A review of Wealth of Nations by Adam Smith

This was a tough book for me to get through, because while it was convincing in all its arguments, it was exhausting in its presentation. To Smith’s credit, the man didn’t stint on the examples or the actual math of whatever he was describing. But it doesn’t make for very exciting reading, and for me nearly impossible in large doses.

Numerous topics from the book were self-evident to me, and were nice to see convincingly argued, but weren’t exactly revelations. An example of this would be the division of labor, the idea that the narrower the portion of a process an individual can concentrate on, the more efficient it will be and thereby the greater the productive power. I don’t know that I’d ever thought about it in exactly these terms, but it stands perfectly to reason.

Another example of this is that the three sources of revenue are wages, profit, and rent. This is essentially the idea that the land generates rent by the tenant, the work done there generates wages for those who do it, and the stock that is used in that work generates profit. These three go together in all cases, whether it is agriculture or manufacturing, and the price of everything has these three embedded into it. I’d never known this before, but having it presented so clearly it made perfect, obvious sense.

Other things were a bit more subtle, and required a bit more effort on my part to grasp the concept and the mechanics. The relationship between the quantity of gold and silver in an economy and their market prices didn’t entirely make sense to me. To some extent the price of silver and gold is tied to its abundance and the presence of productive mines. But with supply and demand being in balance, the price of these metals gets higher the richer the country is, and falls the poorer the country is. This is not intuitive, and it took many pages of Smith’s explanations for me to grasp how it is true.

Smith is a proponent of the free market at all levels, and he goes to great lengths to demonstrate why interference in the market always reduces the wealth of a nation. As an example, he rails against the apprenticing system as bad for everybody. Apparently the apprenticing system was developed by the tradesman guilds in order to control the number of people who can practice a particular trade. The result is that you get apprentices who are not inclined to work hard, who spend many years learning a trade which they might have learned in one or less with a bit of application. Without apprenticeships, motivated beginners would work hard to learn a trade, and would join any profitable market, likely at lower prices, and soon the market would reach equilibrium between supply and demand, which is always good for a nation and good for consumers.

Another example of deleterious meddling is the granting of monopolies, which is typically done by the state. These are of great benefit to those getting the monopoly, which is always because the manufacturers getting the monopoly are rich and powerful and are able to exert sufficient influence to make the monopoly happen. But the result is a stifled market and artificially higher prices, which is of course, always bad.

In Smith’s view, a government should stay out of trade entirely. The three jobs of the government are 1) provide for the defense, 2) administer justice, and 3) administer public works. Other than that, they need to just get out of the way, and let the market sort its own self out.

All in all an edifying if exhausting read. I had zero background in economics, and this book definitely gave me the foundation I needed to have at least a fraction of a clue. It also served to make clear to me that I don’t need to do any further study in the field, and that this served me up all I needed.

From here, I believe I will turn to a short course literature to cleanse my palate, with Brave New World, The Time Machine, and Gulliver’s travels. Should be fun.

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  1. I will now read Wealth of Nations

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