An Inquiry into the Nature and Causes of the Wealth of Nations (Facism of 1904 Edition) [Paperback]

When this book was written, Adam Smith was able to combine economic ideas about the distribution and production (which he considered the highest good) of articles of commerce, in contrast to "the bad effects of the monopoly," in a way that caused thinking people in Britain to believe that the world would be materially better off if the American colonies were free of rules which required those who produced all the tobacco from Maryland and Virginia to sell it in or through Great Britain. Adam Smith was worried that capital maintained to store this product in London was depriving England of the opportunity to produce goods that would generate more wealth. "At the port of London, indeed, it is commonly sold for ready money. The rule is, Weigh and pay. At the port of London, therefore, the final returns of the whole round-about trade are more distant than the returns from America by the time only that goods may lie unsold in the warehouse; where, however, they may sometimes lie long enough." The American revolution was greeted by economic free traders as an event likely to cause a great increase in the wealth of nations, and the normally victorious political element maintains a strong belief in this fiscal ideology.

The current situation might be closer to "the time only which the goods may lie unsold in the warehouse." Near the end of Book IV, "Of Systems of Political Economy," Chapter VII, "Of Colonies," there was a frightening example of how bad things might get to be. "In Spain and Portugal the bad effects of the monopoly, aggravated by other causes, have perhaps nearly overbalanced the natural good effects of the colony trade." Plenty of things went wrong, causing a large portion of the population to feel that they were victims of circumstances, " . . . but above all, that irregular and partial administration of justice, which often protects the rich and powerful debtor from the pursuit of his injured creditor, and which makes the industrious part of the nation afraid to prepare goods for consumption of those haughty and great men to whom they dare not refuse to sell upon credit, and from whom they are altogether uncertain of repayment." Certainly, a great deal of money is in circulation today, and a tremendous amount is considered working capital, capable of producing many things that people might want, but the routine search for contraband includes cash in an amount exceeding $10,000, the amount which might be capable of buying a large amount of illegal substances. Police are actually so unfamiliar with cash transactions that large amounts might be held as evidence, until the police have been convinced that they have no reason to suspect the person who had the money of being involved in any sort of laundering activity. When Adam Smith was writing, his work was as shocking to those controlling the monopolies of his day as radical protests of today rile the police on the beat today, whose confiscation of vehicles, which are sometimes temporary, to see if they were used to transport illegal substances, is not considered in any way similar to hijacking airplanes in order to crash them into buildings which symbolize a violation of the right of the people to personal pleasure in a manner which averts the collapse of society as we know it. This hardly makes more sense than those who expected seizure of everybody's major assets to solve society's problems.

I think there are several myths about economics that are exploded by a first hand reading of Wealth of Nations. Many supply side economists eagerly tout Smith's "invisible hand" metaphor in advocating deregulated markets, but in my view, Smith took a balanced and integrated approach in analyzing the supply and demand sides of national economy. In the first chapter Smith notes that national wealth is the production of labor. This has dual implications in that production is the creation of supply, but the labor force consumes that supply by trading the resulting wealth. These are two sides to the same coin, & therefore indivisible. Also in the first chapter, Smith notes that increasingly sophisticated economies will employ a division of labor to increase production efficiency, which is another concept that necessarily integrates supply and demand, production and consumption.

Smith devotes quite a bit of time lamenting governmental intrusion into economics by way of regulation. However, he does not condemn government regulation per se, but make very specific criticisms against those state regulatory polices that tend to create monopolies. None of his comments are strictly political in nature. Smith's analysis is purely based on economics & the efficient allocation of capital. He views the enemy not as the King's ministers, but rather the monopolies that were so prevalent during the 18th century mercantile system.

On a related note, I think it is clear that Smith would be horrified by the military centric nature of many post-industrial economies today. He notes that a standing army is a drain on national wealth. Essentially the state is paying workers not to work, but rather to stand ready to fight. I suspect that Smith would view large state defense budgets as being most closely akin to a transfer payment made by a welfare state. For those who will scream invective at me for saying this, please remember that the largest item on any defense budget by far, is payroll.

Finally, as an amateur historian, I enjoyed the brief glimpse into what life was like in the 18th century Empire from an economist's perspective. Various parts of his book review social welfare systems of his day, as well as international banking, political economy, agrarian systems, and life in general.