To review Adam Smith’s The Wealth of Nations would be both monumental and futile. Monumental as the work is vast, and futile as it must be one of the most covered books in economics. However, as I read it I did realise that there were some things in there that were both interesting and rarely referred to. I’ve avoided all talk of pins or conspiring and focussed on Book V. I do wonder how many people get that far – for all the revolutionary ideas contained therein, Smith could have done with a good editor!
1. From I. Part III, Article I 2ndly For facilitating particular Branches of Commerce (pg 333*)
But they [South Sea Company] had an immense amount of capital divided among an immense number of proprietors. It was naturally to be expected, therefore, that folly, negligence, and profusion should prevail in the whole management of their affairs.
It would be difficult for anyone who has watched economic events of the last few years to disagree with this. Discussions of too-big-to fail and too-big-too-manage often seem to come to the same conclusion as Smith, but perhaps the real failure has been to not do anything about it.
2. From Article II in I.Part III (pg 348)
The institutions for the education of youth may, in the same manner, furnish a revenue sufficient for defraying their own expense. The fee or honorary which the scholar pays to the master naturally constitutes a revenue…
Controversial! Smith does later discuss the benefits of parish schools for the “inferior classes” where the cost would be pennies, but this looks like a weak concession. From looking at education in the developed world you can only conclude that consensus is that Smith got it wrong, but I’d argue the trend is now in a Smithian direction. One of the key ideas in the Wealth of Nations is harnessing people’s self interest whenever reasonable. His advocation of letting better teachers earn more by attracting more students is difficult with our current educational structures, but the idea may yet be a useful one.
3. Same (pg 361)
In England it becomes every day more and more the custom to send young people to travel in foreign countries immediately upon their leaving school… he commonly returns home more conceited, more unprincipled, more dissipated and more incapable of any serious application either to study or to business…
I think we know what Smith would have made of gap years!
4. From Taxes upon Consumable Commodities from II Article IV (pg 478)
Our exports… appear upon the custom house books to greatly overbalance our imports, to the unspeakable comfort of those politicians who measure the national prosperity by what they call the balance of trade.
As a bit of a nerd the modernity of this statement shocked me. Although the discussion skirts round explaining this point properly, it is something that many would still find surprising, especially those without an economics education.
5. From III Of Public Debts (pg 520)
… when war comes they [governments] are both unwilling and unable to increase their revenue in proportion to the increase of their expense. They are unwilling to offend the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war…
Somehow I found myself thinking of the events of the last decade. A significant part of the poor government budget positions in the US and UK when the crisis hit in 2008 was caused by the follies in Iraq from 2003 onwards. As several commentators have noted, it was the first major war (in cost terms) that had no tax rises to pay for it.
6. Also from III Of Public Debts (pg 547)
By the union with England the middling and inferior ranks of people in Scotland gained a complete deliverance from the power of an aristocracy which had always oppressed them.
Smith was both right and wrong with this. There is no doubt Smith was a fan of the union. Earlier in The Wealth of Nations he briefly discussed how Scotland was much better off economically as a consequence of the union, primarily due to the expansion of markets for its agricultural produce. Here he exposes a Braveheart fallacy – the irony of Mel Gibson shouting “Freedom” at the end of that film is that Bannockburn did not bring that most Scottish people. The only real change that 1314 brought was the identity of their oppressor, and perhaps not even that – one of the things the film got right was how many lairds swayed with the winds of power. In the end it took several hundred more years for most Scots to be freed of the feudal systems that prevailed at that time.
Alas Smith was also wrong too. The union may have done much to improve things, but it was not “complete deliverance”, particularly in the Highlands. The Clearances in the 19th Century, where crofters were forcibly removed wholesale so the land could be used for, primarily, sheep grazing showed that aristocratic oppression outlasted both the union and Smith. Compared to either of those times we have it lucky!
* Page numbers refer to my 1999 Penguin edition of Books IV-V.