”.
Hobbes wrote his book in 1651, calling for a return to absolutism. He advocated giving the king, Leviathan, absolute power and for him to do whatever he could to restore law and order in the realm, and that included arresting and killing those who harmed other persons (some people are calling for a benevolent dictator to come restore order in the asylum called Nigeria…in Nigeria, kidnappers stop trains and grab the passengers and cart them off, demand monetary ransom for the hostages or else they are killed; Nigeria is now haven for criminal activities; people live unsure if they will be alive the next second).
Given the unsettled times that Hobbes lived in, what he advocated made sense. Eventually, the English restored their monarchy. The rule of law and order returned to John Bull’s land.
The question now is how much power should the new king be given? Absolute power, as Hobbes advocated or limited powers?
JOHN LOCKE’S LIMITED GOVERNMENT
John Locke, another English political philosopher, in 1689, in his book, Second Treaty on Government, noted that since the king, or law maker was selected by the people to make and implement laws that protected all the people that the law maker ought to be limited in his scope of powers.
As Hobbes demonstrated, Government is needed, all right, but it should not be totalitarian and authoritarian but should be limited to doing what the people mandate it to do, John Locke argued.
Locke’s 1689 book is generally considered a must read for anyone who wants to understand English and US governments because it set up the parameters of limited government that we find in the Anglo- Saxon world.
Read Thomas Hobbes (Leviathan), John Locke (Second Treaty on Government), Plato (The Republic), Aristotle (Politics), Cicero (This is cicero), Niccolò Machiavelli (The Prince), Charles Montesquieu (The Spirit of laws), Jean Jacque Rousseau (Social Contract), Jeremey Bentham (On Morals), John Stuart Mill (On Liberty) Charles Fourier (His philosophical writings ), Joseph Proudhon (What is property…), Robert Owen (The man who brought socialism to England), Karl Marx (Capital), V.I. Lenin (Selected writings), Madison, Hamilton, and Jay (The Federalist Papers), The United States Constitution and the Declaration of Independence and so on to have some understanding of Western pollical philosophy (you may also want to read up on Chinese, Japanese and Hindu ideas on government…and if there are pre-colonial African ideas on Government, also read them) .
The English had a glorious civil war in the late seventeenth century and was looking for a way to return to social order; Thomas Hobbes offered them absolute government; John Locke sought ways to limit the power of that government; Montesquieu admired the checks and balances of the three branches of government that he found in British government; Americans instituted the three branches into three separated and allegedly equal branches of government and bid them to be in adversarial relationships, to fight with each other and believes that that is the only way to guarantee liberty in the land?
It should also be recalled that the nation state had only recently come into being around this time, at the Treaty of Westphalia (1648). That treaty ended the one hundred years religious wars that Martin Luther had unleashed in Europe.
Europe had one hundred years of religious wars as forces loyal to the Catholic Church battled the forces loyal to the emergent Protestant kings of Europe. The war finally ended with the recognition that the nation-state had total sovereignty over its territory, that the bishop of Rome did not have the right to tell the English or French or German kings and princes how to run their kingdoms and princedoms. Thus, the nation state came into being.
ENGLISH PARLIAMENTARY DEMOCRACY
The concept of nation state was reinforced by various other treaties, such as the European Concert orchestrated by Prince Metternich of Austria, after Napoleons wars, The treaty of Versailles after the first world’s war, it established the League of Nations, and the San Francisco, California treaty that established the United Nations Organization, after the second world war, in 1945.
The Emergent nation states of Europe had an international trading policy called Mercantilism. This meant that the sovereign decided what was imported into his kingdom, who did the importing and what ships and merchants were allowed to import the said goods. The sovereign, in effect, controlled commercial activities in his realm. This gave too much power to the king and, as we know, power corrupts, and absolute power corrupts absolutely. Nepotism ruled; the king and his sycophants granted charter to do certain types of trading. Such situations lead to inefficient economic activities.
Adam Smith was reacting to two social forces at work during his time, Hobbes absolutism and the mercantilism that gave the state the right to determine commercial activities. He examined both policies in as dispassionate, impersonal, unsympathetic, and objective manner as was possible, to see if, in fact, they lead to prosperity in the nation.
His conclusion was that when the state interfered in commerce, as mercantilism did, or when religious do-gooders told people what to produce or not produce (such as religious moralists saying that people should not drink alcohol and produce it), instead of there been more wealth in the commonwealth there was less of it.
There was no such thing as statistics during Adam Smith’s time; so, he used Francis Bacon’s emergent scientific method of observation, verification, and experimentation to look at the countries that seem to permit unfettered commerce and those that restricted it and concluded that where there is more freedom of commercial activities that there is more wealth.
The nation becomes wealthier if individuals and commercial companies are allowed to engage in business without the state telling them what lines of activities they should engage in or how to do so.
Adam Smith borrowed from Thomas Hobbes atomism; he agreed with Hobbes that each person is selfish; each person is motivated by selfish interests, not some moral high values.
He said, in effect, let us accept selfishness as our human nature. Let people have the freedom to pursue what they believe serves their self-interest.
To Adam Smith, the role of government is to establish an enabling environment of law and order to enable people to pursue their selfish goals but otherwise hands off commercial activities. He said that pure observation, what Auguste Comte called logical positivism, shows that when this is done, somehow there tends to be more wealth in the nation. Let people trade, make profits, and then tax their profits and use the revenue to run the state.
In the process of establishing the principle of free enterprise economy, Adam Smith employed catchy turns of speech; for example, he said that somehow there seems an invisible hand at work in the free market that disposes people, while pursuing their selfish goals, to somehow serve the public good.
People are not by nature good, and you should not tell them to serve the public good but if you encourage them to serve their selfish interests, somehow, they do what serves the public good. How so?
The market is characterized by two forces. Those who supply goods and services and those who demand them. Supply and Demand is the bedrock of capitalist economics. And for that matter, all economies, for even in primitive societies, people battered their goods and services without the medium of money, that is, they exchanged goods and services, hence supply and demand operated in their primitive milieu.
People generally buy what they desire, what they believe serves their interests. Therefore, people will gravitate to sellers selling what has personal value for them.
Additionally, rational people want to buy goods and services at the lowest possible prices. Therefore, people gravitate to those who sell excellent quality goods and services that they want and sell them at the cheapest prices.
Producers, aware that rational people want to buy cheaply, reduce the cost of their production to sell as cheaply as is economically feasible.
This, in real life, means that the free market distributes goods and services to where there is demand for them and does so efficiently. Suppliers (business) produce goods and services as cheaply as they can to sell as cheaply as they can.
Free markets, also called Capitalism, thus allocate goods and services efficiently, Adam Smith said; on the contrary, if you allowed government to decide where resources go to (as in mercantilism, communism, and corporatism), you would generate inefficiencies (add bureaucratic costs and social costs of squelched freedom).
Anyone reading Adam Smith would agree with him that he made an excellent argument for free enterprise, aka Capitalism. Currently in our evolution there is no real alternative to capitalism.
COMPETITION LEADS TO WINNERS AND LOSERS
WHAT ARE YOU GOING TO DO ABOUT IT?
ACCEPT HERBERT SPENCER’S SOCIAL DARWINISM OR USE SOCIALISM TO HELP LOSERS?
Having made his point, and most rational people agree with him, Adam Smith also recognized that in every activity there will be winners and losers. Thus, whereas competition is the best way to generate productivity, it has a cost.
Some can run the one hundred meters sprint, race in less than ten seconds; some cannot run it in three minutes! The same goes for all aspects of life.
In competitive markets there will be winners and losers. In our current electronic age, Bill Gates, Steve Jobs, Jeff Bezos, Elon Musk, and other electronic geeks are winners and make billions of dollars from their electronic gismos.
In the electronic age, some people are not able to make enough money to live on. If you live at San Francisco, California (Silicon Valley’s headquarters) and work as a store clerk, the chances are that you need three of you to afford rent for an apartment! The question, then, is, what are we going to do about the social and economic inequality that results from free enterprise and its mantra, competition?
Adam Smith recognized this problem and asked for the public, through progressive taxation, to do certain things for all people; he also encouraged private philanthropies to help the losers in society.
Adam Smith believed that all people are inherently the same and equal but that the environment a child is born into makes a difference as to whether he will succeed or fail; to enable the child develop the skills to be able to compete in the free market, Adam Smith advocated education for all children paid by the public; at his time health insurance was not yet a public issue; nor were there real hospitals, as we now understand them, then.
(In my view, society owes all children publicly paid education through universities and vocational schools, and publicly paid health care. Education and health insurance is a duty that society owes its people, to be paid through taxation. The Scandinavian countries are a model of what I am talking about.)
In real terms, then, Adam Smith was not a primitive capitalist, such as Milton Friedman and Arthur Laffer; he was a realistic person who recognized that people tend to work hardest when they pursue their self-interests and that therefore you must give them the incentive to do so by allowing them to do what they believe serve their selfish goals and further allow them to keep as much of their profits as is necessary to incentivize them but also recognize the need to help the poor.
The Founding fathers of the USA, who revolted against Britain in the year that Adam Smith’s Wealth of Nations was published, 1776, embraced the book with gusto. The Two key reasons why they rebelled against Great Britain was Mercantilism and the English parliament and its King George not allowing Americans to be represented in making laws that affected them in the colonies dovetailed into Smithian economics. No taxes without representation and free trading were the battle cries of the American founding fathers. Thomas Payne made these points dramatically in his book, Common Sense.
The result of embracing unfettered capitalism in the emergent USA is the amazing productive engine that the country became.
What Americans did not do, however, is listen to the second half of Adam Smith’s argument, to provide certain goods and services for all people at public cost.
The “children” who are found at US university departments of economics, these days, preach total government hands off economic activities. Some of them even want education not publicly funded; they preach unbridled capitalism (there should be private as well as public schools; private and public health care).
Indeed, some of the alcoholic scholars, such as Milton Friedman and the denizens of his Chicago school of economics, want to abolish social safety net pogroms for the elderly, such as social security/pension programs and Medicare. Really? And what would that make us, hyenas and other predatory animals that use workers and dump them to die in their old age! Is this your idea of what civilization is all about?
These people are not only childish but drug addicts; their thinking is befuddled by whatever drugs that they are on; they are not even perspicacious.
If you do not help the poor and there is war you conscript them to go fight to preserve your property rights? What prevents the poor soldiers from shooting you to death?
If you do not help the poor, you set up a situation for a violent overthrow of the government. Rational persons do not want that to happen for, as Edmund Burke pointed out in his reflections on the Revolution in France, if you throw out old regimes it takes centuries to replace them with stable ones, so we need to make incremental, gradual changes to social orders, not throw them out, as the French (1789) and the Russians (1918) did. The French revolution of 1789 was finally resolved in 1958 with the fifth French Republic Constitution!
The salient point that the socially and politically naïve economists that populate economic departments at US universities, the rabid dogs braying for what they consider pristine capitalism, do not understand that if the poor are not helped that they can always kill the rich.
In our scientific age, religion, and its God, as LaPlace told Napoleon, is a luxury that rational persons cannot waste their time on. If there is no God, no heaven and hell, what exactly prevents the poor from guillotining the wealthy?
What sentimental nonsense dreamed up by such brain-dead persons as Milton Friedman and Arthur Laffer would prevent violent revolutions that threw out the US government and returned society to what Hobbes called state of nature where all are at war with all and life becomes nasty, brutish, and short?
In the jungle all kill all and death becomes preferable to living always as paranoid persons because one is not certain that the next person one sees would not cut off one’s head.
As I pointed out at several places, American scholars, for some reasons, tend to be childish; we need to reeducate them and shrink their youthful exuberance; we need to transform them to something like English, French and German scholars who have a historical understanding that society is a balancing act that must have safety for all, and that all must be treated right.
America was founded on slavery, on using the free labor of Africans to build the very universities that the daft economists who talk about the benefits of unchecked competition are benefiting from. America killed Native Americans and stole their lands; those two variables, slavery, and land theft, is what made capitalism as productive as it is in the USA, not only competition mouthed by brain dead economists.
And when their jungle capitalism fails, they are the first to seek public handouts! They failed to learn the lessons taught by John Maynard Keynes, that government needs to be used to perform certain on-going activities that prevent capitalism’s tendency to periods of boom and bust, that we need monetary and taxation policies that, among other things, make sure that the economy is fulfilling its function of making sure that most people benefit from it.
I am certainly not advocating free lunches because there are no free lunches in nature; in nature animals work or they starve to death. But we are not only animals; we are animals with social conscience.
We do not need to embrace Herbert Spencer’s social Darwinism that sees society as a jungle where all compete and the fittest survive and the weakest die out.
If all there is to life is only competition where only a few survive then the poor ought to pick up arms and kill the wealthy and get them out of their evil existence, and those left alive learn that what makes a person to be truly happy is for him to look after his self-interests while also helping other people, not at the expense of his good, doing what serves private and public interests.
Around 1746 what we now call the industrial revolution began in Britain. Hitherto, people produced stuff manually and mostly at their homes. Gradually, we began producing stuff at factories and with the machines that James Watt’s discovery of the steam engine facilitated. Instead of a worker staying in his cottage and sewing his fellow villagers’ clothes, and making their shoes, he is now employed at factories where clothes and shoes are mass produced.
The industrial revolution led to alienating people from their traditional villages and bringing them to factory towns, to urban centers.
The world has gone through not only industrial revolution but urban revolution. People now work at factories and live in urban centers.
The initial factories were owned by industrialists, capitalists. Those worked their employees, including ten-year-old children, up to twelve hours a day, six days a week, and the working conditions were atrocious. Folks were worked to death; they seldom lived to be forty years old!
The life span of typical white Americans in 1900 was forty-two years. As for nonwhites their death did not matter.
Men of good will decried this situation and asked for improvements in the working conditions of workers. Capitalists resisted the call to improve the working conditions of their workers and the result was the phenomenon called socialism and communism.
Communists called for workers to take over the means of production and run them. We know from experience that not every person has the skill set to be a leader, manager, and supervisor. Even if the people take over factories there will still be leaders and the led.
Therefore, communism is not the answer; besides, Russian communism gave communism a bad name; the Bolsheviks were brutal beasts.
The answer lies in improving the working conditions of all workers. In the meantime, we learnt a great deal from communist and socialist writers, such as Charles Fourier, Joseph Proudhon, Robert Owen, Karl Marx, and Frederick Engels. We need to borrow what is good in socialism and combine it with what is good in capitalism to form a new rational political economy.
A mixed capitalist and socialist political economy and social democracy is the solution. The founder of Capitalism, Adam Smith, recognized that whereas capitalism is very productive that we need to check its excesses by figuring out ways to help the losers in life’s competitions.
Mr. Smith was a philosopher. He used pure reasoning and good judgment to tell us that if people are selfish then we should let them pursue their self-interests because that makes them work hard.
Let all compete and may the best win in every competition. But, as Adam Smith himself recognized, who is the best? Is it the person given all the help that his parents love, and wealth can give to him, or the poor man who began life by begging for his food?
Obviously, we must have capitalism because it is demonstratively the most productive economic system that empiricism shows us, but we must ameliorate its negative spillover effects with some social planning that helped the losers in all competitive situations.
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Ozodi Osuji, PhD
August 4, 2022
I woke up this morning, at 4 AM, with a powerful urge to write a review of Adam Smith’s magnus opus, The Wealth of Nations. It took me three hours to write it. I recommend that you read the book. In case that you want to talk to me, the best time to reach me is in the evenings. cheers