On the Wealth of Nations (4 page)
Read On the Wealth of Nations Online
Authors: P.J. O'Rourke
This hard, creative work that imagination does links the moral sympathy central to
The Theory of Moral Sentiments
with
the material cooperation central to
The Wealth of Nations
. The imagination also has to make a creative effort to divide labor and conduct trade. Sympathy and cooperation are the more-conscious and less-conscious sides of what allows civilization to exist. They are the 'principles in his nature' that man has, 'which interest him in the fortune of others'.
It applies to this man. I'm more or less conscious of when I'm being good with the family at home on the weekend, and I'm more or less unconscious at the office on Monday morning.
Smith saw the moral potential in both our interest in others and our self-interest. When we give somebody a bottle of whiskey, we know we've benefited somebody else. When the family gets to be too much for us over the weekend and we drink that bottle of whiskey ourselves, we've also benefited somebody else â the distiller, the bottler, the liquor store owner. Feeling disjointed and discordant on Monday, we don't realize this, unless we work at 'inventions of the imagination, to connect together the otherwise disjointed and discordant phenomena of nature'. The apparatus of unintended benefit was what Smith meant by the 'invisible hand', a concept he first put forth in
The Theory of Moral Sentiments
.
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If we don't do the difficult job that imaginative sympathy requires, we put ourselves into what Smith called 'the vilest and most abject of all states, a complete insensibility to honour and infamy, to vice and virtue'.
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Villains are imaginative only in the public imagination. The corporate scandals of recent years may seem to be the highly inventive and original schemes of evil genius. But when the obscurities of
accounting and finance are brushed aside, a prosaic hand in the till is revealed.
Policemen, prosecutors, bartenders, parents, and anyone else who has seen wrong done in large amounts can testify to Hannah Arendt's characterization of Adolf Eichmann's behavior: 'banality of evil'. Banality is the main constituent in criminal thinking â among chiselers and mopes as well as upper-echelon Nazis.
It's a mistake to read the
The Wealth of Nations
as a justification of amoral greed.
Wealth
was Adam Smith's further attempt to make life better. In
The Theory of Moral Sentiments
he wrote, 'To love our neighbor as we love ourselves is the great law of Christianity.'
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But note the simile that Christ used and Smith cited.
The Theory of Moral Sentiments
is about the neighbor.
The Wealth of Nations
is about the other half of the equation, ourselves.
It is assumed, apparently at the highest level of divinity, that we should care about ourselves. And logically we need to. In
Moral Sentiments,
Smith insisted, paraphrasing Zeno, that each of us 'is first and principally recommended to his own care',
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and 'endowed with the principle of self-love'.
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A broke, naked, hungry, and self-loathing me is of no use to anyone in the neighborhood. In
Wealth,
Smith insisted that in order to take care of ourselves we must be free to do so.
The Theory of Moral Sentiments
shows us how the imagination can make us care about other people.
The Wealth of Nations
shows us how the imagination can make us dinner and a pair of pants.
Nothing but imagination could justify Genesis 1:26: 'And God said, Let us make man in our own image,' certainly not
our looks. Imagination may be our only distinctively human attribute. Animals detect with their senses everything that humans do and more. Probably animals think many of the same thoughts we do, at least from nine to five. When's lunch? Animals can love. For all we know a romantic pang goes through an amoeba's heart â or whatever single cell organisms have â just before it splits. But animals, whose complete insensitivity to vice and virtue is evident when the miniature schnauzer humps your leg, cannot sympathize, let alone do so morally. Nor can animals cooperate enough to build a civilization. Unless an ant heap is your idea of the Acropolis. 'Nobody,' Adam Smith wrote in
Wealth,
'ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.'
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Adam Smith did not think we are innately good any more than he thought we are innately rich. But he thought we are endowed with the imaginative capacity to be both, if we're free to make the necessary efforts.
The Theory of Moral Sentiments
and
The Wealth of Nations,
read together, do provide a blueprint â though it's for the soul rather than society.
Smith never made any religious claims about his philosophical project. In a footnote to part 1 of
Moral Sentiments
he wrote, 'The present inquiry is not concerning a matter of right, if I may say so, but concerning a matter of fact.'
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Smith meant to show, as well as his 'mere inventions of the imagination' could, only what he called 'the plan and system which Nature has sketched out'.
26
Yet the design that Adam Smith drew was for nothing less than the mechanical engineering of the Holy Ghost.
The Wealth of Nations,
Book 1 How the High Price of Freedom Makes the Best Things in Life Free
Considering the immense orb of Adam Smith's thinking and his tendency to go off on tangents,
The Wealth of Nations
is surprisingly well organized. Smith divided
Wealth
into five books. He presents his economic ideas in books 1 and 2. Book 1 addresses production and distribution, and book 2 concerns capital and profit. Book 3 is an economic history of western Europe showing how various aspects of production, distribution, capital, and profit evolved and how their evolution caused a, so to speak, global warming in the climate of ordinary life. Book 4 is a refutation of economic ideas other than those of Adam Smith. It includes a particularly â too particularly â detailed attack on the mercantilists. And Book 5 is Smith's attempt to apply his ideas to solving problems of government. But since problems are the only excuse for government, solving them is out of the question. For this and other reasons, Book 5 is surprisingly disorganized.
It should be noted that Adam Smith did not create the discipline he founded. What we call economics was invented by
François Quesnay and the French physiocrats, whom Smith knew. The physiocrats, however, badly overthought the subject. Quesnay, who was Louis XV's physician, drew an elaborate Tableau Ãconomique, a minutely labeled, densely zigzagging chart â part cat's cradle, part crossword puzzle, part backgammon board. It may have put Smith off the whole idea of graphic representation. The tableau supposedly showed how agriculture is the source of all economic progress, how trade and manufacture do no good for anyone, and how everything â from wagon wheels to Meissen chamber pots â grows, in effect, on farms. Food is the entire basis of living, therefore agriculture must be the entire basis for getting a life. So went the physiocrat reasoning, more or less.
To Quesnay and his fellow courtiers the motive for investigating economics was something between
Pour la France!
and finding a way to kill time while waiting to put leeches on royals. What Adam Smith did was give economics a reason to exist. Smith's inquiry had a sensible aim, to materially benefit mankind, himself by no means excluded.
, Book 1
Smith called book 1, 'Of the Causes of Improvement in the productive Powers of Labour, and of the Order according to which its Produce is naturally distributed among the different Ranks of the People,' one of those people not being a modern-type book editor, who would have punched up the title.
Smith began by asking two very large questions: How is wealth produced, and how is it distributed? Over the course of the 250-some pages in book 1 the answers â 'division of labor' and 'mind your own business' â are explained. But in the meantime Smith answered two even larger questions: Why is everyone equal, and why do we have property rights?
All men are created equal. We hold this truth to be self-evident, which on the face of it is so wildly untrue. Equality is the foundation of liberal democracy, rule of law, a free society, and everything that the reader, if he or she is sane, cherishes. But are we all equal because we all showed up? It does not work that way at weddings or funerals. Are we all equal because it says so in the American Declaration of Independence, the French Declaration of the Rights of Man, and the UN Universal Declaration of Human Rights? Each of these documents contains plenty of half-truths and nontruths as well. The UN proclaims, 'Everyone has the right to rest and leisure, including reasonable limitation of working hours.' I'll have my wife inform the baby.
High-minded screeds cobbled together by unrepresentative and, in some cases, slightly deranged members of the intelligentsia are not scripture. Anyway, to see what a scripture-based polity gets for a social system we have only to look at the Taliban in Afghanistan or the Puritans in Massachusetts. Everyone has an immortal soul and every soul is of identical value to God, maybe, but that doesn't take us far as a matter of practical political philosophy. And Adam Smith was practical. His footnote to
Moral Sentiments
about how his theory was
'not concerning a matter of right ⦠but concerning a matter of fact' is suitable to all of his philosophy.
When Smith considered how division of labor developed, he briefly â for Smith â directed our attention to an interesting and characteristic quality of man. The most powerful creature to ever stride the earth is the most pitifully helpless. We are born incapable of caring for ourselves and remain so â to judge by today's youth â until we're forty. At the age of two when any other mammal is in its peak earning years, hunting, gathering, and procreating, the human toddler cannot find its ass with both hands, at least not well enough to use the potty. The creativity of a Daniel Defoe couldn't get Robinson Crusoe through the workweek without a supply of manufactured goods from the shipwreck's hold and the services of a cannibal executive assistant.
We must treat other people with the respect due to equals not because we are inspired by principle or filled with fraternal affection but because we're pathetic and useless.
Smith wrote that an individual 'stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons'.
1
This nearly left-wing statement was the prologue to Adam Smith's most quoted passage: 'It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.'
2
Smith wasn't urging us to selfishly pursue wealth in the free enterprise system. He was urging us to give thanks that the butcher, the brewer, and the baker do. It is our good fortune
that they are endowed by their Creator with certain unalienable rights, that among these are steak, beer, and hoagie rolls.
Smith's answer to why we have property rights was equally straightforward: 'The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable.'
3
Property rights are not an invention of the rich to keep poor people off their property. Property rights are the deed we have to ownership of ourselves. The property may be modest, but it is inherent. 'The patrimony of a poor man,' Smith wrote, 'lies in the strength and dexterity of his hands.'
4
From this humble grasp of hammer and, ahem, sickle, comes all free enterprise: 'and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour, is a plain violation of this most sacred property.'
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Any definition of liberty that is not based on a right to property and a right to the same rights as all other people have is meaningless. What we have is ours, and nobody can push us around. This is practically all we mean when we say we are free. Other rights derive from these, when we even bother with those other rights.
Freedom of speech is wonderful, if you have anything to say. A search of the 'blogosphere' reveals that hardly anyone does. Freedom of religion is more wonderful, but you can, when you pray, 'enter into thy closet, and when thou hast shut thy door, pray to thy Father which is in secret' (Matt. 6:6). Jesus Christ himself said so. Freedom is mostly a workaday experience, taking place in the material, economic world. Before Adam Smith
was even well under way with
The Wealth of Nations
he had proved that we require and deserve an equitable society where we're free from the exercise of arbitrary power and can go to the mall and swipe our Visa cards until the magnetic strips are toasted crisp, if that's what we want.
However, the main purpose of Book 1 of
Wealth,
as Smith conceived it, was to show the importance of the division of labor. The purpose of division of labor, wrote Smith, is 'to make a smaller quantity of labour produce a greater quantity of work'.
6
Smith perceived that the division of labor â specialization â is the original source of economic growth.
Specialization increases economic value. As an example Smith famously used the 'trifling manufacture' of a pin. Without specialization and specialists' machinery it would take us all day to make one pin. In an early draft of
Wealth,
Smith noted that if we went so far as to dig in the iron mines, smelt our own ore, and so forth, we could 'scarce make a pin in a year'.
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And somewhere a group of hobbyists â contactable via the Internet â is doing just that, to the irritated mystification of their wives.
Smith proved his point, and should have left it at that. But here we come to an interesting difficulty in the rational consideration of economics â getting too rational with it. This is economics'
original sin, a fault that has existed since economics was conceived. Any student in any Econ class knows the problem and has had to memorize various rationalizing formulae that result from â no, are â the problem.
While writing about the increase of economic value, Smith decided to delve into the concept of value itself. He tried to analyze price, and he could not. The price of something is what someone will pay for it, nothing more, nothing less, nothing else. David Hume, in a letter to Smith congratulating him on the publication of
Wealth,
praised the work but noted the error. 'If you were here at my fireside,' Hume wrote, 'I should dispute some of your principles. I cannot think ⦠but that price is determined altogether by the quantity and the demand.'
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Yet, to think that went against Smith's inclination to think things through; so he thought things through anyway.
Smith decided that price had 'component parts'. He settled on three of them: labor, profits of stock (i.e., return on capital), and rent of land. Price theory is a recondite area of economics as people in the stock market, the commodities market, or the market for a house know, and as people in those Econ classrooms know to their terror. And Smith's confusions about price were even more confused than modern confusions.
When Smith was trying to put value on price and price on value he didn't have an Econ textbook to explain to him the 'law of marginal utility'. This would be postulated a century later by Carl von Menger, founder of the Austrian school of economics. Translating Econ textbook text into English, marginal utility means that we value a good only according to how much
we value the specific unit of the good that we most recently consumed, not according to how much we value the good for being so good.
Smith came very close to stumbling on marginal utility when he noted that 'Nothing is more useful than water: but it will purchase scarce any thing.'
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With an additional eight ounces of water all we get is a trip to the bathroom in the middle of the night. With an additional eight ounces of gold we get the upfront payment to lease a Lexus. Marginal utility explains why gold, vital to the life of no one except hip-hop performers and fiancés, is so high-priced.
However, the high price we pay for premium bottled water sends the law of marginal utility up the spout. That is where all price theory should go. Witness Adam Smith wrestling with his: 'If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer.'
10
Wait. Can killing a beaver, even in supposition, really be twice as hard as killing a deer? Deer can run like hell. We know where the beaver lives. It built the beaver dam. We've got the beaver's home address. Even if it does take twice as
long
to kill a beaver â wading around in the beaver pond smacking at Bucky's head with the flat side of a canoe paddle â who wants a beaver? It's not like the nation of hunters is wearing a lot of top hats. And after a long day of hunting, take your pick â a juicy tenderloin of venison or beaver soup?
There is an admitted pleasure in watching someone so much more intellectual than oneself going so intellectually
wrong. Smith decided that labor was the most important component of price: 'Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard.'
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Then, within two pages, he contradicts himself: 'the real price of labour ⦠is very different upon different occasions.'
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But earlier he'd written, 'The real price of everything ⦠is the toil and trouble of acquiring it.'
13
Something in the fine philosophical mind of Adam Smith made him resist the mastery of the obvious. There is a statement from the thirteenth century, attributed to Albertus Magnus, that price is what 'goods are worth according to the estimate of the market at the time of sale'. But before a proposal is made to abandon the complexities of Adam Smith and go back to thinking plain old medieval common sense, it's worth considering some of the other thinking that was common in medieval times. Albertus Magnus preached the eighth Crusade, the last and most pointless. It didn't even try to go to the Holy Land. The eighth Crusade sailed, like an armed Carnival cruise, to Tunis.
Yet there was this about Adam Smith: Even when he was wrong he was smarter than other people. Perhaps he was especially smarter than those awful people who always know the 'value' of everything and are so eager to tell us its rightful price or its rightful pricelessness.
Labor is not a component of price, which doesn't have components. Things cost what they cost. But by founding the logical structure of
The Wealth of Nations
on the premise of
labor â on how we divide it, on how we share its fruits, on the whole toil and trouble of our lives â Smith hit upon the material and moral necessity of our freedom.