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On The Wealth of Nations

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On The Wealth of Nations

P. J. O'ROURKE

Atlantic Books

First published in the United States of America in 2007
by Grove/Atlantic Inc.

First published in Great Britain in 2007 by Atlantic Books,
an imprint of Grove Atlantic Ltd.

Copyright © P. J. O'Rourke 2007

The moral right of P. J. O'Rourke to be identified as the author
of this work has been asserted in accordance with the Copyright
Designs and Patents Act of 1988.

All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior permission of both the copyright
owner and the above publisher of this book.

Every effort has been made to trace or contact all copyright-holders. The publishers will be pleased to make good any
omissions or rectify any mistakes brought to their attention at
the earliest opportunity.

9 8 7 6 5 4 3 2 1

A CIP catalogue record for this book is available from the
British Library

ISBN 978 1 84354 388 6

Export and Airside ISBN 978 184354 626 9

Offset by Avon DataSet Ltd, Bidford on Avon, Warwickshire

Printed in Great Britain

Atlantic Books
An imprint of Grove Atlantic Ltd
Ormond House
26–27 Boswell Street
London WCIN 3JZ

www.groveatlantic.co.uk

In hope that he will grow up in a world that enjoys the morality as well as the materiality of
The Wealth of Nations,
this book is dedicated to Edward Clifford Kelly O'Rourke.

CONTENTS
 

Acknowledgments 
 ix

 

1
 An Inquiry into
An Inquiry into the Nature and Causes of the Wealth of Nations
 
 1

2
 Why Is
The Wealth of Nations
So Damn Long? 
 14

3
 
The Theory of Moral Sentiments
In the Augean Stables of the Human Condition, Adam Smith Tries to Muck Out the Stalls 
 26

4
 
The Wealth of Nations
, Book 1 How the High Price of Freedom Makes the Best Things in Life Free 
 38

5
 
The Wealth of Nations
, Book 2 'Of the Nature, Accumulation, and Employment of Stock' Let Adam Smith Be Your Market Guru 
 57

6
 
The Wealth of Nations
, Book 2, Continued Adam Smith, Un-Motivational Speaker 
 70

7
 
The Wealth of Nations
, Book 3 'Of the different Progress of Opulence in different Nations' and How We Have the Stupidity of the Powerful to Thank for It 
 85

8
 
The Wealth of Nations
, Book 4 'Of Systems of Political Economy' Adam Smith Tackles the Chinese Trade Menace 
 98

9
 
The Wealth of Nations
, Book 4, Continued Adam Smith versus the Ideological Swine When They Were Still Cute, Squealing Piglets 
 111

10
 Adam Smith, America's Founding Dutch Uncle 
 119

11
 
The Wealth of Nations
, Book 5 'Of the Revenue of the Sovereign or Commonwealth' Adam Smith, Policy Wonk 
 132

12
 Adam Smith's Lost Book 
 153

13
 An Inquiry into Adam Smith 
 162

14
 Adam Smith in Heaven 
 190

 

Appendix: An Adam Smith Philosophical Dictionary 
 197

Notes 
 219

Bibliography 
 235

Index 
 239

ACKNOWLEDGMENTS

It was Toby Mundy, head of Atlantic Books, London, who had the good idea for this series of commentaries. It was also Toby who had the idea (how good is not for me to judge) of asking that I write one. However the reader may feel, I am grateful for the experience. Although it did throw me into the deep end of the intellectual pool where I am not accustomed to swim.

Thanks go as well to Morgan Entrekin, chief of Grove/ Atlantic worldwide, whose editorial advice ('rewrite the whole thing') was appreciated if not taken. Morgan and I have been together in that civil union known as writer/editor (and recognized by most states) since 1983. He has put every one of my books into print. Be it on his own head.

Chapter 3
of this book, on Adam Smith's
The Theory of Moral Sentiments,
previously appeared, in somewhat different form, in the
Weekly Standard
. I owe a great debt to that fine publication, which for more than a decade has let me hold forth on – anything, really, even
The Theory of Moral Sentiments
.

Another great debt (and large contribution, which is … um, in the mail) is owed to the Cato Institute, in Washington, DC, a nonpartisan think tank promoting the individual liberty that
we all love and insisting upon the individual responsibility that we don't all love quite so well. Cato is headed by President Ed Crane; its executive vice president, David Boaz, does most of the work; and I – Cato's Mencken Research Fellow – do none (being as crabby but hardly as prolific as my fellowship's namesake). Cato Senior Fellow Tom Palmer, who is a genuine Adam Smith scholar, walked me through
The Wealth of Nations
. It was Tom who pointed out that Smith, when he was using dead beavers and deer to explore the nature of value, had no idea what he was talking about. And it was Tom who noted the irony of mercantilist policy attempting to do to its own country in peacetime what it would strive to do to an enemy country in war.

Some years ago Cato offered a course of lectures, Advancing Civil Society, which are soon to be rereleased on CDs and tape cassettes. The four recordings devoted to
The Wealth of Nations
are brilliant and succinct. And listening to them is, according to an authoritative source (my wife), more pleasant than listening to me.

Julie Mariotti, with her linguistic skills and her knowledge of eighteenth-century French culture, provided me with a colloquial translation of Mme Riccoboni's letter to David Garrick. Even for someone literate in French (
je ne pas
), that missive is a nearly indecipherable jumble of obsolete grammar and long-gone slang.

James Kegley, with his knack behind the lens, provided the reader with a picture of me looking – rather inaccurately – intelligent and presentable.

I talked about my book (endlessly, I fear) to the people with whom I discuss everything that is beyond my comprehension (but rarely beyond theirs): Andy and Denise Ferguson, Nick and Mary Eberstadt, Michael Lehner, and Tina O'Rourke. The last of these, being married to the author, had to endure that talk day and night. I thank them all for their kind patience and wise ideas.

More kind patience and further wise ideas came from Ed Crane, David Boaz, Richard Starr, Philip Terzian, Richard Pipes, Charles Murray, Chris DeMuth, Toby Lester, and Cullen Murphy.

Credit must also be given to David Brooks for his reminder, in one of his excellent
New York Times
columns (they should give him the whole paper to run), that the basis of free market principles has been understood since at least the time of Albertus Magnus in the thirteenth century. And credit, too, to Robert Samuelson for his continued wonderful reporting on and analysis of economic matters. In a 2005 column in the
Washington Post,
Samuelson captured the whole of Adam Smith's argument against the know-it-alls of dirigisme and economic planning in one sentence: 'The less we understand the economy, the better it does.'

Dr William C. Freund, who was for many years the chief economist for the New York Stock Exchange, told me a joke that I have found useful to keep in mind: 'An economist is a fellow who knows 101 ways to make love and doesn't have a girl.'

I was complaining to lawyer and legal scholar Peter Huber about some of the dryness and difficulty in Adam Smith's thinking. Peter said that one may be as dull as one likes if one has something truly brilliant and original to say. This made me recall that I don't, and therefore it has behooved me to maintain a light touch with my own thinking, which I hope, but cannot promise, that I've done.

What I can promise is undying gratitude to Tina O'Rourke and Caitlin Rhodes for all the research they did and for their labors in taking what that research turned into after it had been through my mental digestive system and feeding it into the computer's maw. Thus did they keep that glowing, keyboarded troll that squats beneath the bridge of literary endeavor from devouring this Billy Goat Gruff.

I'd like to end these acknowledgments with one item for which no thanks whatsoever should be given. Cambridge University separated the study of economics from the study of moral sciences in 1903. A little soon.

He took only what his superficial mind had the power of taking, and the pith of Smith's thinking must have been left behind. To borrow even a hat to any purpose, the two heads must be something of a size.

—Adam Smith's biographer, John Rae,
on a previous author who attempted
to appropriate Smith's work

CHAPTER 1
An Inquiry into
An Inquiry into the Nature and Causes of the Wealth of Nations

The Wealth of Nations
is, without doubt, a book that changed the world. But it has been taking its time. Two hundred thirty-one years after publication, Adam Smith's practical truths are only beginning to be absorbed in full. And where practical truths are most important – amid counsels of the European Union, World Trade Organization, International Monetary Fund, British Parliament, and American Congress – the lessons of Adam Smith end up as often sunk as sinking in.

Adam Smith's Simple Principles

Smith illuminated the mystery of economics in one flash: 'Consumption is the sole end and purpose of all production.'
1
There is no mystery. Smith took the
meta
out of the
physics
. Economics is our livelihood and just that.

The Wealth of Nations
argues three basic principles and, by plain thinking and plentiful examples, proves them. Even intellectuals should have no trouble understanding Smith's ideas. Economic progress depends upon a trinity of individual
prerogatives: pursuit of self-interest, division of labor, and freedom of trade.

There is nothing inherently wrong with the pursuit of self-interest. That was Smith's best insight. To a twenty-first-century reader this hardly sounds like news. Or, rather, it sounds like everything that's in the news. These days, altruism itself is proclaimed at the top of the altruist's lungs. Certainly it's of interest to the self to be a celebrity. Bob Geldof has found a way to remain one. But for most of history, wisdom, beliefs, and mores demanded subjugation of ego, bridling of aspiration, and sacrifice of self (and, per Abraham with Isaac, of family members, if you could catch them).

This meekness, like Adam Smith's production, had an end and purpose. Most people enjoyed no control over their material circumstances or even – if they were slaves or serfs – their material persons. In the doghouse of ancient and medieval existence, asceticism made us feel less like dogs.

But Adam Smith lived in a place and time when ordinary individuals were beginning to have some power to pursue their self-interest. In the chapter 'Of the Wages of Labour,' in book 1 of
The Wealth of Nations
, Smith remarked in a tone approaching modern irony, 'Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society?'
2

If, in the eighteenth century, prosperity was not yet considered a self-evidently good thing for the lower ranks of people, it was because nobody had bothered to ask them. In many places nobody has bothered to ask them yet. But it is never a
question of folly, sacrilege, or vulgarity to better our circumstances. The question is how to do it.

The answer is division of labor. It was an obvious answer – except to most of the scholars who had theorized about economics prior to Adam Smith. Division of labor has existed since mankind has. When the original Adam delved and his Eve span, the division of labor may be said to have been painfully obvious. Women endured the agonies of childbirth while men fiddled around in the garden.

The Adam under present consideration was not the first philosopher to notice specialization or to see that divisions are as innate as labors. But Smith was arguably the first to understand the manifold implications of the division of labor. In fact he seems to have invented the term.

The little fellow with the big ideas chips the spear points. The courageous oaf spears the mammoth. And the artistic type does a lovely cave painting of it all. One person makes a thing, and another person makes another thing, and everyone wants everything.

Hence trade. Trade may be theoretically good, or self-sufficiency may be theoretically better, but to even think about such theories is a waste of that intermittently useful specialization, thought. Trade is a fact.

Adam Smith saw that all trades, when freely conducted, are mutually beneficial by definition. A person with this got that, which he wanted more, from a person who wanted this more than that. It may have been a stupid trade. Viewing a cave painting cannot be worth three hundred pounds of mammoth
ham. The mutuality may be lopsided. A starving artist gorges himself for months while a courageous oaf of a new art patron stands bemused in the Grotte de Lascaux. And what about that wily spear point chipper? He doubtless took his mammoth slice. But they didn't ask us. It's none of our business.

Why an Inquiry into Adam Smith's Simple Principles Is Not an Inquiry, First, into Adam Smith

Most things that people spend most of their time doing are none of our business. This is a very modern idea. It makes private life – into which we have no business poking our noses – more fascinating than private life was to premoderns. Adam Smith was a premodern, therefore this book is organized in an old-fashioned way. The man's ideas come first. The man comes afterward. Adam Smith helped produce a world of individuality, autonomy, and personal fulfillment, but that world did not produce him. He belonged to an older, more abstracted tradition of thought.

When a contemporary person's ideas change the world, we want to know about that person. Did Julia Child come from a background of culinary sophistication, or did her mother make those thick, gooey omelets with chunks of Velveeta cheese and Canadian bacon like my mother? I fed them to the dog. What elements of nature and nurture, of psychology and experience, developed Julia Child's thinking? But there was a time when thinking mostly developed from other thinking. The thinkers weren't thinking about themselves, and their audience wasn't
thinking of the thinkers as selves, either. Everyone was lost in thought. Dugald Stewart, who in 1858 published the first biography of Adam Smith, excused its scantiness of anecdote with the comment, 'The history of a philosopher's life can contain little more than the history of his speculations.'
3

Another reason to put the history of Adam Smith's speculations ahead of the history of Adam Smith is that Smith led the opposite of a modern life – uneventful but interesting. He was an academic but an uncontentious one. He held conventional, mildly reformist political views and would have been called a Whig if he'd bothered to be involved in partisan politics. He became a government bureaucrat. Yet the essence of his thinking – 'It's none of our business' – will eventually (I hope) upend everything that political and religious authorities have been doing for ten thousand years. In a few nations the thinking already works. There are parts of the earth where life is different than it was when the first physical brute or mystical charlatan wielded his original club or pronounced his initial mumbo jumbo and asserted his authority in the first place.

The whole business of authority is to interfere in other people's business. Princes and priests can never resist imposing restrictions on the pursuit of self-interest, division of labor, and freedom of trade. Successful pursuits mean a challenge to authority. Let people take the jobs they want and they'll seek other liberties. As for trade, nab it.

A restriction is hardly a restriction unless coercion is involved. To go back to our exemplary Cro-Magnons, a coercive
trade is when I get the spear points, the mammoth meat, the cave painting,
and
the cave. What you get is killed.

Coercion destroys the mutually beneficial nature of trade, which destroys the trading, which destroys the division of labor, which destroys our self-interest. Restrain trade, however modestly, and you've made a hop and a skip toward a Maoist Great Leap Forward. Restrain either of the other economic prerogatives and the result is the same. Restrain all three and you're Mao himself.

Adam Smith's Less Simple Principles

It is clear from Adam Smith's other writings that he was a moral advocate of freedom. But the arguments for freedom in
The Wealth of Nations
are almost uncomfortably pragmatic. Smith opposed most economic constraints: tariffs, bounties, quotas, price controls, workers in league to raise wages, employers conniving to fix pay, monopolies, cartels, royal charters, guilds, apprenticeships, indentures, and of course slavery. Smith even opposed licensing doctors, believing that licenses were more likely to legitimize quacks than the marketplace was. But Smith favored many restraints on persons, lest brute force become the coin of a lawless realm.

In words more sad and honest than we're used to hearing from an economist, Smith declared, 'The peace and order of society is more important than even the relief of the miserable.'
4
Without economic freedom the number of the miserable
increases, requiring further constraints to keep the peace among them, with a consequent greater loss of freedom.

Smith was also aware that economic freedom has its discontents. He was particularly worried about the results of excess in the division of labor: 'The man whose whole life is spent in performing a few simple operations … generally becomes as stupid and ignorant as it is possible for a human creature to become.'
5
We've seen this in countless politicians as they hand-shake and rote-speak their way through campaigns. But it's worth it. Productivity of every kind can be increased by specialization. And the specialization of politics at least keeps politicians from running businesses where their stupidity and ignorance could do even greater harm to economic growth.

Adam Smith's More Complicated Principles

Smith's logical demonstration of how productivity is increased through self-interest, division of labor, and trade disproved the thesis (still dearly held by leftists and everyone's little brother) that bettering the condition of one person necessarily worsens the condition of another. Wealth is not a pizza. If I have too many slices, you don't have to eat the Domino's box.

By proving that there was no fixed amount of wealth in a nation, Smith also proved that a nation cannot be said to have a certain horde of treasure. Wealth must be measured by the volume of trades in goods and services – what goes on in the castle's kitchens and stables, not what's locked in strongboxes
in the castle's tower. Smith specifies this measurement in the first sentence of his introduction to
The Wealth of Nations:
'The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes.'
6
Smith thereby, in a stroke, created the concept of gross domestic product. Without GDP modern economists would be left with nothing much to say, standing around mute in ugly neckties, waiting for MSNBC to ask them to be silent on the air.

If wealth is all ebb and flow, then so is its measure, money. Money has no intrinsic value. Any baby who's eaten a nickel could tell you so. And those of us old enough to have heard about the Weimar Republic and to have lived through the Carter administration are not pained by the information. But eighteenth-century money was still mostly made of precious metals. Smith's observations on money must have been slightly disheartening to his readers, although they had the example of bling-deluged but impoverished Spain to confirm what he said. Gold is, well, worth its weight in gold, certainly, but not so certainly worth anything else. It was almost as though Smith, having proved that we can all have more money, then proved that money doesn't buy happiness. And it doesn't. It rents it.

Adam Smith's Principles: Their Principal Effect

The Wealth of Nations
was published, with neat coincidence, in the very year that history's greatest capitalist nation declared
its independence. And to the educated people of Great Britain the notion of the United States of America was more unreasonable, counterintuitive, and, as it were, outlandish than any of Adam Smith's ideas.
Wealth
was not light reading, even by the weightier standards of eighteenth-century readers. But it was a succès d'estime and something of an actual success. The first edition sold out in six months, shocking its publisher. Other than this, there is no evidence of Smith's work shocking his contemporaries.

For instance, Smith's suggestion of the economic primacy of self-interest didn't appall anyone. That self-interest makes the world go round has been tacitly acknowledged since the world began going round – a little secret everyone knows. And the worrisome thought that money is imaginary had been worried through by Smith's good friend David Hume a quarter of a century earlier. Indeed the fictitious quality of money had been well understood since classical times. In the two hundred years between the reigns of the emperors Nero and Gallienus, imperial fictions reduced the silver content of Roman coinage from 100 percent to none.

But, though its contents didn't make people gasp, something about
The Wealth of Nations
was grit in the gears of Enlightenment thinking. And that something is still there, grinding on our minds. I could feel it myself when the subject of self-interest came up.

Gosh,
I'm
not selfish. I think about the environment and those less fortunate than me. Especially those unfortunates who don't give a hoot about pollution, global warming, and
species extinction. I think about them a lot, and I hope they lose the next election. Then maybe we can get some caring and compassionate people in public office, people who aren't selfish. If we elect an environmentalist mayor, the subdivision full of McMansions that's going to block my view of the ocean won't get built.

And let's face it, the 'lower ranks of the people' do have too much money. Look at Britney Spears. Or I'll give you a better example, the moneybags buying those châteaux-to-go on the beachfront. You with your four-barge garage and the Martha-bitchin'-Stewart-kitchen that you cook in about as often as Martha does the dishes. You may think you're not the lower ranks because you make a lot of dough, but your lifestyle is an 'inconveniency to the society' big time, as you'll find out when I key your Hummer that's taking up three parking spaces.

I know your type. All you do is work all day, eighty or a hundred hours a week, in some specialized something that nobody else understands, on Wall Street or at fancy corporate law firms or in expensive hospital operating rooms. A person has to balance job, life, and family to become a balanced … you know, person. This is why my wife and I are planning to grow all our own food (rutabagas can be stored for a year!), use only fair-traded Internet services with open code programming, heat the house by means of clean energy renewable resources such as wind power from drafts under the door, and knit our children's clothes with organic wool from sheep raised under humane farming conditions in our yard. This will keep the kids
warm and cozy, if somewhat itchy, and will build their characters because they will get teased on the street.

Okay, yes, I admit that total removal of every market restraint would be 'good for the economy'. But money isn't everything. Think of the danger and damage to society. Without government regulation the big shots who run companies like Enron, WorldCom, and Tyco could have cheated investors and embezzled millions. Without restrictions on the sale of hazardous substances young people might smoke, drink, and even use drugs. Without the licensing of medical practitioners the way would be clear for chiropractors, osteopaths, and purveyors of aromatherapy. If we didn't have labor unions, thirty thousand people would still be wage slaves at General Motors, their daily lives filled with mindless drudgery. And if there weren't various forms of retail collusion in the petroleum industry, filling stations could charge as little as they liked. I'd have to drive all over town to find the best price. That would waste gas.

Also consider the harm to the developing world. Cheap pop music MP3 downloads imported from the United States will put every nose-flute band in Peru out of business. Plus some jobs require protection, to ensure they are performed locally in their own communities. My job is to make quips, jests, and waggish comments. Somewhere in Mumbai there is a younger, funnier person who is willing to work for less. My job could be outsourced to him. But he could make any joke he wanted. Who would my wife scold? Who would my in-laws be offended by? Who would my friends shun?

This anonymous fellow, tens of thousands of miles away, might let his sense of humor run wild. He might, for example, be doing that amusing article I write about once a year concerning the trials and tribulations (and heartwarming moments) of taking the children to Manhattan at Christmastime. The kids get squashed against the glass department store windows, shoved under the tree at Rockefeller Center, and sliced to ribbons on the Central Park skating rink by hordes of Midwesterners, Europeans, and Japanese. Mumbai-Me might be tempted to slip in a bit of tasteless doggerel.

In yule New York, while suff'ring the
Ugly, rude tourist parade. A
Gift-giving thought occurred to me –
Donation to Al-Qaeda.

For the sake of accountability, sensitivity to hurtful language, and all things socially responsible, Adam Smith's flow of goods and services needs to be accompanied by at least the threat of another flow – getting a drink thrown in my face.

Then there is the matter of those goods and services – Adam Smith's gross domestic product. I am as grossly domestic as anyone. Where's the product? How come all the goods and services flow out of my income instead of into it? Of course, I understand that money isn't what's valuable. Love is what's valuable. And my bank account is full of love or something closely related to it, sex. That is, I've got fuck-all in the bank. And if money isn't worth anything, why was Alan Greenspan
such a big cheese for all those years? Did he just go to his office and do Sudoku puzzles all day?

None of us, in fact, take the axioms of Adam Smith as givens – not unless what's given to us are vast profits, enormous salaries, and huge year-end bonuses resulting from unfettered markets, low labor costs, increased productivity, and current Federal Reserve policy. Like the AFL-CIO, France, and various angry and addled street protestors, we quarrel with Adam Smith. If this is to be an intelligent squabble we need to examine Smith's side of the argument in full.
The Wealth of Nations
is – as my generation used to say when my generation was relevant – relevant.

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