Episode 174: Adam Smith’s “Wealth of Nations” (Part Two)

0:00 Mark: I think we've done a pretty good job, given the ups and downs of the division of labor. I thought a related topic is the relation of the individual to the group. You know, this is the wealth of nations. It's not about the individual. So just a lot of it is about how do we even categorize what the wealth of a group would be as opposed to how much money a particular individual has? And hint, it's not going to be, you know, how much gold does that nation's government have in the bank? It's not a matter of, like, what the richest, what the government owns. It's a matter of the wealth of the nation. So I think if we really want to get at this relationship between the individual and the group, that's also going to involve us really spelling out what the invisible hand is about.

0:38 Seth: Before we do that, can I ask a question? Every time we do a text that Wes and Dylan read at St. John's I'm always, always, like, kind of feeling like I'm at a disadvantage or I'm intimidated because you guys have some kind of history with it. Just tell me a little bit about what the context was for reading this book in the curriculum there. Like, did it fit in as part of the moral philosophy thread or was it something else? I mean, how did they position it and have you read it there?

1:05 Dylan: To me, it's part of the thread of liberal democracy. If you picked a thread, that's what you would pick. And the growth of modern political institutions and political economy. And so when you put it right alongside the Federalist Papers, I would say that it fits in right there with Locke and Hobbes and, well, it's the

1:25 Wes: sort of text, when you encounter it, so much of it forms the basis for ideas that are just common currency in society. Right? Free markets and a division of labor and all sorts of other stuff. When you read a text like this, you are confronting your own prejudice and presuppositions. There's so much in here that's already influenced what you believe, and so it allows you to explicitly grapple with it. I think that's a big part of the value of it, other than the fact that it's just a great and influential work of economics. It's enough to pick up the book and see so much that is recognizable, but not to have already read the explicit arguments.

2:00 Dylan: There are aspects of it that are utterly recognizable. And one of the fun things about reading wealth of nations is lots of students who had never read it before and didn't know realize they read it with, wow, I didn't know that this is one of the places this came from. In the same way that people had read the Federalist Papers, recognized so much of the American Constitution and the way we talk about the United States out of reading those papers. Because Adam Smith is so much associated with capitalism, you get a lot of oversimplified understandings of what Smith was talking about and an oversimplified understanding of his economics.

And when you get somebody who really can't wait to read, you know, the founding father of hardcore capitalism, and they read Adam Smith and they get something that's much more complicated than what they expected, it's not just a recognition of where things come from. It's the way a lot of really good books work is. You have recognition, but then you also see there's something more sophisticated going on in the original thinking about it, then

3:00 Wes: there are things you don't expect, like. So in our reading, we see that he is worried about the fact that monopolies and people trying to fix prices, that's just going to be a constant problem in a capitalist society. And so is, for instance, the way in which guilds and corporations artificially drive up prices in a way which impoverishes the countryside or the people who produce the raw materials for manufacture, which we can talk about, too. But there are these inherent problems with the system which ultimately do require regulations and government intervention. It's not just all invisible hand.

3:39 Mark: So you could say that it's because his views are more nuanced and complex, but also it's because he was just concerned with different problems. And so a lot of the ways that people have interpreted this since they've tried to imagine what Smith would say to, like, one of the things I heard was, apparently there was quite a bit. Fairly soon after Smith, it became a central philosophical political problem of what are our duties toward the poor? And that's not really a conversation that Smith took part in. So that's not explicitly laid out in here.

If you really are looking for, like, well, what does Smith think that, you know, he has a whole section on taxes. He does suggest some things that are, if you have taxes paying for this or collect taxes in this way, then that's going to dampen the economy. Or that's going to be a matter of the government getting its nose in, a matter that it couldn't know enough about, you know, echoing Hayek later. So there are things that suggest. But a lot of these things that are in common parlance really did come from Hayek or other subsequent thinkers and not from Smith himself.

So there Are leftist Smithians and rightist ones. Because he definitely, like, is against the abuses of nobility, you know, so Thomas Paine went and ran with him, but then also Edmund Burke claimed him as a supporter of. And he definitely has a lot of concern for the law of unintended consequences of, you know, maybe you don't want to make this sort of economic manipulation. Because you don't know ultimately what effect that's going to have. So there are conservative and liberal elements in here, which is part of why I wanted to bring up, you know.

So invisible hand is the thing that is used to justify interpreting Adam Smith as Greed is good. Even though clearly, like from Theory of Moral Sentiments. We know if you're just a miser, like, no, that's a crappy way to be. But still he makes the claim in here that people in general, often pursuing their own interests. There will be an emergent order that will end up. That it'll be for the overall good of society. And in all these mercantile exchanges that we've been describing, that's exactly what happens. I accept the deal because I think it's good for me.

But the fact that there is a deal at all Means that we're both actually obtaining something over and above. It's not a zero sum game. Any transaction that successfully goes through Is a positive net value for the group.

5:55 Wes: It's the 30th anniversary of Wall street, and I just saw it in the theater. And I have the greed is good speech, which is really brief in front of me. Do you mind if I just read that as a counterpoint and then we can go ahead. The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through and captures the essence of the evolutionary spirit. Greed in all of its forms. Greed for life, for money, for love, knowledge, has marked the upward surge of mankind. So how is Smith's invisible hand different from that?

6:27 Dylan: We should read the invisible hand section. It's in book four, chapter two, on the restraints of particular imports. It's in the section where he's talking about how every man's interest leads him to seek the employment of capital which is most advantageous to society. And the first part of that section, he tries to employ it as near as home as possible. He tries to use his industry there. And he endeavors to produce the greatest possible value. So this section that the invisible hand is in starts with. Every individual who employs his capital in the support of domestic industry. Necessarily endeavors so to direct that industry. That Its produce may be of the the greatest possible value.

7:13 Mark: Every individual necessary labors. By preferring the support of domestic to that of foreign industry, he intends only his own security. By directing that industry in such a matter as its produce may be of greatest value, he intends only his own gain. And he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that there was no part of it. By pursuing his own interests, he frequently promotes that of the society more effectually than really intends to promote it. I have never known much good done by those who affected to trade for the public good. So clearly he could use invisible hand. You know, he says, as in many other cases, he could use this image elsewhere in the book. This is just a particular example where he, he pulls it out.

7:56 Dylan: It may be the only place where he uses that phrase. But there's very good reason why it becomes emblematic of. We were talking about it earlier, this sort of ecological, self organized, working on its own kind of aspect of an economy that because of the activities of the individual actors, the ones in this case that they work to produce the greatest possible value, that people work and try to exercise their capabilities close to home, all of these things lead to activity in the economy which goes on its own. That's the whole idea, the invisible hand.

8:35 Seth: And that's not greed motivated.

8:37 Wes: It is self interest motivated.

8:39 Seth: Self interest is not greed.

8:40 Mark: Well, it's about maximization, right.

8:43 Wes: He's trying to profit as much as he can. Whether you want to call it as greed or not. That's what Adam Smith is saying. You have some capital and you basically want to get the best percentage possible off of that capital. To do that you actually have to produce things that people want. You're looking for the greatest value in the sense that that's something that's going to turn the greatest profit. So the benefit there, the idea that that benefits society as a whole is just the fact that your need to make the most profit possible is regulated by the demands of others. If you're a do gooder, if you think I'm just going to take my capital, I know what people want and I'm going to regardless of what force

9:31 Mark: a philosophy podcast down there.

9:32 Wes: Exactly. I know what they need, I know it's good for them regardless. And I'm not thinking about the profit, I'm not thinking about my own self interest in the sense of like what's an actually a viable business. I'm just thinking about the good, the public good in general, then I very often will. You know, it's like a command economy. Very often I'm going to produce not enough of what people want or too much of what people don't want. And that doesn't actually benefit society. You know, pouring something into the market that's. That no one wants because you think it's good for people, doesn't actually benefit anyone because, again, they don't get to enjoy the stock of diverse talents that way. There's no material benefit to society in that.

10:17 Seth: To say that self interest means that you pursue a maximization of your capital and the notion of equating that with greed. To me, so the concept of greed, at least in the Wall street sense, what Smith really loves is efficiency in production. It's growth. What really interests him is the wealth of nations. How do nations become wealthy? And why do nations have different kinds of wealth? So first he's going through this, as Dylan described, kind of genealogical, kind of like 18th century, quote unquote, philosophical, kind of descriptive approach of how things might organically appear.

And then he's going to talk about later on about how governmental policy impacts this and like why England is more. More prosperous than France or what have you. And it has a lot to do with that. The concept of greed as a reflection of individual character, like we think of it now, has something to do with like hoarding and consumption and acquisition that I think is just kind of absent in his. When you talk about the way that individuals work in their own self interest here, it's not with that purpose of acquisition or hoarding.

11:31 Wes: Not just that, but for Gordon Gekko, the idea was that you could screw anyone over you liked, even your young protege who you're trying to help become rich and great. You know, Gordon Gekko in the movies basically buys the guy's father's airline so he can dismantle it and ruin a bunch of people's lives. So the question is when the. What you're pointing out, Seth, is, you know, where you get some ethical constraints on all of this. There has to be a point where that happens and that distinguishes this from mere greed in the sense of I can destroy people's lives for the sake

12:02 Dylan: of, you know, in this maximizing value without rules.

12:06 Wes: Right?

12:07 Seth: Yeah. And I think having listened to Russ Roberts talk about Adam Smith for a hundred years now, there's in the Theory of Moral Sentiments and probably elsewhere in this book, you know, talking about reputation, that there's a number of social aspects that Smith was sensitive to that you don't burn your bridges and that your commerce relationships with others are going to be dependent on how you're perceived. A scorch and burn strategy towards your commercial relationships with others is ultimately not in your self interest. And so there is a kind of governor on the notion of self interest, that there's a short term and there's a long term.

So there's maximizing profit in the short term. But there's also recognizing that being able to continue to engage in commerce with others by virtue of having a reputation, by virtue of dealing fairly with people. There's a broader concept of self interest here that's at work than I think you get out of the notion.

13:02 Wes: We should point to the larger context of this. Right. Which is that he doesn't think there should be tariffs. Putting high tariffs on foreign goods so that you can protect your local manufacturers, he's saying, is the wrong thing to do. So the point of the invisible hand argument here is to say that actually when people are tending to try to maximize the profit on their capital, generally going to help their home country and their home market and it's not necessary to put in place these controls and, and tariffs. So this is actually an anti regulation argument in this chapter, but it doesn't imply no regulations whatsoever. It's just this specific sort of thing.

13:43 Mark: Yeah. So the question is if you put a tariff on. You want to build your local car industry, so you put a big tariff on cars from anywhere else and your hope might be that well, we can build up a car industry so eventually we can produce stuff just as cheaply and it can be actually competitive and then maybe we could allow actual competition. But if you do that, all that means is that capital in your country is going to this car industry where it could have more profitably, more efficiently gone somewhere else. Like no, just buy the cheap cars from somewhere else and then maybe we're better at making sugar or whatever.

14:18 Wes: The alternative is overall we're wealthier if we send it abroad. If we're buying foreign goods. It's just that that particular industry isn't doing as well. So it's a trade off between a particular industry and the good of society as a whole.

14:33 Seth: I've been thinking about this a lot today because I was reading this article about why relief supplies have not been getting to Puerto Rico and it's describing this obscure regulation that was designed to protect American shipbuilding. There's this act from Jones Act. The Jones Act. Yeah. You know that the purpose of the act was ultimately to protect American economic interests, but it ultimately not only punishes Puerto Rico in particular, but also the United States. Shipping as an industry is at a tremendous deficit competitively against the rest of the world. And that piece from Smith was kind of echoing in my mind recently.

15:16 Wes: Today, yeah, thankfully it's been temporarily lifted.

15:19 Mark: I think we're getting at some of the interesting distinction in his writing between descriptive and normative that it seems like the economist is supposed to describe what people do. And yeah, he's talking about what people in general do. Some, some particular individuals could be acting irrationally. But once you allow that description, some people might deviate, then you open up the possibility of normative talk that these people are not working to maximize their capital, they're doing something that's ultimately self destructive. And at some point it just might be that in a particular country the incentives are perverse.

And so people act suboptimally all the time or more often than not. And so the ecosystem doesn't function. And I think that he thinks that might even be inhuman. Nature, right? It's sort of human nature. If you have a lot of money, you hire servants. Like it's not that everybody goes and maximizes their capital. It might be that they just hire a bunch of servants to lie around. And that's. He has this big distinction between productive and unproductive labor. So that even the military, that's a very worthy thing, we need the military. But in a technical sense, it is unproductive in that it doesn't create a product that can then be resold.

So you're not growing the economy by hiring more soldiers or hiring more servants or more entertainers. The labor of these people disappears in a puff as soon as it is put out. So the more of your economy that's put towards that stuff, then the less your economy overall is growing. In that sense, you're being wasteful, you're being foolish. And so he is trying to tell us that we need to be more thrifty and wise and reinvested.

16:59 Wes: So some people would call that a stimulus, though. You take taxes and you create a market with the military for lots of different manufacturers and services, they have to buy tanks and guns and lots of other things. In the same way that, like Obama's economic stimulus, anytime the government raises taxes so that it can buy stuff back from the people, that's what they call stimulus. The army is like one big stimulus, arguably. I don't know if that's true.

17:24 Mark: Well, that's just different than the way it was back then. He's more Thinking like, I'm just going to pay a bunch of soldiers to march back and forth. Not that we're going to invest in tanks and help the industries that are making tanks and stuff. Most of his examples like this, even entertainers, like now for the most part, they can create products, they can record their albums and whatever. And so it's not so many of these things that were unproductive. It seems like there are possible products connected with them.

17:49 Dylan: Even in that section where he's, you know, lambasting, having people who are being servants and stuff like that, he seems to have in mind the idea of wealthy people hiring people to do work in their houses as opposed to a inn owner or something. Hiring people to take care of the inn so that their labor is actually contributing to the product that he's selling. That is housing.

18:14 Mark: Hire a bunch of servants as long as you rent out a room.

18:16 Dylan: Yeah, I mean, it's part of his business, right? They're producing value.

18:19 Seth: Yeah, it's like rich dad, poor dad. If you're hiring servants, you're thinking to yourself, oh well, this is work that would be done by me and my time is more valuable and what have you and blah blah, blah. But that capital would be better use put to work generating more capital. It might be a cost savings to you by not having to invest your own time and labor. But the idea is the capital that you're spending on non productive house cleaners, you could put that to work in a factory and be generating an increase in capital and what have you. So there's definitely that aspect of it.

18:53 Mark: I don't know. Is this productive versus unproductive labor? Is this distinction still made by economists now? Like, I don't know if I've heard this exactly this way because it does seem like, yeah, okay, yeah, I pay the servant to do with something because my time is better spent on my business. Not necessarily I'm saving, you know, I should take the money I'm paying the servant and put it into capital. But like if my time can make more money for me, whereas if I clean my house myself, then I would be losing out on that extra income, then that counts as economic growth. Like that's a economically rational exchange.

19:25 Seth: No, no, I think it is a rational exchange. I'm just. The point I'm trying to make is from Smith's perspective, right, money that you spend that doesn't generate more money directly is unproductive. It's unproductive capital.

19:39 Dylan: I hear Mark saying that at the very least, the circumstance of what is Unproductive is antiquated. Even if we take his judgment being correct, then it's not true now.

19:49 Wes: Well, he does give that complex account of wages versus rent versus stock. If it is the case that hiring servants really does save you enough time to produce a profit or even to earn a wage that's higher than the money you spend on the servant, I think obviously that's productive.

20:09 Mark: I'm going to specialize my labor so it does not involve cleaning my house. I'm just putting this in Smith's terms.

20:14 Wes: Yeah, no, exactly. It's true. Ikea just bought TaskRabbit, by the way.

20:18 Mark: So it seems there might be descriptions that could sound positive or negative in Smithian terms for the same action, he seems to think again. If a government is very ostentatious, let's have a parade, let's make giant palaces for ourselves, let's have a bunch of expensive dinners with dignitaries and things. That seems very wasteful. At the same time, he says in his taxes section, the government needs to be effective, needs to have a certain grandeur. And so it's actually just like you're hiring somebody to clean up your inner. When you're going to rent it out.

The government is sort of front facing to other countries, to a lot of business opportunities to even just keeping internal order. You need reverence for the government. So investing in a parade, investing in making the capital look nice, these can be interpreted perhaps as investments that will ultimately be productive. So I'm just not sure that the line between what is wasteful and what is productive is very clear. I think it's. You could give an argument either way for a lot of things though I think he's going to say still there are clear like obnoxious violations of this, that trying to interpret it as productive would simply be self deception.

21:31 Dylan: I think we should end on discussing universities before we do that.

21:34 Mark: I'm sorry, just because we brought up the rent versus the three components. Do we want to talk about that a little more explicitly since that is such a huge part of the book, or do we. Is that too boring?

21:44 Wes: It might be too boring if we.

21:46 Seth: I don't know. You had. We had to read this whole section about how money came about.

21:50 Wes: I wouldn't talk about that either. I.

21:53 Seth: No, I know.

21:54 Wes: Yeah.

21:55 Seth: Like why did we.

21:56 Wes: I'm just saying if we are going to do before something, before we go to the universities, I would say Chapter 10, Part 2 on the guilds, on the corporations and the way they screw things up.

22:07 Mark: More about the ecosystem which we talked about, you know, how descriptively we can say people normally will try to maximize their capital. They will, if they understand economics, at least they will put it into productive labor as opposed to unproductive labor, et cetera. But it's also supposed to then work from the worker's point of view. The worker is always going to work at whatever trade he can make the most. Money will be satisfying in other ways. There might be. You get honors instead of money for some things, but there's some sort of. The rational thing to do is to pursue something that's. That's in line with your talents and go where the demand is. Don't produce things that people don't need. It's the same with your labor. So guilds and things are one of the many things that would distort that natural ecology.

22:52 Wes: The way they distort it is they. Well, if you want to be a hat maker, you have to apprentice for seven years with no wages, and then you get to be a hat maker. And then when you're a hat maker, you can have one apprentice or two apprentices at time or some restriction like that. So you basically, you artificially restrict the number of people who are engaged in this profession, so you can reduce the amount of competition and you can keep the costs higher. That actually is not a problem within a city, because if every trade does it, then it all zeros out in the end.

Right. The hat maker is charging higher prices, but so is the butcher and so is everyone else, and it all amounts to the same thing anyway. But relative to the countryside, where people are producing the raw materials for what you're making, it tends to impoverish them because they're not engaged in the same trick that you are. There's not, you know, to become a farmer, there's not a protection racket around that. In the same way that artificially drives

23:51 Seth: up prices, it's also not sustainable when trade starts coming in from other cities.

23:56 Mark: That's why you need the tariffs.

23:57 Seth: Yeah, exactly right.

23:59 Wes: And he actually doesn't think that these guilds really increase the quality of the work because nothing that decreases competition really, really does that. He talks of, like how it's. And I was thinking of, you know, in Boston, but. Oh, it's hard to actually find a good tradesperson. You know, when you need something done and you actually have to go to the suburbs to find someone.

24:23 Seth: Why is it you can't find anybody in Boston? That surprises me.

24:26 Wes: Yeah, I'm thinking of contractors.

24:28 Seth: Oh, well, all contractors are horrible.

24:30 Mark: It's a collusion between them.

24:32 Wes: So the pretense that corporations are necessary for the better government of the trade is without any foundation. The real and effectual discipline which is exercised over a workman is not that of his corporation but that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligence. An exclusive corporation necessarily weakens the force of this discipline. A particular set of workmen must then be employed. Let them behave well or ill. Just like to think of the unions. Now, it is upon this account that in many large incorporated towns no tolerable workmen are to be found, even in some of the most necessary trades.

If you would have your work tolerably executed, it must be done in the suburbs where the workmen, having no exclusive privilege, have nothing but their character to depend upon. And you must then smuggle it into the town as well as you can. Yeah, okay. So I guess he's working around the guilds. He's working with non union

25:30 Seth: people. What do they call it? A strike buster?

25:33 Wes: He's a scab.

25:35 Mark: It becomes rational inducement to break the laws. When the laws are economically damaging, people will smuggle. That's just the way it's going to work.

25:42 Dylan: He says all these regulations are as impertinent, as oppressive. I guess that's the summary. And he says it is a manifest encroachment upon the just liberty both of the workmen and of those who might be disposed to employ him. As it hinders the one from working at what he thinks proper, so it hinders the others from employing whom they think proper to judge whether he is fit to be employed may surely be trusted to the discretion of the employers whose interest it so much concerns. The affected anxiety of the lawgiver lest they should employ an improper person is evidently as impertinent as it is oppressive.

26:19 Wes: This is actually a good lead in to the university, university thing because he makes an explicit comparison to guilds. I was actually already thinking about universities in this section. This is me thinking. But the idea that you. You have to go to a college for four years to get a piece of paper which will allow you to get a decent job. It's like this is your decent job certificate, where in large part you're not. And I think Smith is right about this not learning what's necessary to any given trade or to the employment that you're actually going to end up with.

It's really a racket because all it's doing is it's reducing the number of people competing in the labor market for certain professions so that those wages can be kept artificially high relative to the kinds of jobs that people do with high school educations. Now some of it, of course, as Smith will say, like higher wages also reflect the need for more education. Right. It's not just, you know, so there is some of that, some of that is real, but that's the way I started to think of the university.

27:18 Dylan: Reading this section, he's particularly upset about that question of usefulness. I mean, he's absolutely scathing about the universities as being in no way tied to what people need to be doing to be useful. And in that way it just sort of presages large movements in the university to have very targeted practical educations. But you're saying, Wes, you're sort of making the same criticism even in the wake of centuries of that drift in universities.

27:49 Wes: You know, I think of universities as a guild system. They are like the guilds used to be called universities. And the whole point of them is to distinguish classes of people in society. The people you're going to pay well and the people you aren't. The reason why that distinction is important, it's the same thing with the city country dynamic that he describes with the guilds. It's that if you have a protectionist racket going on within the city but not in the country, the country suffers. One group of people can get much richer and one group of people stays, gets much poorer.

You create wealth inequality that way you shift money from one segment of society to another. The better the school you go to, the better your chances of getting higher paying job. The people who can afford to do that or who are more likely to do that come from privileged families. It's a way of just propagating class within a society.

28:38 Mark: Well, and I wonder if advances in reputation management technology might address this somewhat. That you know, a lot of the reason, like I want somebody from that I want to hire somebody that has a college degree just because, you know, that they had to then sit through a bunch of shit. Not that you necessarily, that they have a lot of extra skills that are really applicable to what you want them to do, but that they can sit at a desk and concentrate and listen to somebody talk and write these papers and just jump through all those hoops. It's the same like I don't want to hire anybody that's never had a job before.

I want to hire some job history just because I know that they can freaking stand there for eight hours a day or whatever it is. So if there was a Way to easily convey that information without having to have had those specific resume items, those specific. Gone to the university or whatever. Then, you know, maybe that kind of thing will be. Employers might. I could pay you less. You don't have that degree, but I have some other assurance that you're going to be able to do the job. So I'll go with someone that I can pay a little less who didn't make that investment.

29:40 Wes: Well, in some cases it's pretty clear. Right. So you can get a job as a coder in tech without a degree. If you're good, it's clear you can do the job or you can.

29:49 Dylan: So that happens in a similar way that maybe you're a musician or something. You prove it by product.

29:55 Unknown speaker: Right.

29:55 Dylan: You start by doing jobs whether they're on your own or for someone who happens to like what you're doing or whatever. And it's like being a craftsman. You typically don't get hired to make furniture because you went to college to make furniture. You get hired to make furniture because the furniture you made looks awesome.

30:14 Seth: You get hired to make furniture because you apprenticed for 7 years without pay under a master furniture man maker.

30:20 Unknown speaker: Yeah.

30:20 Mark: You know, just to reveal a little. The situation in which Wes and I work, a lot of people started our consulting firm just doing like a little bit of contract work. So it's not a lot of risk for our employer to say, okay, here's this job that should take you five hours. Just do it and if it sucks, then I won't ask you to do more. And, you know, so that. That's the way he prefers to hire, is to. To make people audition in that way. And that would make him allow. I mean, it's still. There's so many applicants that you can say, well, I'm not going to look at anybody that doesn't have a college degree or that doesn't have a degree in the appropriate kind of thing. Just because you have to use some filtering criteria. You can't just let everybody audition. There's not that much work, but it's not strictly necessary.

31:04 Wes: He didn't hire anyone I recommend. So not even a recommendation is always going to.

31:12 Seth: Yeah. Smith was early to the game in some respects, to talk about. He had a grassroots, organic, emergent notion of how individuals might contract with each other. The notion that you might like, say, okay, you don't have to go to law school and we don't need a regulatory agency. You don't have to be certified as a lawyer in a state to practice law. Theoretically, you should just be able to walk into a court and argue or represent somebody. You shouldn't need all of the certifications. And the whole purpose of that is to restrict the amount of people that are doing it and keep your wages for being a lawyer artificially high.

But the idea that that could be possible, that you could just have a completely free market without any kind of regulation or oversight for anything, I think depends upon a certain naive view of the way that people transact business and also the limits at which its regulation and political involvement need to be present. So we started off talking earlier tonight about, like, the state of nature and social contract theory and how it's confusing with Smith because he's not really buying into the natural rights or the social contract piece of it.

He's talking about people not necessarily even contracting, but just engaging in commerce with each other. At what point when you've engaged in commerce with somebody and they perpetrate fraud, do you need the concept of authority or regulation to protect you from that? And it seems to me that he doesn't have a strong answer for how that gets regulated. And as soon as you start having that regulation in place, then you're going to start having things like, well, how do you certify that somebody's in a position to be adjudicating cases amongst people?

How do you validate that they don't have a conflict of interest, these kinds of things? All this stuff starts to build on each other. And so I'm wondering if you guys have that same sense that there's a certain kind of naivete about this. Even though it's incredibly intricate description of the way the mechanism works, the notion about what powers that mechanism, There are aspects where it sort of drops out.

33:27 Wes: Well, in the case of law, I mean, there are benefits to having a legal education if you want to be a lawyer. And some people would say, you know, the bar, for instance, it's a matter of consumer protection as well. And I'm not sure what Smith would think about that, actually. I'm not sure. He's just saying that we could do without that in the case of lawyers. But it seems to me it's possible that you could do the same thing with lawyers as you do with coders. And if you hired someone who's paralegal and they learn the ropes on the job and advanced as quickly as their talents allowed them to, they could learn as much as necessary on the job. I suspect that that's possible if you talk to someone who's been through legal education. A lot of it is simply not applicable to what the very, very specialized thing that they end up doing.

34:11 Dylan: You must have watched Suits. There's a character in that show which is about lawyers who is paralegal. She's as smart as half the lawyers. Lawyers in the firm.

34:21 Wes: I haven't, but that's interesting. Yeah.

34:23 Mark: I think about when I go to Walgreens to pick up my prescriptions, like, there's the regulation that only the pharmacists can actually hand you the medicine, and they have to ask, do you have any questions? But come on. If it's the same allergy medicine I've been ordering for years and years and years and that they give to many, many other people, can there not be somebody that's been working there for five years, working the counter, filling the things that they can somehow be empowered to hand me the fucking bag so I don't have to wait for the pharmacist to be available.

34:53 Wes: Yeah. And you have to jump through some serious hoops to become a pharmacist, a parapharmacist.

34:57 Mark: There should be.

34:58 Seth: There should be some steps.

35:01 Wes: I was going to segue us into the universities because I think one of the problems there, he thinks, is that outside of the sphere of competition, or he's thinking of public universities, you basically. You get untalented people who basically don't do anything. They thrive in that environment. There's no accountability for professors in the university.

35:20 Mark: He likes a system where. Like in ancient Greece, or apparently this is the way it was in Scotland, too, and where the students choose who they're taking the classes from and they pay by the session. The incentives are perverse. If you're just on a salary as a professor and you're going to get paid whether people like it or not,

35:38 Wes: if you're selling a product and you have to make sure it's good enough for people to buy it, you have an incentive to put a lot of effort in. But if you're just on salary, and especially if you're tenured. Right. Be as bad as you want, basically, you could be as lazy as you want and you collect your salary and that's it.

35:56 Seth: So this is the part I don't understand. Like, so here's a lot of nasty things to say about philosophers in the first part of the book. If you're getting paid by the class and you're getting paid, the incentive is to teach something that students think is worthwhile paying for. Again, if there is an overarching regulation in place about the students getting grades and graduating. Then if you say, I'm going to teach the history of ice cream and there's no grade below a B, wouldn't I get more students? Wouldn't I be appealing to that, to a broader segment of students as consumers?

And then thinking about, like, what is the, you know, he's talking about complaining about philosophers all the time, but, like, if we all do specialization, who's the consumer for the surplus of thought that comes with being a philosopher? Like, how do I trade my surplus of reasoning for bread and whatever else? Somehow we're managing to do it now.

36:56 Wes: But I know what I was about to say.

37:00 Seth: Who was the first person who thought, I want to specialize in contemplation and the surplus of my action will have value to enable me to acquire the means by which I can live.

37:12 Wes: So you don't need a surplus in this case. Right. You just need a wage. A surplus is what you need if you're going to produce a profit off of your stock. But you could just be a wage earner as a philosopher, so you just need someone to buy it.

37:26 Dylan: I couldn't decide if he objects just fundamentally and in principle to the notion of, say, apprenticeships or universities, or if it's that they're distorted. So one argument for any of these things, apprenticeships or universities or other kinds of modes of getting certified, it provides a way for both the individual doing the work to provide a sign that they're qualified, and it provides the person, the consumer, a way to judge people without having to go through the pain of trial and error.

38:08 Unknown speaker: Right.

38:08 Wes: It's like a mint with coins, which he thought very highly of.

38:12 Dylan: He clearly thinks that there's a lot of corruption and abuse of that process. But I couldn't decide if he thinks it's wholly without value and that we simply. In the end, things will organize on their own, and the people who do good work will always get hired, and the people who do bad work will eventually go away. And again, I'm brought to the idea that I don't really want to be the guy who hires somebody who I heard was good, but turns out that he doesn't know how to build a house. And my house falls down on top of me in the middle of the night. Night later. I don't want to be in a position where I have to vet people who are going to do one thing for me one time, all the time. I want a mechanism that I can rely on to help me choose.

38:59 Wes: But if someone else is doing that vetting for you, his point is that that's going to lower the overall quality of people. So, you know, he says, for instance, with universities, if you force people just to go to a university independent of merit or reputation of teachers, independent of their actual skill, you get a bunch of teachers who are not as good. They're not necessarily the best teachers in the world. And then he says, the privileges of graduates in arts, in law, physic and divinity, when they can be obtained only by residing a certain number of years in certain universities, necessarily force a certain number of students to such universities independent of the merit or reputation of the teacher teachers.

The privileges of graduates are of a sort of statutes of apprenticeship which have contributed to the improvement of education, just as the other statutes of apprenticeship would have to that of arts and manufacturers. And when he's saying contribute, he means worsen them. I mean, yeah, I mean, I'm of a mind with you, Dylan. It seems like we don't want to be making individually that evaluation all the time. It's better to rely on some accrediting system.

40:06 Seth: Right, how do you make the valuation to begin with?

40:08 Wes: On the other hand, to the extent that sort of untethers all of this from the kind of market transaction where, look, I see, yes, this is a product that I know is really, really good. I don't have to know it directly. It could just be the reputation of the artisan who's producing it, and I'm going to buy that instead of, you have to have this certificate to work, and here's the university that you can get into and here are the pool of teachers. I think he has to be right to some extent that anywhere where there's a lack of competition is going to lower the quality of the people involved.

40:40 Mark: So I'm not really worried about the quality of professor. I'm not sure exactly what situation he's complaining about. But in our own university system, regardless of tenure, there still is. If nobody's signing up for your classes, if you're getting bad student evaluations, the organizations understand incentives and at least make some attempts to meet this and don't require simply that, oh, people have stopped applying to my university because our professors are so bad. Like, maybe that could happen, but that would take a while for your reputation to degrade that far so that there are more mechanisms in place to monitor quality.

I'm more worried in general about, you know, this notion of the ecosystem means that, you know, if something's not working out so well for me, then I will jump over to something else. So this academic example was one where the market seemed to be broken in his time, where people can't just stop being a student at a certain place and start being at someone else. Or just say, I'm not going to do this at all because social custom requires that you have a degree or something like this. And it just seems that this is a species of monopolism and that it's just near universal at this point in history that whenever you have excess labor, whenever you have a savings, you or I, we should all be able to go and somehow spend that as profitably as possible.

Sell our excess talent, sell whatever. But because of these reputational overhead things, like, I just feel like there's so many selling organizations that are established as stores. They have return policies, they have all this stuff so that if you then just want to go sell by yourself, then you kind of have no choice but to do it through Amazon, do it through, you know, something. So it's not the Wild West. If I just go try to resell something at a store, like, I'm going to get pretty much crap for it. It always sounds nice, like, get rid of all your used books.

Get rid of all your used records. Get what you know, anything that you don't really actively need. But if you actually want to get a reasonable price for it, it takes so much effort because it's such a. I don't want to say it's a seller's market because you as a normal citizen are basically locked out of half of the economic equation. We are locked into being consumers. We are people who buy things. It is the big companies that sell things. And they're the only ones, maybe that people trust to sell things.

42:55 Wes: What are you saying? Overall?

42:58 Mark: I'm trying to say that this economic system of pulleys and levers and, oh, well, if it becomes less than optimal, if your wages go down in your sector, you can just jump over to a different employment that'll make more. As a practical matter, that's really, really hard for people. And so that's just one example, and I was giving in the selling another example, that we as individuals are so disempowered by the corporate dominance that we cannot be cogs in the machine in the way that Smith would like. We can be like the servants or something, you know, he admits that bosses try to pay you as little as possible.

Employees try to get as much as possible. Employees pretty much always lose. Like, the bosses will join together. Like, that hasn't changed, but it's just gotten worse in that direction in so many other areas. Such that this is why you might feel like a pro capitalist. Reading Smith is going to say, yeah, you're so much better off than you'd be a naked savage or something. But that's not much of a consolation.

44:03 Wes: Are you kidding me?

44:04 Mark: It does feel like a zero sum game that everybody you buy from is out to screw you. And there's not an alternate economy you can easily switch to and fulfill your needs.

44:14 Wes: Trying to screw you like that.

44:15 Mark: You can.

44:16 Wes: Everything is so cheap now because of mass production and global trade. What do you mean trying to screw you? Our standard of living is ridiculous compared to the average person 100 years ago. So as far as like material well being, capitalism is immensely, and I say this as someone sympathetic to socialism more than anything, but I think even Marx would acknowledge, well, not only that capitalism is a necessary kind of way station on the way to socialism, but that has an immense. Well, maybe Marx wouldn't acknowledge this, but it immensely improves on average people's standard of living.

44:51 Seth: Hey man.

44:52 Mark: Yeah, maybe I should just. My complaint is more about specific areas of purchase than others, you know, so insurance is one, health insurance is. That's just notorious. Like who's actually satisfied with their health plan?

45:03 Wes: Right.

45:04 Mark: That seems like because of the way that the market is set up that is sort of inevitably predatory. And that's why we needed Obamacare and the patients bill of Rights people were trying to get passed for years before that is because there are areas like that. Yeah, we were just talking about contractors. Like why is it that it's. You just feel like every contractor is going to be bad? What is it about that system that makes that not work?

45:28 Seth: Yeah, well, there's no transparency. The price mechanism isn't allowed to work and it's not actually a market. If you're a classic neoliberal, that's what you would say.

45:38 Mark: So if it becomes the case where you feel like more markets are broken than our working, then that's the point is which you would kind of get fed up with capitalism as a whole.

45:48 Seth: Right. And that's when you would elect Trump to come and drain the swamp and get rid of all these regulations. And that's the same motivation.

45:54 Wes: The primary drawbacks of capitalism are, I don't know, I see them as more spiritual. And then the kinds of things that

46:00 Seth: Smith does, drawbacks of capitalism are spiritual.

46:04 Wes: Yeah. So you have something that has lifted an enormous number of people out of poverty.

46:08 Mark: Right.

46:08 Wes: There are fewer poor people in the world today than ever. Our standard of living is enormously better than human beings. 100 years ago, we suffer less from disease. There are all these benefits that come with it. What sucks is, you know, the kinds of things we talked about with Debord. The social, maybe spiritual. What's the word? Maybe social is a less offensive word, but the social effects within a society. I think there's a lot to be said for the negative effects of capitalism there. There's also the complaint that we tend to ignore the poorest people in society.

But I think that argument is about the lack of a welfare safety net. It seems to me to be less about capitalism per se than the need for these sort of offsets to capitalism, like a social safety net. But the thing I think you really point to is what a market economy does to social relations. And it's quite negative. Smith points to some of that, but we saw it in Debord as well.

47:06 Seth: I think that there are aspects of that in this book, maybe not explicitly in the way he positions it, but it's like he talks about the notion of specialization, the repetitiveness, how it grinds people. It destroys people, it destroys workers bodies. And he doesn't talk so much about like their mental state and emotional state and whatever. But I agree with you. I mean, I think it's almost like he's saying here, this is how nations get rich and this is how individuals get poor. And to this section that Mark alluded to where he talks about property rights and the workers facing the capitalists and how the workers always lose him.

And he basically says once you have property, then capital starts to accumulate in a smaller group of people who are better able to organize. It's easier for 20 people to get together than 200. And they start to move the levers of the political machinery to support them. Right. The laws of the land almost never favor the workers in the majority. It's a very strange book where he's doing this very, very descriptive exercise on how things actually work and kind of calling it like he sees it. And at the same time he's carrying that over into saying, and the mechanisms of society and politics all work to continue the furtherance of this, which involves the exacerbation of these extremes.

And I don't know how to respond other than to say that so many years ago written so many. It's so old and so prescient and so influential and simultaneously forgotten or ignored, I'm not quite sure.

48:50 Mark: So, Seth, you know, I've listened to a lot of EconTalk too, but. And you're very hearing things about economics talked about now, like do you hear a term like natural price, is that still part of the economic lexicon?

48:59 Seth: I will say this natural price, that was the first time. But his description of what natural price is is not so outrageous. What he's talking about is he's essentially talking about cost. The cost to produce something plus some acceptable, a reasonable profit.

49:14 Mark: That was the part of natural price.

49:16 Seth: Yes, it constitutes the natural price.

49:18 Mark: That seems to be the thing that, like, he seems to think that just like wages are going to be kind of controlled by, you know, the amount of labor and the amount of need for the labor. And he says wages can't go below a certain level because the workers need to, you know, go home and eat and raise kids and come back. So there are controls on wages, and he talks about when those could go up. And then he also talks about controls on profits, that profits can't go below a certain point or people are going to stop doing the thing, they're going to stop investing their capital that way. So that makes sense. But he also thinks that profits are not going to go up above a certain level, right?

49:51 Dylan: No, he doesn't think that. He thinks that there is a natural price, but he points to all kinds of examples where things go above or below their natural price.

49:59 Mark: Right. Through something broken usually about the market. Like, if there's true competition, then prices are going to always have to go low enough so that there's still enough profit to keep doing it. But if there were way more profit than that, then a bunch of competitors would come in and the profit would fall down. Does that still really work? That's what I'm worried about. Like in some sectors, I think, certainly. But like the things that I was trying to describe, you know, in terms of consolidation and the power that corporations have.

50:27 Wes: Yeah.

50:27 Mark: So that if it seems like they can set their own profit levels or sort of what becomes a reasonable profit. He was saying something like 10% or something like that.

50:35 Dylan: I think natural in the sense of

50:37 Mark: normative like that expected, that's what natural.

50:41 Seth: To try to give him some credit. There are natural levels of profit in certain kinds of industries. It starts out, there's a curve where if you're first to market and you have some kind of unique differentiation or unique value that you're bringing to the customer, you can charge exorbitant prices. And when other people come in, there comes to be an equilibrium. So in my world, tech software has a certain kind of accepted level of margin or profit. The hardware has got a different level, services, they have a different level. And it frustrates people that, for example, Apple, compared to when you put, you know, Samsung and Dell and HP and Lenovo and all these guys side by side, Apple somehow manages to maintain profit levels, that they're in the same industry, but they're maintaining a profit level that's atypical relative to the market.

And there are reasons for that that we don't need to go into right now. But I didn't have a problem with his notion of a natural price simply because what he was saying was there's a cost to produce something and there's an expected value for that effort that you can extract from the market. And then he's trying to introduce the notion of a mechanism that can then explain supply and demand. So he talks about if you get more than the natural price, it's indicative that there's more demand than supply, and if you get less than the natural price, which is not sustainable, actually neither one is sustainable.

It's because the supply exceeds the demand. And I could talk more about that, how I've seen that play out in the tech industry over the last 20 years, but nobody uses those terms, but it didn't strike me as outrageous.

52:23 Mark: Are we getting toward the end here?

52:26 Seth: Yes, I am.

52:27 Mark: I don't think I've said anything particularly well developed or conclusive in terms of a critique of capitalism, other than to just say that I feel like that the picture that he gives us, even though he points out a lot of places where there can be abuse, is still too clean. And it's not just government interference, it's that to my limited observations, it seems like markets break way faster than he would think here in the picture he's giving us, so that at a certain point he should be giving a description of the norm. And if the norm is no longer actually the norm, as you would observe it now, then something has gone seriously wrong. So he'd have to just read some more economists to see if I'm at all right in saying that.

53:10 Dylan: You know, one of the things I like about reading the book is, or at least parts of it is the way in which it's familiar yet surprising. And. And I think the conversation that we've had shows how many of the themes that animate our discussion about markets and capitalism and the economy now are at place in that book. And some of those questions are opened up by reading it. For me, the part that I find least attended to, and maybe it's somewhat in parallel to what Mark was thinking about, is how much rules of different sorts govern the activity Even of this sort of organic mass of an economy, and that it really isn't, in the end, completely organic.

It really depends a lot on the rules that are embodied amongst the interactors, whether they be explicit laws or whether they be customs. And they also depend a lot on the kinds of particular individuals and entities in there. And he seems to think that there is a much more, maybe a significantly more sort of natural, organic way that that works, and I suspect ends up being true. He's sort of less attentive to that part now that he isn't attentive to there being perversions of natural order which amount to being misapplications of rules and regulations.

But that's the part that I felt weak.

54:39 Seth: To me, reading this, I can understand it has, in much the same way as de Tocqueville, a kind of cogency and a narrative structure that flows. And there are many things that it just seems to explain. And you say, yes, of course, you know, that's. Oh, wow, it's enlightening. Oh, profits go up, wages go up. Or, you know, like, stock goes up, wages go up, profits go down. It all seems to make sense. And it's one of those things where a combination of three or four sentences at a crucial juncture can spin off, which should have been evident by our conversation, you know, any number of deep meditations.

But what struck me about it most was that there is this confident naivete about this organic development of things or sort of, you know, glossy generalizations, particularly around the notion of organizational, whether it be universities or guilds or what have you, and government interference with some kind of natural order of things that he suggests is validated by his observations. And it strikes me that I feel that I understand the connection between the VA that I get from the people who fetishize free market and lack of regulation and that sort of thing.

I can see how this is like the Necronomicon of that group of people. So anyway, I certainly think, though it's extremely readable and I would encourage people to take a look at it. I just would encourage them not to read the section on the development of money. Or he's got one called a digression on silver, which is 200 pages long. It goes on forever.

56:27 Mark: There are so many of these historical spinning the whole history of banking, the whole history of different colonies that every single country had. It's crazy.

56:37 Dylan: Digression on corn trade.

56:40 Seth: Yes, well, that's actually. The corn trade thing's actually interesting because he's. Of course it is. No, no, well, he, he talks about the notion about how the value of corn being more stable than the value of the whole thing. About corn as a commodity, he talks about versus silver or money. So he says, you know, for people who signed a contract and they said, you know, about land, so there's land that produces corn. And the renters, the rentiers or whatever they're called, the, the capitalists say, okay, I'm going to, we're going to sign a 10 year contract and you can give me X amount of dollars, essentially X amount of money, or you can give me 10% of your corn production every year.

And his claim was it was inflation because governments started devaluing the currency by taking the valuable metal out of it. So something, a coin that was 100% silver became 95% silver and 90% silver, the value of the currency decreased over time, which means getting the rent paid in currency actually meant a loss over time for the rentier. But if you got it in corn, which had a stable market value year over year, regardless of what the currency was worth, the people who had foresight, you know, essentially wrote their contracts for corn, not for money.

That's why he's so concerned with the, the history of corn production. Anyway, I found that interesting because he's. Nowhere in the book do I recall seeing the word inflation. But that's essentially what it was. The devaluation of currency is inflation. And that's essentially what was happening. So I was very.

58:21 Mark: So we didn't really talk about sort of how we took this book in that I did a lot of this as LibriVox has books 1, 4 and 5 posted as audio. I'm sure the other ones are somewhere, but they were not in the few searches podcasts, they were not there right now. So I listened to most of those and then read the remaining two books as much as I could, definitely the assigned parts, but tried to get, you know, there'd be certain places where I just have to skim, but in audio. Like no matter how insane it got, I'm just gonna let it go. I'm listening at double speed.

It's not taking that much of my life if they're gonna keep talking about the rents of land for like it's broken down in the audio book into different half hour files or whatever and it's like number eight. This is book one, chapter 10, I believe, just like kept going and going and going and just let it happen and immerse yourself. And like this is the kind of stuff that people talked about back then that's almost how I was taking it, you know, in terms of not trying to be too heavy on my brain and actually absorb exactly what the deal with the history of the price of corn and the devaluation of currency over time was like, just that this is a thing, that's all.

I found it interesting and rewarding immersing myself in that way. But you know, just like with Darwin, was having trouble thinking like, well, what exactly philosophically am I getting out of this? I'm getting sort of this overall picture. And of course when we got to the actual discussion, there's innumerable things that we can just go off and compare it to old episodes or related to things that we care about. But yeah, you know, it's another philosophy adjacent thing and I'm, I'm glad to say that I have experienced it. That's the main benefit I feel I got out of it, that it's done.

Next time we are going to do some more psychology. We've had been on a little roll with that. So we're going to read some papers about what bastards people are. So the famous Stanley Milgram fake shock study, Behavioral Study of Obedience, 1963 is one of the the essays Phillips and Borrows Stanford Prison Experiment. That's Interpersonal Dynamics in a simulated prison 1973. And then we're actually going to have David Pizarro from the Very Bad Wizards podcast join us. And he suggested as a third essay person situation and Virtue ethics by John M.

Doris, 1998, as a more modern take on what he calls situationism. In other words, people who are normally okay can be bad in certain situations. So there's a philosophical theme underlying that. It should be hopefully as fun as the one we just did with Dr. Drew. Hope you folks join us. I want to hear what you think about this episode and other episodes. Go to partiallyexaminedlife.com Chime in on the blog post related to this or go to our Facebook group Facebook page. Put some comments up, tell us what you want to hear about. Email us@pel@partiallyexaminedlife.com our closing song is about the division of labor.

It's called with my looks and your brains by the Mr. T Experience. I interviewed the songwriter Dr. Frank Portman for Nakedly Examined Music episode 56. So check that out. Nakedlyexaminedmusic.com and thanks and good night.

1:01:33 Seth: Good night.

1:01:34 Unknown speaker: Good night. So far there's no doubt things are working out between us. We can't cover every face. You're cute. I'm Not I'm sharp. You've got a certain way of spilling all over the place. But you just keep me warm and all throughout that form. And when they kick me I can tell them to let me back in. Look nice and they won't think twice about it baby. Because there's no stopping us with my friends. Your looks, your fate, my looks. We could catch that scraping train. It would be bad if all we had was Milo tan. Your boy friends. So hold my hand just like we plan so you won't get lost and I won't get thrown out.

If they get wise, just flash those eyes and I will give them something to get wise about. You just make your splash and I'll supply the cash. When some comes in it's looking kinda thin and plump. But some will come along you'll be glad we stayed cause we'll have it made. With your looks, my trains, your tracks, my trains. We're rewriting all the record books to study the floor plan. I'm glad we got more than your brains and my looks. I wonder if under pressure we could make it on our own. Could be standing empty handed and turned it and all alone.

But let's not find out what that would be about. I'll stick with you. You let yourself be stuck too. You and me have a legacy that we could pass on to our kids. They could get lucky with my flames. Your looks, your nights, my rooks. They could really win a lot of games. But just think. What if they end up with my looks and your my looks and you're with my looks and your brains.