The Wealth Of Nations - Gone But Not Forgotten

Have you read Adam Smith’s The Wealth Of Nations? It should be required reading in high school, and politicians should know The Wealth Of Nations cover-to-cover.

There was a time when U.S. politicians did just this. They had not only the maximization of national income in mind, but social and moral objectives, as well. They studied, worked together to move the country forward, and developed an America greater than Adam Smith ever saw possible. Ben Franklin, Samuel Adams, Thomas Jefferson, James Madison, Alexander Hamilton, and George Washington all studied The Wealth Of Nations.

Perhaps if we studied The Wealth Of Nations as did our Founding Fathers, we would better understand not only how far off-track our country has become, but also what success looks like. For many, “success” comes down to personal freedom. The words of F.A. Hayek come to mind:

“Governments have a strong interest in persuading the public that the right to issue money belongs exclusively to them, and the monopoly of money has buttressed government power. It is perhaps significant that Adam Smith does not mention the control of the issue of money among the ‘only three duties [which] according to the system of natural liberty, the sovereign has to attend to’.”

Have we really forgotten what powers we’ve given to government? Do we even care?

The Sovereign Has Failed

In The Wealth Of Nations, Adam Smith defines the duties of the sovereign as threefold:

“The first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force …”
“The second duty of the sovereign, that of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice …”
“The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.”

Reality check: We live in a United States where shootings are commonplace. We have a military whose purpose isn’t to protect civilians, but rather to protect political positions. Our police force is under-trained. Our country is powered by manipulation of law, abuse of power, and the oppression of the 99%. Our teachers are underpaid, U.S. global education rankings have been in decline for years even as education costs have risen to personal bankruptcy-inducing levels, and our government now holds more than $1.52 TRILLION in student debt … debt which takes students from ten to thirty years to pay off. The “wealth of nations?” What national wealth is there when the U.S. is $22,562,108,800,800 in debt as of the writing of this post? Want to have nightmares – just watch the U.S. Debt Clock in real time. Clearly, social and moral objectives have left the building.

“The establishment of perfect justice, or perfect liberty, and of perfect equality, is the very simple secret which most effectually secures the highest degree of prosperity to all classes.” – Adam Smith, The Wealth Of Nations, pg. 851, Bantam, 2003

A very simple secret, indeed. If we agree that the duties of the sovereign as defined by Adam Smith must be attended to, then there can be no doubt – the sovereign has failed.

Society Has Failed

In contrast to his typical laissez faire approach, Adam Smith was quite tolerant of government intervention when the goal was to reduce poverty. In fact, “Smith supported universal government-financed education – not for reasons of efficiency or redistribution, but because he believed the division of labor destined people to perform monotonous, mind-numbing tasks that eroded their intelligence” (Krueger, 2003). Not only that, but Smith saw the protection of its citizens from corporate monopolies as an essential function of government.

“Smith worried incessantly that giant corporations would come to dominate particular industries and, led by self-interest, use their influence with government to unfairly thwart their competitors and suppress the wages of their workers. He saw a tacit conspiracy on the part of employers ‘always and everywhere’ to keep wages as low as possible.” – Krueger

What happened to us? How could this reality have been so clearly laid out before us, and still have come to pass? Adam Smith foresaw these possibilities and our Founding Father’s left us as a sovereign people. Not only has our government failed, but we as a society have failed, as well. We stopped demanding more, we stopped asking questions, and we allowed our future to be absorbed by the corporate and political elite.

“… the inequality of fortunes went on continually increasing. The greater part of the citizens had no land, and without it the manners and customs of those times rendered it difficult for a freeman to maintain his independence … even the retail trade were carried on by the slaves of the rich for the benefit of their masters, whose wealth, authority, and protection made it difficult for a poor freeman to maintain the competition against them. The citizens, therefore, who had no land had scarce any other means of subsistence but the bounties of the candidates at the annual elections.” – Adam Smith, The Wealth Of Nations, pgs. 705-706, Bantam, 2003

Here, Smith is speaking of the fall of the Rome. Not due to barbarian invasions and over-expansion, but due to economic monopolies and an ever-increasing disparity between the haves and the have-nots. Fast forward two-thousand years, and the passage above could just as easily be speaking of us right now.

We’re all slaves until we wake up. We are not a free people, and if we’re wondering what the future looks like on this current course we needn’t look any further than ancient Rome.

What Is The Wealth Of Nations?

America was founded in 1776 when its citizens declared their independence from the Kingdom of Great Britain. That same year Adam Smith published The Wealth Of Nations and wrote, “The Americans would not be oppressed” (pg. 793, Bantam, 2003).

What is the “wealth of nations?” If you ask this author, it’s the people of the nation. It’s the people that make change, not the government. If history has shown anything, it’s that governments are but moments in time. Government is a choice.

The rest of this post is dedicated not to this author’s opinion, but to the words of Adam Smith. I’ve extracted bits that I believe will provide a sort of T.L.D.R. for The Wealth Of Nations with the goal of shedding light on what we were, and maybe even what we could become. What makes The Wealth Of Nations so impactful is that Smith blends economics with the social sciences. For example, while Adam Smith viewed competition as economically efficient, he also recognized that human judgement was not infallible. As a result, The Wealth Of Nations is an evergreen guide for sovereign nations, immensely relevant even in today’s geopolitical chaos.

(Note: Quotes below are from Bantam Books’ 2003 printing of The Wealth Of Nations, ISBN#978-0-553-58597-1)

“The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.” (pg. 9)
“It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people.” (pgs. 18-19)
“The propensity to truck, barter, and exchange one thing for another is common to all men. The division of labour arises from a propensity in human nature to exchange.” (pg. 22)
“Among men, the most dissimilar geniuses are of use to one another.” (pg. 26)
“Labour is the real measure of the exchangeable value of all commodities.” (pg. 43)
“The real price of every thing is the toil and trouble of acquiring it.” (pg. 43)
“Labour is the only universal, as well as the only accurate measure of value.” (pg. 52)
“Corporations are a sort of enlarged monopolies.” (pg. 87)
“High earnings of labour are an advantage to the society.” (pg. 110)
“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” (pgs. 110-111)
“They who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.” (pg. 111)
“The progressive state is in reality the cheerful and hearty state to all the different orders of the society.” (pg. 114)
“The whole of the advantages and disadvantages of the different employments of labour and stock must be either perfectly equal or continually tending to equality.” (pg. 138)
“The over-weening conceit which the greater part of men have of their own abilities, is an ancient evil remarked by the philosophers and moralists of all ages.” (pg. 149)
“The chance of gain is by every man more or less over-valued, and the chance of loss is by most men under-valued.” (pg. 149)
“Whenever legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable.” (pg. 195)
“The rent of land is naturally a monopoly price.” (pg. 199)
“Countries are populous, not in proportion to the number of people whom their produce can cloath and lodge, but in proportion to that of those whom it can feed.” (pg. 223)
“The desire of food is limited in every man by the narrow capacity of the human stomach; but the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to have no limit or certain boundary.” (pg. 224)
“The poor, in order to obtain food, exert themselves to gratify those fancies of the rich, and to obtain it more certainly, they vie with on another in the cheapness and perfection of their work.” (pg. 224)
“Money, the great wheel of circulation, the great instrument of commerce, like all other instruments of trade, though it makes a part and a very valuable part of the capital, makes no part of the revenue of the society to which it belongs.” (pg. 371)
“Every saving in the cost of maintaining the stock of money is an improvement.” (pg. 371)
“The principles of common prudence do not always govern the conduct of every individual.” (pg. 376)
“The whole of paper money can never exceed the gold and silver required in its absence.” (pg. 383)
“Guard against excessive multiplication of paper money.” (pg. 410)
“N0 positive law can oblige a person to accept of a shilling as equivalent to a guinea.” (pg. 417)
“Agriculture is almost everywhere capable of absorbing a much greater capital than has ever been employed in it.” (pg. 477)
“The pride of man makes him love to domineer, and nothing mortifies him so much as to be obliged to condescend to persuade his inferiors.” (pg. 494)
“Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply that state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.” (pg. 537)
“That wealth consists in money, or in gold and silver, is a popular notion which naturally arises from the double function of money, as the instrument of commerce and as the measure of value. Wealth and money in common language are considered synonymous.” (pg. 539)
“The great affair, we always find, is to get money.” (pg. 539)
“To heap up gold and silver in any country is supposed to be the readiest way to enrich it.” (pg. 539)
“Gold and silver are the most solid and substantial part of the moveable wealth of a nation, and to multiply those metals ought to be the great object of it political economy.” (pg. 541)
“A nation cannot send much money abroad, unless it has a great deal at home. Every such nation, therefore, must endeavor in time of peace to accumulate gold and silver, that, when occasion requires, it may have wherewithal to carry on foreign wars.” (pg. 541)
“Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.” (pgs. 569-570)
“Every individual generally neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own security; and by directing that industry in such a manner as its produce may be of the 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. Not is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.” (pg. 572, passage on the “Invisible Hand”)
“I have never known much good done by those who affected to trade for the public good.” (pg. 572)
“The sophistry of merchants inspired by the spirit of monopoly has confounded the common-sense of mankind.” (pg. 622)
“If the exchangeable value of the annual produce falls short of the annual consumption, the capital of the society must annually decay in proportion to this deficiency. The expense of the society in this case exceeds its revenue, and necessarily encroaches upon its capital.” (pg. 626)
“I have no great faith in political arithmetic.” (pg. 675)
“To prohibit a people from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind.” (pg. 738)
“The common advantages which every empire derives from the provinces subject to its dominion, consist, first, in the military force which they furnish for its defence; and, secondly, in the revenue which they furnish for the support of its civil government.” (pg. 753)
“The monopoly hinders the capital of that country, whatever may at any particular time be the extent of that capital, from maintaining so great a quantity of productive labour as it would otherwise maintain, and from affording so great a revenue to the industrious inhabitants as it would otherwise afford.” (pg. 776)
“The monopoly, indeed, raises the rate of mercantile profit. But as it obstructs the natural increase of capital, it tends rather to diminish than to increase the sum total of the revenue which the inhabitants of the country derive from the profits of stock.” (pg. 777)
“To promote the little interest of one little order of men in one country, it hurts the interest of all other orders of men in that country, and of all men on all other countries.” (pg. 778)
“The single advantage which the monopoly procures to a single order of men, is in many different ways hurtful to the general interest of the country.” (pg. 779)
“The policy of the monopoly is a policy of shopkeepers.” (pg. 780)
“Every derangement of the natural distribution of stock is necessarily hurtful to the society in which it takes place.” (pg. 803)
“It is the interest of a sovereign to open the most extensive market for the produce of his country, to allow the most perfect freedom of commerce, in order to increase as much as possible the number and the competition of buyers; and upon this account to abolish, not only all monopolies, but all restraints upon the transportation of the home produce from one part of the country to another, upon its exportation to foreign countries, or upon the importation of goods of any kind for which it can be exchanged.” (pg. 809)
“The evils come from the system, not from the character of the men who administer it.” (pg. 814)
“The severity of many of the laws which have been enacted for the security of the revenue is very justly complained of.” (pg. 822)
“Our master manufacturers think it reasonable, that they themselves should have the monopoly of the ingenuity of all their countrymen.” (pg. 839)
“The interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer.” (pg. 839)
“The superior produce of one class does not render the other barren or unproductive.” (pg. 858)
“Men are fond of paradoxes, and of appearing to understand what surpasses the comprehension of ordinary people.” (pg. 862)
“Every system which endeavors to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it; is in reality subversive of the great purpose which it means to promote. It retards, instead of accelerating, the progress of the society towards real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour. All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord.” (pg. 873)
“Justice is never administered gratis.” (pg. 911)
“The abuses which sometimes creep into the local and provincial administration of a local and provincial revenue, how enormous soever they may appear, are in reality, however, almost always very trifling, in comparison of those which commonly take place in the administration and expenditure of the revenue of a great empire.” (pg. 927)
“The private revenue of individuals arises ultimately from three different sources; Rent, Profit, and Wages.” (pg. 1042)
“There are four maxims with regard to taxes in general: equality, certainty, convenience of payment, and economy in collection.” (pgs. 1043-1044)
“It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.” (pg. 1065)
“Any rise in the average price of necessaries, unless it is compensated by a proportional rise in the wages of labour, must necessarily diminish more or less the ability of the poor to bring up numerous families, and consequently to supply the demand for useful labour.” (pg. 1106)
“The whole consumption of the inferior ranks of people, or of those below the middling rank, it must be observed, is in every country much greater, not only in quantity, but in value, than that of the middling and of those above the middling rank.” (pg. 1125)
“It must always be remembered that it is the luxurious and not the necessary expense of the inferior ranks of people that ought ever to be taxed.” (pg. 1126)
“Great advantage is obtained by the uniformity of taxation.” (pg. 1143)
“When necessary expenditure is met by taxes, it only diverts unproductive labour from one unproductive employment to another.” (pg. 1178)
“Taxation may diminish or destroy the landlord’s ability to improve his land.” (pg. 1181)
“The transference of the sources of revenue from the owners of them to the creditors of the public must occasion neglect of land and waste or removal or capital.” (pg. 1181)
“The practice of funding has gradually enfeebled every state which has adopted it.” (pgs. 1182-1183)
“When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.” (pg. 1184)
“Bankruptcy is always the end of great accumulation of debt. Raising the coin has been the usual method of disguising bankruptcy though this expedient has much worse consequences than open bankruptcy.” (pgs. 1184-1185)

Thanks for reading!

I hope you leave this post with more questions than answers. As always, do your own research and enjoy the learning.