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petrea_mitchellMy other summer reading project is The Wealth of Nations. A while back The Economist made a list of essential economists that everyone should know about, and its mini-bio of Adam Smith contained an intriguing mention of Smith approving of a certain level of regulation. As someone who's only ever seen him invoked in the cause of completely unregulated capitalism, my interest was piqued.
What's had me blocked on this read is that I thought I might summarize what I find Smith actually saying, so after finishing book I (of V) I didn't want to read any further until I could find the time to post about it. So here we are.
Before getting started, I have a different book recommendation for everyone. 1493: Uncovering the New World Columbus Created has turned out to be excellent preparation for this book, since Smith's obsession with silver means that he is never far from the shadow of PotosÃ. Plus 1493 is engagingly written, up to date with the latest research, and not an absolute doorstop of a book, none of which can be said about The Wealth of Nations.
Chapter I: Division of labor is practically the greatest thing ever.
Chapter II: The same explanation of how specialization developed that you heard in high school.
Chapter III: But specialization is limited by the scale of the market for that specialty.
Chapter IV: The same explanation of how money developed that you heard in high school, except that Smith is concerned about the shrinking amount of precious metals used in coinage.
Chapter V: Very concerned, in fact. After considering how things can be measured in terms of the value of labor or standard commodities, Smith settles on silver as an invariant measure of value. There is then a discussion of the arbitrage opportunities that arise when the prices of bullion and coinage get out of whack.
Chapter VI: There are three components to every price, except when there aren't. The three components are labor, natural resources, and stock, which here means tools and anything else that isn't labor or natural resources.
Chapter VII: There is such a thing as a "natural" price for goods, which incorporates the cost of making them plus an appropriate, not excessive, profit. Prices may deviate for various reasons, such as higher demand or restricted supply. Examples of the latter include monopolies (meaning, in this context, exclusive franchises granted by the government), guild systems, and hoarding of trade secrets.
Chapter VIII: Various factors can raise or lower wages. Anything resembling unionizing seems to have been forbidden at the time, so Smith observes that employers will generally collude to keep wages down. Smith is of the opinion that slavery is economically inefficient, on the grounds that it costs the same to feed someone regardless of whether they are enslaved or not, and the worse treatment of slaves makes them more expensive in the long run.
Chapter IX: A look at the returns on stock, which means practically everything except monetary investment, though a lot of time is spent talking about interest on money in parallel with stock. High interest is explained as a symptom of a poor economy. As for high profits, well...
Whoever quotes Smith in support of unbridled capitalism really has not read this book.
Chapter X, Part I: Lots more things affect wages. Also, young people have no sense.
Chapter X, Part II: Here we go, the part about unnecessary government regulation distorting the free market. First up: corporations. In Smith's time, this means an evolution of the guild system, where an organization is set up with exclusive privileges to a trade in a specific area, letting it regulate the number of masters, apprentices, length of apprenticeship, etc. Next: import tariffs, and then cartels. Meanwhile in Europe, regulations cause too many people to go into certain professions, though Smith thinks making teachers cheap and accessible to the masses may have an upside. Europe was also full of laws limiting people's ability to settle in a new town. Next: back to Britain to talk about laws specifying wages-- though in Smith's time that means laws putting a ceiling on them.
Chapter XI, Part I: A look at the factors affecting the price of farm produce, with this unfortunate moment:
It is possible to verify with scientific methods available in Smith's time that potatoes are actually 80% water. This is why people don't accept economics as a real science, economists.
Chapter XI, Part II: Mostly about the factors affecting mines, including taxes paid to various crowns.
Chapter IX, Part III, First Period, Second Period, Third Period, Third Period First Sort, Third Period Second Sort, Third Period Third Sort, and all the parts where the author gave up on numbered sections: By surveying historical data, overlaying it with prejudices about the value of metals, and converting back and forth between various irregular and obscure units, we can develop suspicions that the price of silver DUDE LEARN TO DRAW A FREAKING GRAPH
Anyway, this all leads to some thoughts about the economies in developing vs. fully developed countries. Smith then concludes by dividing society into three groups by how they make money: workmen earning wages, landlords earning rent, and owners earning profits on stock. The first two, he feels, have interests aligned with society in general: when overall wealth is higher, so are wages and rents. The third, though...
Yup, Adam Smith, patron saint of capitalism, says that businesspeople are absolutely the last people you should be listening to when considering how the economy should work.
That's a good cliffhanger to end on for now. Stay tuned for Book II, which thankfully is much shorter.
What's had me blocked on this read is that I thought I might summarize what I find Smith actually saying, so after finishing book I (of V) I didn't want to read any further until I could find the time to post about it. So here we are.
Before getting started, I have a different book recommendation for everyone. 1493: Uncovering the New World Columbus Created has turned out to be excellent preparation for this book, since Smith's obsession with silver means that he is never far from the shadow of PotosÃ. Plus 1493 is engagingly written, up to date with the latest research, and not an absolute doorstop of a book, none of which can be said about The Wealth of Nations.
Chapter I: Division of labor is practically the greatest thing ever.
Chapter II: The same explanation of how specialization developed that you heard in high school.
Chapter III: But specialization is limited by the scale of the market for that specialty.
Chapter IV: The same explanation of how money developed that you heard in high school, except that Smith is concerned about the shrinking amount of precious metals used in coinage.
Chapter V: Very concerned, in fact. After considering how things can be measured in terms of the value of labor or standard commodities, Smith settles on silver as an invariant measure of value. There is then a discussion of the arbitrage opportunities that arise when the prices of bullion and coinage get out of whack.
Chapter VI: There are three components to every price, except when there aren't. The three components are labor, natural resources, and stock, which here means tools and anything else that isn't labor or natural resources.
Chapter VII: There is such a thing as a "natural" price for goods, which incorporates the cost of making them plus an appropriate, not excessive, profit. Prices may deviate for various reasons, such as higher demand or restricted supply. Examples of the latter include monopolies (meaning, in this context, exclusive franchises granted by the government), guild systems, and hoarding of trade secrets.
Chapter VIII: Various factors can raise or lower wages. Anything resembling unionizing seems to have been forbidden at the time, so Smith observes that employers will generally collude to keep wages down. Smith is of the opinion that slavery is economically inefficient, on the grounds that it costs the same to feed someone regardless of whether they are enslaved or not, and the worse treatment of slaves makes them more expensive in the long run.
Chapter IX: A look at the returns on stock, which means practically everything except monetary investment, though a lot of time is spent talking about interest on money in parallel with stock. High interest is explained as a symptom of a poor economy. As for high profits, well...
Our merchants and master-manufacturers complain much of the bad effects of high wages in raising the price, and thereby lessening the sale of their goods at both home and abroad. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains.
Whoever quotes Smith in support of unbridled capitalism really has not read this book.
Chapter X, Part I: Lots more things affect wages. Also, young people have no sense.
Chapter X, Part II: Here we go, the part about unnecessary government regulation distorting the free market. First up: corporations. In Smith's time, this means an evolution of the guild system, where an organization is set up with exclusive privileges to a trade in a specific area, letting it regulate the number of masters, apprentices, length of apprenticeship, etc. Next: import tariffs, and then cartels. Meanwhile in Europe, regulations cause too many people to go into certain professions, though Smith thinks making teachers cheap and accessible to the masses may have an upside. Europe was also full of laws limiting people's ability to settle in a new town. Next: back to Britain to talk about laws specifying wages-- though in Smith's time that means laws putting a ceiling on them.
Chapter XI, Part I: A look at the factors affecting the price of farm produce, with this unfortunate moment:
Twelve thousand weight of potatoes from an acre of land is not a greater produce than two thousand weight of wheat. ... Allowing, however, half the weight of this root to go to water, a very large allowance, such an acre of potatoes will still produce six thousand weight of solid nourishment, three times the quantity produced by an acre of wheat.
It is possible to verify with scientific methods available in Smith's time that potatoes are actually 80% water. This is why people don't accept economics as a real science, economists.
Chapter XI, Part II: Mostly about the factors affecting mines, including taxes paid to various crowns.
Chapter IX, Part III, First Period, Second Period, Third Period, Third Period First Sort, Third Period Second Sort, Third Period Third Sort, and all the parts where the author gave up on numbered sections: By surveying historical data, overlaying it with prejudices about the value of metals, and converting back and forth between various irregular and obscure units, we can develop suspicions that the price of silver DUDE LEARN TO DRAW A FREAKING GRAPH
Anyway, this all leads to some thoughts about the economies in developing vs. fully developed countries. Smith then concludes by dividing society into three groups by how they make money: workmen earning wages, landlords earning rent, and owners earning profits on stock. The first two, he feels, have interests aligned with society in general: when overall wealth is higher, so are wages and rents. The third, though...
But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension, of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this third order, therefore, has not the same connexion with the general interest of society as the other two. ... The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but the most suspicious attention.
Yup, Adam Smith, patron saint of capitalism, says that businesspeople are absolutely the last people you should be listening to when considering how the economy should work.
That's a good cliffhanger to end on for now. Stay tuned for Book II, which thankfully is much shorter.
