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On Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations. We discuss the foundational text of modern economics, first published in 1776. How does the division of labor and our instinct to exchange lead to the growth of wealth? Is the economy sufficiently machine-like to enable us to manipulate its output, or at least to tell us how not to screw it up?
The selections we read were:
- Book I, Ch. I–X with following omissions: the end of Ch. 5 (stop at "Though at distant..."), the end of Ch. X, pt. 1 (stop at "That the chance..."), and part of Ch. X, pt. 2 (stop at "Secondly" and start again at "I shall conclude..."). This covers the division of labor, the origin of money, and factors that contribute to prices, wages, and profit.
- Book II, Ch. I and III (stop at "The annual produce of the land and labor of England..."). This covers the accumulation of stock and the difference between productive and unproductive labor.
- Book III, Ch. I and IV (stop at "Merchants and manufacturers are the people..."). This covers the symbiotic relationship between town and country in the economy.
- Book IV, Ch. II (stop at "This order, however, being contrary to the natural…"), Ch. III, pt. 2 (stop at "It is in consequence of these maxims…"), Ch. IX end (start at "The greatest"). This is about why we shouldn't have tariffs or other protections for local trade over foreign trade.
- Book V, Ch. I, pt. 3, Article 2, about the economic incentives involved in education.
For more on Smith's moral views, listen to our ep #45. For a longer treatment, Econtalk recorded a six-part series on The Theory of Moral Sentiments. We also covered economics in our ep #123. For some potential alternatives to the stupefying effects of the division of labor, check out ep #83 on New Work and ep #103 on Thoreau.
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Adam Smith picture by Solomon Grundy.
mark roddy says
1. protective tariffs are not as simple as discussed. Protecting the development of a strategic industry like automobiles, ship building, aerospace etc might not be the most “efficient” short term use of capital, but it can create the basis for a world class national economy. For example, post war Japan fiercely protected its automotive industry and built it into the giant globally dominant industry it is today.
2. Smith’s analysis suffers from the “vampire spending” delusion. He doesn’t quite grasp the implications of circulation. Thus money spent on “servants” or “parades” doesn’t disappear into the void, it isn’t bled out of the system, it circulates and is transacted repeatedly over time. A clear example is our military spending, the direct results of which mostly sits idle until it spoils and gets replaced. And yet that spending has become an essential factor in our economy, generating huge amounts of indirect economic activity to supply tons of useless shit. It has also indirectly created whole new industries such as high tech.It doesn’t really matter that perhaps 90% of military purchases spoil on the shelf.
3, The “jones act” is another example – it did not prevent aid to Puerto Rico, that was Trump being an idiot. He could and should have waived it immediately. it did however keep a domestic merchant marine and ship building industry in place, which turns out again to be in the long term strategic interests of a nation. See for example WWII, where our domestic commercial ship building industry and merchant marine were essential to keeping Great Britain and the USSR in the war.
As an aside, the “protectionism bad” mantra of the GATT world is mostly to the benefit of established first world economies, all of which developed under protectionist systems.
Americans in denial about their parasitic militaristic oligarchy.
p.s Don’t obliterate the messenger with a fully automatic rifle, he’s unarmed.
Mark Linsenmayer says
So you’re objecting to the fact that you’re not hearing your take on the political narrative echoed here in our attempting to recount and evaluate a text from 1776? Huh?
mark roddy says
The issues of protectionism then are still present today. I was objecting to statements made in the podcast that appeared to be non-critical echoes of Smith. In particular that a country would be better off exporting sugar rather than trying to build a domestic auto industry via tariffs or other trade barriers, and that the Jones Act is just bad law.
Jennifer Tejada says
So I decided to read this text. I bought a used version of this tome and was happy to find the exact sentences where you said to stop and read absolutely no further.
While there is no way I could have taken away what you all discussed, I was struck by reading what I thought was like – well DUH – material and realized that it wasn’t such obvious info back in 1776. Was just really nice to getbthat perspective – the one when you realize what we take for granted as common knowledge when it hasn’t always been.
I really appreciate your willingness to tackle all different kinds of topics and also appreciate you NOT having an economist in to take over.
I was a little confused around this idea around the propensity to exchange. It seemed like you all thought it was this idea upon which everything he believed was founded and thought maybe he didn’t do a good job – or any job at all – at explaining. It’s true. But I wish you had explained more. It seems really obvious to me. I want some beautiful mill work in my house and I know it’s a matter of buying wood and nailing it up. I have time. But I know I’ll never have the talent a craftsman will so I want what he can do. It seemed to me a matter of wanting what we don’t have to be the driving force of division of labor and the way to get it is exchange of some sort. Our insatiable desire to have more is what gets us – which shows up as propensity to exchange. Savages just take what they want. Animals have a hierarchy and those at the top get what they want. It’s more about power etc.. He says – wealth is your ability to purchase labor. And he makes a nod to Hobbs and the wealth is power thing – and argues that point. Anyway – hope that makes sense but I think there was a lot to discuss there and I was curious to hear more.
I’d really like to know what Adam Smith thinks about our current condition. When you all read De’Toqueville I thought – boy would he be amazed to see how right on he was about so many things. (Or maybe he’s less humble) and I think the little bits Smith threw in here and there about the effects of consumerism were so right on and I think he would be shocked at the way we trade today and our lack of ethical practices.
Jennifer Tejada says
Are there any philosophers/people that can be used as a way to fit in behavioral economics? I’m reading Daniel Kahneman’s Thinking Fast and Slow and apparently he’s the guy who won a Pulitzer for coming up with this idea? Anyway – it’s social psychology in disguise and it’s really fascinating and I imagine you guys might have a lot to say. I do remember that you discussed some of these ideas with the last economist episode where you had the guest. I had trouble following that one.
Jennifer Tejada says
Also – you guys talked about his long discussions about corn etc – and how crazy it seemed. This kind of stuff is discussed all the time. My husband works in commodities and If course I learn things in the conversations and when traders buy commodities they will hedge it with other commodities that mimic the market inversely or have some combination that will likely come close. I’m not sure that’s the same as the corn as Seth compared it to inflation but my point being that this was the early form of economic discussion and over time it’s evolved and these same discussions are happening just in different ways and spaces.
Michael Murray says
Smith berates ambition and human vanity surgically in the “Theory of Moral Sentiments”, he’s probably rolled over so many times in his grave that the gravedigger is starting to get spooked from all the underground rumbling.
Jennifer Tejada says
At first I thought it odd to follow topics like Debord and Native American Indian philosophy with Adam Smith but as I listened it made sense in an interesting way.
It was also quite interesting that he continued to revise his two main texts. This illustrates a bit of doublethink of an unresolved conflict between the Theory of Moral Sentiment and The Wealth of Nations.
The first a thoughtful attempt a moral theory the second a rationalization or justification of a wealthy British man who lived during the First and Second British Empires. ( I don’t think I need to explain British Empires i.e. war, conquest, slavery, murder, rape, robbery etc…)
He’s arrived at this high standard of living and doesn’t have to work as a slave or a serf all day every day back breaking work in the fields to produce food or in dangerous mines etc…. but some body does have to and will be made to do so.
(I won’t go into the slave labor conditions of the people who make our clothes, shoes, gadgets etc…)
‘The True Cost’
I’m wealthy white man and I don’t have to work at all as my money makes me money this division of labor thing is awesome!!!!
As for the wealth of a nation it is really only owned by a small few while the large majority of people who do all of the work have the least.
That’s really the structure of civilization from the beginning. It’s human farming.
Even ancient Greece with its’ democracy and philosophies most of the population were slaves or serfs.
Economists even speak of people as if they were just cattle “per capita”.
And certainly a plantation owner wants to maximize the efficiency and productivity of his slaves or serfs. Because they are the ones producing the wealth. They may get to share a tiny bit of the wealth they create.
And some few good slaves may get to rise to the top as a Steve Jobs or a Mark Zuckerberg etc… but they’ve made even more money for the wealthy than for themselves.
“Savage” tribal groups were typically egalitarian all working to mutual benefit but in a capitalist society every person is to compete against every other person for the scarce resources they actually create.
No wonder no one can come together to resolve any important issues like gun violence, health care, the environment, etc….. every one is to compete against every one even those in their community or family.
It’s obvious why we have the current political and economic problems and wars over power and scarce resources i.e. land, water, oil, etc….
Age of Anger: Pankaj Mishra
How Speaking English Impacts Our Relationship With Nature – Arthur Haines #12
strive to gain or win something by defeating or establishing superiority over others who are trying to do the same.