Wealth of Nations Synopsis

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Adam Smith’s landmark book, Wealth of Nations, published in 1776, is a 500-plus page treatise on economics, oft cited bur rarely read, except by economists and masochists like me.  If you can overlook Smith’s sing-song style, his tediousness, repetition, generalizations, vague and archaic terminology, and inconsistent reasoning, the book is worth reading, especially as a social history.  It is important to recognize that Smith writes as a spokesman for the monarchy and the wealthy stock holders, landowners, and mercantilists who made the book an immediate hit and won him a position as Commissioner of Customs in Edinburgh, Scotland.  His description of a "commercial society" has enshrined him as the “first modern economist,” or “father of modern capitalism."

 

A confluence of factors contributed to the economic conditions of Smith’s time.  The “industrial revolution” began in Britain with the invention of the steam engine in 1712, first used for pumping water out of coal mines.  Other inventions quickly followed, eventually leading to the growth and dominance of the British Empire, through manufacture, trade, and colonization. Another feature of 1700s Britain involved war and military conquest.  As an island nation, with England, Scotland, and Wales united as the United Kingdom, or “Great Britain,” in 1707, it developed its sea power and had established dominance in the seas and in trading routes by the time Smith wrote Wealth of Nations.  Competition with other powers brought war and its heavy costs. 

 

Wealth of Nations refers repeatedly to the “late war,” which presumably was the Seven Years’ War, fought between 1756 and 1763.  One of the book’s primary aims appears to be exploring the various modes of taxation the king could use to pay debts from that war.

 

Meanwhile, the industrial revolution was bringing a rapid shift in social and cultural dynamics, as Great Britain went from predominantly agrarian, rural society to one of urban and industrial predominance.  The textile industry was probably the first to be affected in a major way, with the invention of the spinning jenny--“jenny” is a nickname for “engine”--by Englishman James Hargreaves in 1764.

 

The iron industry also underwent fast transformation, and with it, the transportation industry.  Communication and banking adapted accordingly.

 

Because industrialization necessitated large capital investments, business ownership shifted from individuals to groups, including partnerships and corporations.  The banking industry grew by leaps and bounds after the Bank of England was first chartered in 1694.  The London Stock Exchange boomed after the Seven Years’ War.  The government became increasingly dependent on it to finance wars.

 

Like many of his contemporaries, including Benjamin Franklin, Thomas Jefferson, Alexander Hamilton, and George Washington, Adam Smith was fascinated by machinery and its commercial potential.

 

In the first pages of Wealth, Smith presents the plan for the book, summarizing that the real wealth of a nation comes down to the “annual produce of the land and labor of the society.”

 

He then distinguishes between towns and agriculture and glorifies machines for facilitating division of labor, thus efficiency and productivity.  He uses pin-making as an example, with speed of production due to division of labor the only criterion.

 

Smith claims farmers are lazy, because as one-man operations, they waste time changing tasks, whereas a group of men in a “workhouse,” each doing one small task repeatedly, is able to produce much more in the same time period.

 

Smith says “Cochin-china” is one of several Asian countries that have sea access as well as extensive canals inland, but most of their trade is internal.  He wonders why they have not sought to trade outside their own countries.

 

Wealth emphasizes the enduring value of labor, despite the fluctuations in metal money.  Smith says the discovery of gold and silver in the Americas caused a glut in Europe that reduced the value to a third of what it was before.  A man can only do so much labor, but that labor holds its value through all the ups and downs of markets.

 

Wealth gives a multiplicity of examples of how labor costs rise and fall in relation to cities versus rural, or demand—such as North America, where labor was in great demand and food relatively inexpensive—and how much a laborer must be paid to sustain himself and children to replace him.  Since 50% of children die before reaching adulthood, says Smith, we need to calculate the cost of feeding four children in every family.  Smith acknowledges that all the laws favor the employers, should the laborers strike for higher wages.

           

While Smith presses the point that nothing happens without labor, he is happy to squeeze the laborer into a bare subsistence wage, better to keep him working hard to make ends meet. 

 

He cites numerous examples of relationships between labor and stocks. New land, like the colonies, attracted lots of stock capital because it was cheap, full of natural resources, and soil was rich.

 

Early on “corporations” restricted competition, with the king’s (or queen’s) support.  Smith says 5th of Elizabeth formalized the “Statute of Apprenticeship” that restricted practice of craft or trade to those who had apprenticed seven years.  Church wardens, mandated by the king to provide for the poor in their parishes, did everything possible to keep the poor from moving in.

 

Corn is the major food crop in Europe.  Smith says tobacco grows well enough in parts of Europe, but it is illegal because it’s too hard to tax individual farmers, so tobacco is imported from (primarily) Virginia and Maryland, warehoused, and resold at profit.  Sugar is in great demand, and is very expensive, imported from Caribbean colonies.  In “Cochin-china” sugar is no more expensive than ordinary food crops and is cultivated alongside them and apparently not exported much.

 

Adam Smith notes that labor and landlords benefit from policies that also serve the public.  Stockholders, however, are loud, moneyed, and invested in reducing competition, so they generally work against the public good.

 

Smith explains how money is not the same as circulating capital.  It is the “wheel” of the economic engine but has no intrinsic value.  A coin is not used up when it is exchanged for goods or services, so the same coin, each time it changes hands, buys its face value for the purchaser, who gets his coin’s “worth” in product.

 

Smith also writes about the banks, primarily of Scotland, that used paper money promissory notes in excess of gold deposits for lending.  80% paper to 20% backup.  Merchants could also get lines of credit, so were encouraged to accept that bank’s paper in trade, to promote it to friends and associates, and to spend it.  However, paper was no good in foreign countries, so gold was exported to import foreign products.

 

“No equal capital puts into motion a greater quantity of productive labor than that of the farmer,” says Smith.  Also, farms stay put, like retail shops, and can’t be outsourced.

 

He discusses how the American trade is financed by merchants in Great Britain.  Smith uses the example of hogsheads of tobacco from Virginia and Maryland as commodity money that is bought in excess by England and resold in other places. 

 

But "the great commerce of every civilized society is between country and town."  In fact, the home trade, by far the most important, was considered subsidiary to foreign trade, based on Man’s book, England’s Treasure in Foreign Trade.  Smith says the mercantile system works in many ways against the enrichment of the country.  It selectively encourages exportation and discourages importation.

 

He says it is a mistake to politically favor exports over imports.  Restraints on imports consist of high duties and absolute prohibitions.  Exports were encouraged by “drawbacks” (tax relief), “bounties (subsidies), advantageous treaties, and the establishment of colonies.  Smith is down on bounties.  He specifically mentions corn, because it, to him, is the commodity by which the price of everything else is measured. 

 

He claims restraints on importation and prohibitions may be good for the home manufacturers but not for the population or the economy as a whole.  The famous “invisible hand” comes up on page 300, in which Smith mentions the folly of “statesmen” who try to control private enterprise.  He says the market will determine what is needed without government help.

 

Merchants and manufacturers derive the most benefit from monopolies, says he, whereas farmers and populace derive little and undoubtedly lose by them.  Corn merchants benefit more from subsidies than corn farmers.

 

The notion of “balance of trade” is “absurd,” and he enumerates reasons.  Smith also states that it is silly for nations to try to improve their wealth at the expense of other nations.  This leads to hostilities rather than friendly exchanges.

 

Smith asserts again that all wealth comes from the land, with farmers the most productive workers and everyone else subsidiary.  Those who bring raw materials to more useable form, like wool manufacturers, do not add as much value as the farmer does by cultivating the land.

 

Smith cites the duties of the sovereign.  He claims the sovereign does not have the duty or right to regulate commerce.  At the same time, he says the king’s first duty is to protect the country from other governments.

 

He makes the case for a standing army and says this is the only way the sovereign can maintain peace and order.  Now “civilized” societies can conquer “barbarous” societies, which don’t have the advantage of gun power.  He believes, therefore, that gun power equals civilization.

 

Smith mentions highways, bridges, navigable canals, coinage, and the post office as public institutions that facilitate commerce.  Post offices everywhere, he says, are valuable revenue sources for the government, with steady and immediate cash flow and low maintenance costs.

 

Obviously, a glaring inconsistency in Smith’s premise is between his views on free trade and his belief in the importance of a standing army.  Here we have our pseudo proponent of free trade justifying forts and garrisons in foreign countries to protect merchants’ stores.  Where these countries do not allow forts, it has been necessary to send ambassadors.  Smith believes most ambassadorships were created to protect trade. 

 

He goes into “regulated companies,” which are open to anyone with the money, willing to submit to the rules, and trading his own stock at his own risk.  These are opposed to “joint stock” companies, which sound like publically traded companies today.  Pooled resources and pooled profits.  He says only four types of joint stock companies seem valid.  He cites:  1. The banking industry; 2. Fire and sea-risk insurance companies; 3. Canal or navigable channel companies; and 4. Those bringing water by pipe or otherwise to a great city.  He notes the Bank of England doesn’t have exclusive privilege, except that no other bank in England can employ more than six people, and the Bank of England lends to the sovereign.

 

The last hundred pages of the book are devoted to taxes and other potential sources of revenue for the commonwealth or sovereign.

 

He floats the concept of a central bank, calling it a “public bank to support public credit, and upon particular emergencies to advance to government the whole produce of a tax, to the amount, perhaps, of several millions, a year or two before it comes in.”

 

Smith asserts the king should be wealthier than anyone, with grand style and pomp to support his “dignity.”

 

He distinguishes between direct and indirect taxes, saying the former, as on land, are easily assessed.  Tax on interest or money is difficult to calculate without extraordinary “inquisition” into every man’s private circumstances and “would be a source of such continual and endless vexation as no people could support.”

 

“There is no art which one government sooner learns of another, than that of draining money from the pockets of the people.”

 

Wages on the “inferior classes of workmen” are regulated by demand for labor and the price of provisions.  As taxes on labor go up, wages must go up more, to cover the additional tax.  Manufacturers can pass these costs on to the consumer, but farmers’ landlords must absorb them.  This leads to a decrease in the demand for labor.  “Absurd and destructive as such taxes are, however, they take place in many countries.”

 

Smith goes into government jobs, which are much sought after, because they are highly paid and carry perquisites (perks).  Taxes on luxuries do not raise the price of other commodities, but those on necessities do, so should not be taxed. He mentions alcohol taxes as by far the most productive.

 

Excise taxes are generally on home goods destined for home markets and imposed on only certain items of the most general use. Excise laws discourage smuggling more effectively than customs laws. 

 

He acknowledges that poor people, because there are more of them, consume the most, not only in quantity, but in value.

 

He mentions that war has required even the most frugal republics to contract great debts to maintain independence.  He says it is incorrect to assume money lent to government increases capital, because it is generally wasted, and that money would otherwise be spent on productive labor.  Also, foreigners often buy in.

 

“When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.”

 

Wealth ends rather abruptly on the subject of public debt, saying that when it exceeds taxpayers’ ability to pay with reasonable measures, government uses unreasonable measures, such as issuing interest-free bonds for immediate expenses, or interest-only bonds that are never intended to be repaid.  He says this has “enfeebled” multiple governments.

 

When governments reach the point where they can’t pay the debt, they either inflate the currency or declare bankruptcy.  He says the latter is more honest, but the entire system of debt-backed government is “pernicious.”

 

My take is the tradition of monarchs and overlords has led to societies in which unearned wealth is glorified and held in high esteem.  The most highly respected and emulated are those who have done the least to acquire what they have, in general terms. The very idea, The Wealth of Nations, presumes the nations own the individuals who live within their borders. 

 

 

Comments

Dave Volek Added Jun 18, 2018 - 3:07pm
Nice piece.
I've read parts and various synopses of this book over the years. You have introduce a few things in the book I don't think I have been exposed to yet. One of these days, I should read it. I suspect it is outdated quite a bit, but its historical significance is important in how we got to our present state.
Luther Wu Added Jun 18, 2018 - 3:17pm
Thanks, Katherine.
I'm minutes from blowing dust off my 25-year old copy.
I promise to do better, this time.
Neil Lock Added Jun 18, 2018 - 4:38pm
"The very idea, The Wealth of Nations, presumes the nations own the individuals who live within their borders." Yet again, you're spot on, Katharine.
 
But I think it's the political state, not the nation, that sets the borders and so claims to own you. There are no borders (currently) between the nations of England, Scotland and Wales; it's the state called the "UK" that has borders.
 
If you don't have the right to control who may or may not come on to your property, it isn't your property. And if someone puts a border around an area that includes your property, and denies passage through that border to people whom you want to come to visit you, that negates your property rights. In effect, they are making out that your idea of "property" is merely a lease from them. And therefore, that they are the real owners of "your" property and everything in it; and, by implication, of you.
Ryan Messano Added Jun 18, 2018 - 5:59pm
Thank you Katherine, while I disagree with some of your conclusions, as someone who has never read it, and has it in his library, I appreciate the synopsis.  It would be great if more classics of the past were given book reports by WB.  But then, that would mean we would all be reading classic books consistently, and it's pretty obvious less than 5% of us are. 
Jeff Jackson Added Jun 18, 2018 - 6:36pm
Nice essay Katherine. I, too, have a copy and have quoted it numerous times. It is always the be-all and end-all when writing econ papers. No prof dares disagree with Smith. His impact was that he wanted free trade, and was seriously against the monarchs, who attempted to regulate commerce. Smith insisted that commerce should not be regulated. In the feudal (I think that was the economic phase) system, to even start a business required the consent of the monarch. The revolutionaries of America wanted unrestrained commerce, without the intervention and approval of any monarch.
Interestingly enough, Smith burned all of his manuscripts two weeks before he died, with the exception of Wealth of Nations and Theory of Moral Sentiments. As far as I know, no other writings are available. Since you had the perseverance to wade through Smith's tome, I suggest you read P.J. O'Rouke's version, which is far more interesting. More people need to read it, and if you're writing econ papers, it is the Holy Grail. Nice work.
George N Romey Added Jun 18, 2018 - 7:49pm
Great read Katharine. A debt based, debt fueled and debt peonage economy becomes parasitic in nature. There are only so many acceptable credit risks around. To feed the beast lending standards are lowered. Ultimately there’s a crash and someone has to pay for it. In 2008 we simply added it to the taxpayers bill or just made money out of thin. Next time???
A. Jones Added Jun 18, 2018 - 8:03pm
Smith claims farmers are lazy, because as one-man operations, they waste time changing tasks, whereas a group of men in a “workhouse,” each doing one small task repeatedly, is able to produce much more in the same time period.
 
Smith writes no such thing about farmers.
 
Here's a link to an online version of the treatise:
 
The Wealth of Nations
(It's a free PDF download, as well.)
 
If you "Ctrl+f" for the word "lazy" in the PDF, you'll find two instances of it:
 
1) page 50 (writing on the greater productivity of a division-of-labor): "The habit of sauntering and of indolent careless application, which is naturally, or rather necessarily, acquired by every country workman who is obliged to change his work and his tools every half hour and to apply his hand in twenty different ways almost every day of his life, renders him almost always slothful and lazy, and incapable of any vigorous application even on the most pressing occasions. Independent, therefore, of his deficiency in point of dexterity, this cause alone must always reduce considerably the quantity of work which he is capable of performing."
 
2) page 278 (writing on the ancient recording of corn prices): "They have been misled by the slovenly manner in which some ancient statutes of assize had been sometimes transcribed by lazy copyers; and sometimes, perhaps, actually composed by the legislature."
 
The first instance refers to those "country workmen" (not farmers, but freelance laborers) who must frequently change their jobs and their tools as leading to laziness; the second instance refers to copyists of price information on corn as having shown laziness.
 
You can agree with Smith or disagree with him on calling such people lazy; but I found nothing in his work about farmers being lazy. Either you fabricated that or you have text from his work you can cite for us.
 
Thanks.
Jeffry Gilbert Added Jun 18, 2018 - 10:16pm
Thanks Katherine. I quite enjoy your articles. 
Mustafa Kemal Added Jun 19, 2018 - 9:27am
Katharine, thank you for a very pleasurable and informative read.
 
For some time I have been impressed with the number of events that occured near 1492, as I always thought there was only one, the american one.
And now I am coming to the conclusion that 1776 was big year in more than one way.   The US, Adam Smith’s Wealth and now I find out that 
Adam Weishopt formed the Illuminati on May 1, 1776. Interesting that
May 1 is also International Workers Day.
 
So, I firmly attached my tinfoil hat  while reading and  the passages 
 
“However, paper was no good in foreign countries, so gold was exported to import foreign products.”
and
“He notes the Bank of England doesn’t have exclusive privilege, except that no other bank in England can employ more than six people, and the Bank of England lends to the sovereign.”
 
I found very interesting.
 
 Evidently, there is no evidence that he was a Freemason.
But  the “Invisible Hand” as a metaphore for Lassaiz faire could also be a feint, and instead imply the invisible hand of the Rothschilds.
 
 
Mustafa
 
Ryan Messano Added Jun 19, 2018 - 10:31am
Every comment of Mustafas contains inevitable errors, seemingly.  The uninformed have to be notified of them, because serpents like Mustafa are often seen as authorities of sorts.  
 
The Illuminati is nonsense, conjured up on YouTube, and believed by simpletons. He is also a big fan of the YouTube delusion of freemasonry.
 
Mustafa is not permitted to comment on my post until he posts five biographies of the Founders he has read.
 
Humbugs like him have to be consistently confronted before all before they finally are brought to heel.
 
 
Katharine Otto Added Jun 19, 2018 - 10:33am
Thank you all for having the patience to read this long synopsis.  I tried to cut it down but feared leaving out too much.
 
Dave.  I agree much is outdated, including the language, and that's why I suggested it's good as a social history.  On the other hand, it astounds me that modern society has not followed Smith's reasoning, in areas such as public debt.  
 
Luther, I read Wealth five years ago but was surprised at how many new ideas I picked up from reading notes and excerpts for this synopsis.  No matter what I think of Adam Smith, he had a powerful influence and still does.
 
Neil, A friend of mine likes to claim "The king owns everything."  While we think we have property rights, we still pay property taxes and often don't own mineral rights or water rights or air rights that cross property lines.  Try not paying property taxes, if you want to know who really owns your land.  Must everyone be a citizen of some country?  Are there truly independent people who claim to be citizens of a planet without national (or political) borders?
 
The idea that the government owns you, rather than the other way around, is built into the US system, too, as the Constitution reveals.  
 
Ryan, Thanks for the compliment.  This was a challenging synopsis to write, because Wealth is so meaty.  Also, it was sometimes difficult to understand just what Smith was saying.  For instance, he never really defined "stocks," but felt that stock profits should be ten percent, with everything else secondary.  
 
Jeff,  Appreciate the support and additional information.  While it may be claimed Smith was down on the monarch, he couldn't have offended him too much.  He got a cushy government job after Wealth was published, and the book certainly supported all kinds of taxes.  I didn't know about his burning manuscripts.  Thanks for the tip about P.J. O'Rourke.  Will check it out.
 
George, I thought it striking that Wealth ended so abruptly on the subject of public debt, as though Smith was afraid to touch it.  It made me wonder if Great Britain couldn't afford to hold on to the American colonies and let them win the Revolutionary War.  Apparently many British invested in Continental bonds and supplied war and other materials to the colonies.  If the Americans won the war, they would save in public debt and taxes.  I also think it's interesting that Smith's case for a standing army to protect merchants' stores in foreign lands has been sustained.  The most obvious is the US troops in the Middle East, to protect "our" oil interests.
 
A. Jones, I don't need your on-line references, because I have my own hard copy of Wealth.  I agree Adam Smith's language is often vague, and a "country workman" may or may not be a "farmer."  In fact, it was hard to distinguish between "farmers" and "landlords," too, since Smith seems to lump a lot of categories together.  He discusses the "idle" without defining them.  I first believed the "idle" were the beggars, but later Smith refers to the luxuries, such as rare birds and fish that the "idle" bought.  
 
Jeffry,  Thanks so much.  I worked hard on  this one, and feared it was too long, but if you and others are willing to read, I'm willing to write.
 
Mustafa,  What a (non) coincidence.  I happen to be reading about the Illuminati now, in the wild and questionable book Tales from the Time Loop, by David Icke.  Icke makes some major leaps of logic, but he seems to have a lot of verifiable factual information, too.  He goes into the link between the Illuminati and the Freemasons.  I do know George Washington and Benjamin Franklin were Masons.
 
Ryan Messano Added Jun 19, 2018 - 10:41am
Katherine, the Founders were not a bunch of FreeMasons, as the left has set out to make us believe.  They are playing on the fact that 90% of Americans have never read five biographies of Americas Founders, like the poseur Mustafa, and are easy to deceive.  The first step in brainwashing people is to demoralize them, and attacking the Christian Founders of America is one of the best ways to do that.
 
David Barton has come under fierce attack from the left for setting them straight on their rubbish about the Founders.  His book “The Jefferson Lies” is great, and he wrote a book about Mustafas fairytale about the Founders being Masons as well.
Mustafa Kemal Added Jun 19, 2018 - 12:24pm
Katharine, interesting. 
 I am reading Under the sign of the Scorpion now and it has similar issues. It is a bit rabid, but fact based. I do recommend it.
 
Mustafa
Luther Wu Added Jun 19, 2018 - 12:40pm
Katherine,
You were exactly correct with your observation that notes and synopsis can be of great aid to understanding such literary works.  I've only just begun another attempt at reading Wealth of Nations, but have secured a copy of your remarks for instant referral, having found them a perfect assistant.
In fact, I marvel at your accomplished style.
Katharine Otto Added Jun 19, 2018 - 2:30pm
Ryan,
I have read in several places that Washington and Franklin were Freemasons, and that Franklin was inducted in a French group just after Voltaire.  I also have a copy of David Barton's The Jefferson Lies, of which I read 50 pages before deciding it was bunk.  I happen to be a fan of Jefferson and have read two biographies (not published before 1950) and his autobiography and believe he was ahead of his time, more than Franklin, and was misunderstood then and now.  But Barton's take offended me.  On your recommendation, I will give it another chance and let you know.
 
Mustafa,  
I've seen the mention of Under the Sign of the Scorpion in your and other people's posts elsewhere and it sounds like an interesting book.  I don't have shelf space for more books, but will see if my library will get a copy.  Short of that, I hope you will consider posting highlights on WriterBeat.
 
Luther,
Thanks for the most gratifying compliment.  I've developed the habit of taking notes on everything I read but almost wish I didn't.  It slows me down, but it does force me to think more deeply about it and make a special effort to perceive correctly.  I'm usually glad for it later.  My post above follows the line of the book, so I hope it is easy for you to cross reference.  If you see glaring errors, or if you wish to add your own observations, I would be grateful.
 
 
A. Jones Added Jun 19, 2018 - 4:31pm
A. Jones, I don't need your on-line references, because I have my own hard copy of Wealth. 
 
But other readers don't have access to your hard copy, right? So I did them a favor by posting a link to an online copy. Actually, you should have done that so others can check your work (as I did in my previous post).
 
I agree Adam Smith's language is often vague, and a "country workman" may or may not be a "farmer."
 
No, Smith's language is not vague. When he wants to speak of farmers, he uses the word "farmers", not "country workmen." When he wants to speak of country workmen, he uses the term "country workmen", not "farmers."
 
The term "idle" refers to anyone who doesn't work: it could be the "idle rich" or the "idle poor"; it doesn't matter because the essential point is that the person in question — rich or poor — doesn't work.
 
It isn't vague, and it isn't hard to figure out.
Doug Plumb Added Jun 19, 2018 - 5:47pm
Mustafa: May 1 is Lenin's birthday. "Mayday! Mayday!"
Mustafa Kemal Added Jun 19, 2018 - 6:30pm
Doug, 
re:"May 1 is Lenin's birthday. "Mayday! Mayday!""
 
MayDay Indeed, in that you and I are in agreement.
 
Acording Wikipedia Lenin's was April 22. ( However, I dont think we will ever know Stalins birthday, he told so many different versions, so maybe same is true about Lenin, but I doubt that because he was blue blood; .not of the proletariate) 
 
I checked out Markow, the short essay was ok, but I am really getting into  Under the Sign of The Scorpion. According to Lina the Marxist revolution was the tool of the Illuminati to divide/conquer and destroy so they could take it all.and he also mentions
The Red Symphony.  
 
Mustafa
 
Ari Silverstein Added Jun 20, 2018 - 10:09am
Wages on the “inferior classes of workmen” are regulated by demand for labor and the price of provisions.  As taxes on labor go up, wages must go up more, to cover the additional tax.  Manufacturers can pass these costs on to the consumer, but farmers’ landlords must absorb them.  This leads to a decrease in the demand for labor.  “Absurd and destructive as such taxes are, however, they take place in many countries.”
 
When the cost of anything goes up, demand goes down.  It doesn’t matter if the item/thing is manufactured or grown in a field or rental housing.  So asserting manufactures can pass on increased cost while others can’t is fundamentally false.  However, your ultimate conclusion is true, when government increases taxes, it decreases the need for labor. It doesn’t matter if the tax is on the labor or something else.  Taxes are recouped via higher prices and higher prices lead to a lower demand for labor. 
A. Jones Added Jun 20, 2018 - 8:06pm
When the cost of anything goes up, demand goes down. 
 
Demand would decrease only if substitutes were available at lower cost. If there are no substitutes, the demand is "inelastic" and will remain the same even if the price increases.
 
If insulin doubles in price, the demand by diabetics will remain about the same as it was under the previous, lower price. Diabetics are not going to do without insulin and there's nothing suitable yet as a less expensive substitute.
Katharine Otto Added Jun 21, 2018 - 9:54am
Ari,
Agreed that increased prices reduce demand, including demand for labor, unless there is no competition and the item is necessary.  Even then, labor will be squeezed.  I was just attempting to paraphrase what Smith said.  It will be interesting to see what effect Trump's tariffs will have.  Raising minimum wages would increase taxes, especially payroll taxes, and presumably reduce demand for labor.
Ian Thorpe Added Jun 21, 2018 - 3:45pm
Woooh! You're going to have Poldark fans on your case Katherine, the first steam engine, Thomas Newcomen's Atmospheric Engine was built to pump water out of Cornish tin mines (If you're not familar with Cornwall it's the south west corner of Britain that sticks out like we're dipping our toe in the Atlantic, and they all talk like pirates.)
In my opinion however, and there are many opinions on this, the real kick starter of the industrial revolution was Abraham Darby's coke fuelled blast furnace which made large scale production of iron possible.
Smith's ideas do still have something to offer those who can get past the fact that he's not the most stylish writer in the English language. What we can get from him however is an idea of what true capitalism as opposed to modern corporatism, which rather than risking one's own capital in a venture gambles with other people's money and theoretically cannot lose so long as the economy grows.
Ari Silverstein Added Jun 21, 2018 - 4:43pm
If you agree that increased prices will reduce the demand for labor, then you should oppose increased tariffs.  After all, tariffs are simply another tax, meaning prices will increase.
 
As for raising the minimum wage, not sure why you’re bringing it up, but without question the action will increase prices and reduce demand as well.    
Thomas Sutrina Added Jun 21, 2018 - 5:46pm
I went to the library years ago and got Wealth of Nations out and found that the examples in the edition repeated themselves and I couldn't continue, bored to death.  Well last summer I purchased two paperbacks: Milton Friedman and Wealth Of Nations,  Boy was taken back by a 1231 pages of small text in about an 8 X 5 inch page size.
 
Mark Levin on his series of books about rediscovering the founders America and the founding principles of the Revolution, Declaration of Independence, and Constitution.  Didn't include Adam Smith which I still effected some of the decision in the Constitution.  You explained why.  I like your summary, "My take is the tradition of monarchs and overlords has led to societies in which unearned wealth is glorified and held in high esteem.  The most highly respected and emulated are those who have done the least to acquire what they have, in general terms. The very idea, The Wealth of Nations, presumes the nations own the individuals who live within their borders. "  Nothing could be further from John Lock, Charles-Louis de Secondator  Baron de La Brède et de Montesquieu, and the Bible.  The three primary text referenced by the founders.  The key incite and invisible hands of Adam Smith you would agree I assume not taken out of context.  They as you suggest are placed in someone that sees the world through the society of the age.   The founders were classic liberals and it appears that Adam Smith was not a radical that had to go into hiding as many of the classic liberals needed to do because of the monarchy would charge them with crimes against the state.
Stone-Eater Added Jun 22, 2018 - 2:10am
Katharine
 
Nice history lesson, thanks ! I've read the name Adam Smith, but thought it was a purely US-American matter and didn't bother further. Now I know better.
Ian Thorpe Added Jun 22, 2018 - 10:19am
Stone, The Wealth Of Nations is by a Scot, that's why it is only about money. If it had been written by an American it would have been about money and guns.
Mustafa Kemal Added Jun 22, 2018 - 6:54pm
Katharine, just a follow up I thought you might find interesting.
 
On page 83 of Lina's Under the Sign of the Scorpion he says in 1822 
"Tsar Alexander I had discovered that the freemasons were controlled by an invisible hand"
 
Now that I have read more, it is somewhat flawed as a reliable statement but it appears full of interesting facts and references. Its just his inferences appear a bit tainted with more than an objectionable amount of adhominem. A compelling story though.
 
Mustafa
Kurt Bresler Added Jun 23, 2018 - 1:42am
We certainly need some direction these days not sure we will get it from the past, since, everything seems to be changing even the way people think about money and wealth.   I guess those on welfare these days would have been looked upon as smart cookies.
George N Romey Added Jun 23, 2018 - 9:13am
The reality is that Wealth of Nations has little in common with reality.  Technology and a move towards a greater mix of intangible products equals the means of production can be done from anywhere.  If there is an advantage it would be the nation that can supply qualified workers for the cheapest rate.  No surprise poor nations like China have gotten a little richer (most people in China are still poor) while rich nations like the US get richer in aggregate terms (with a select few becoming amazingly wealthy) but individualistically much more.  
 
A think what we need is a modern version of Wealth of Nations to explain what we've seen globally in the past 30 years.  Adam Smith's book is on par as to using a Model "T" to explain a 2018 made automobile.
rycK the JFK Democrat Added Jun 23, 2018 - 11:55am
Katharine
 
Very nice summary of Wealth. It was up-to-date in its time but now cannot provide much guidance in contemporary economics, banking , capital formation and finance. 
rycK the JFK Democrat Added Jun 23, 2018 - 12:06pm
Thomas Sutrina
 
" I like your summary, "My take is the tradition of monarchs and overlords has led to societies in which unearned wealth is glorified and held in high esteem.  The most highly respected and emulated are those who have done the least to acquire what they have, in general terms. The very idea, The Wealth of Nations, presumes the nations own the individuals who live within their borders. ""
 
I think we need to place this treatise in the historical context of the feudal system and recognize that that system was quite stable and lasted 1000  years or more in Europe. The notions of democracy and equality had failed 15 centuries before the Feudal Era.
Katharine Otto Added Jun 23, 2018 - 2:38pm
Ian,
Thanks for the correction, and I'm happy to defer.  I got my information on the Industrial Revolution from the internet, which I'm discovering is quite limited, superficial, and contradictory.  I extrapolated as best I could, in order to give an overview of the 1700s and how quickly things changed, and on so many levels.
 
That Smith himself didn't use the word "capitalism" or define terms like "capital" or "stocks," was frustrating.   He was indeed a product of his times, one emerging from feudalism, I suppose, but also composed of a patchwork of different sub-cultures within the greater whole of Great Britain and Europe.  
 
The earliest definition of capitalism I've found was in The Communist Manifesto (1848), in which Marx and Engels define capitalism as ownership of the "means of production."  In technical terms, I claim the "means of production" is the laborer, but I'm the only person who believes this.  This brings me back to the idea that the true capitalists are the individuals, who have never learned to claim their true worth.  As you suggest, the "means of production" have been aggregated within the hives of "corporatism." 
 
P.S. I like your distinction between Scots and Americans.
Katharine Otto Added Jun 23, 2018 - 2:46pm
Ari,
I don't know what to think about the tariffs.  I hope they will shift demand for labor to better quality products, to justify the increased prices.  Maybe if more products are made in the US, the companies will become more accountable insofar as backing their products.  Maybe there will be more opportunities in the metal recycling businesses.  
 
I only mentioned minimum wage because of the move to increase it, which I believe is another government gimmick to increase revenues.  The more people pay in taxes, the less buying power their money has, so more money doesn't necessarily translate into more disposable income.
Katharine Otto Added Jun 23, 2018 - 2:55pm
Thomas,
I know Alexander Hamilton got an early copy of Wealth of Nations, if Ron Chernow is to be believed, in his book Alexander Hamilton.  Hamilton was a main mover behind the drafting and ratification of the Constitution and Federalist papers.  I suspect Hamilton made hefty use of it when he was treasury secretary, and designed his financial system to maximize tax revenues (such as the whiskey tax) and insure stockholders (of the banks, for instance), manufacturers, mercantilists, and bond investors were well supported by the federal government.
Katharine Otto Added Jun 23, 2018 - 2:59pm
Stone,
Thanks for reading.  Everything the US-Americans know about finance, taxes, war, and empire-building, they learned from the Brits, then took it to the next level.
Katharine Otto Added Jun 23, 2018 - 3:03pm
Mustafa,
I looked for a copy of Under the Sign of the Scorpion today and found it is out of print.  Too bad.  I know next to nothing about the Bolshevik Revolution but am very interested in the early 20th century, from the perspective of the Federal Reserve Act, income tax, and World War I.  Amazing how interconnected all these events are.  It does make a person wonder.
Katharine Otto Added Jun 23, 2018 - 3:09pm
Kurt,
I think the people on the government dole have learned how to work the system, and it may be a political statement.  This includes not only the welfare recipients but government employees and those like me who are on Social Security.  
 
I abhor the direction the US is taking, especially with respect to its perpetual wars.  Why should I support it?  While I need enough income to survive, I have no motivation to work more than absolutely necessary, only to share earnings with bloated and vampiristic governments (county, state and federal).  
Katharine Otto Added Jun 23, 2018 - 3:23pm
George,
Adam Smith lived when technology was new and open ended, but we're seeing diminishing returns from it now.  Same with new land, such as what the Americas represented then.  
 
What strikes me is that Wealth is still amazingly relevant in the fundamental assumption that the wealth of a nation comes down to the annual produce of the land and its labor.  No matter where the labor is, it still has to eat, which makes the farmer as important or more important than ever, since worldwide population has grown so much.  
 
Technology has not solved essential survival problems, and has exacerbated them, to some extent.  Money is worthless if food is contaminated or unavailable.  China, historically, was an agrarian society.  Now, it's emulating the Western models, which I think is a mistake.  As people leave the farms to work in city factories, they find they can no longer afford the rice they used to grow.   
 
rycK the JFK Democrat Added Jun 23, 2018 - 3:26pm
Kathatine Otto
 
"I think the people on the government dole have learned how to work the system, and it may be a political statement.  This includes not only the welfare recipients but government employees and those like me who are on Social Security. "
 
It seems that the left have tried to 'solve' social problems by the use of metastatic social programs, which once started, just grow like a tumor. In the 1960s the government was supposed to be 'the employer of last resort' as if such a system could ever be efficient.
 
Government agencies grow by various means and provide wages and benefits beyond anything on average from the private sector. This trend is an enlarging of social processes  that forces the government to spend a large proportion of the tax revenues and now uses debt to finance many social programs. The EU is going down this path now is considered the government style of choice by many countries. 
 
These exotic social programs of Japan, EU, UK, USA could not work in any reasonable fiscal sense without being subsidized by debt and the annual printing of monies to service the debt. 
 
There is some limit to the level of debt the world can handle and we shall see that limit in time. 
George N Romey Added Jun 23, 2018 - 3:27pm
Katharine remember in the early 20th century there was a very strong social movement to eliminate the robber barons and the trusts.  The men of these institutions knew they needed a higher power source to guarantee their continued success.  So you are right, much of what happened in the early 20th century was interconnected from World War One to the creation of the Federal Reserve.  Wilson like Obama was a perfect dupe.  So desperate to be see as an intellectual or "progressive" those with the money and means were able to appeal to and take advantage of their desire to be of the "highest cloth" of society.  JP Morgan had Wilson in his back pocket, Jamie Dimon had Obama under his "trance." 
Katharine Otto Added Jun 23, 2018 - 3:30pm
rycK,
Although it's dated, it provides the foundation for the society we have now, including the materialistic values, the idea that working is not as dignified as unearned income, that the government owns the people rather than the other way around, and that a standing army is necessary to protect the merchants' stores in foreign lands.  And, of course, the king needs taxes to pay his debts from all his wars, and the stock market is a valuable source of income for said wars.
 
rycK the JFK Democrat Added Jun 23, 2018 - 4:08pm
Katharine Otto
 
"... it provides the foundation for the society we have now, including the materialistic values, the idea that working is not as dignified as unearned income,..."
 
Smith wallows in all sorts of morality and social issues and appears to simply mimic the system according to the king's thinking. Since Victoria started off capitalism in the West with Drake and other adventures, the notion of certain values and unearned income have little impact. 
 
To extract something useful from Wealth we need to cherry-pick many things and ignore the confusion in terms of capitalism and other factors that drive modern economies. 
 
"...that the government owns the people..."
 
The regent owned everything and nobles owned the land and the serfs thereupon.  In NOKO and Cuba today  the government owns everything hence they 'own' the people too. 
 
" ...that a standing army is necessary to protect the merchants' stores in foreign lands."
 
This sounds a bit later during the China and Indian times. 
 
"...the king needs taxes to pay his debts from all his wars..."
 
Goes back some 5 thousand years or so. 
 
Smith was just mirroring what he saw, a form of provincialism. 
Thomas Sutrina Added Jun 23, 2018 - 4:38pm
Katharine Otto, another fantastic comment, "What strikes me is that Wealth is still amazingly relevant in the fundamental assumption that the wealth of a nation comes down to the annual produce of the land and its labor.  No matter where the labor is, it still has to eat, which makes the farmer as important or more important than ever, since worldwide population has grown so much.  
 
Technology has not solved essential survival problems, and has exacerbated them, to some extent.  Money is worthless if food is contaminated or unavailable."
 
I do not think the socialist, fascist, etc., those that believe they are master minds and can make great laws.  I just had to look at South Africa and Venezuela.  The failure of Zimbabwe that went from a net exporter of farm product to a net importer just due to the redistribution of land.  South Africa is in the process of duplicating the redistribution of land by creating a holocaust against white farmers. 
 
The control of food is real power so the control of the farm land and who owns it is real power.  Stalin used food to gain control of the USSR by creating a famine by taking the food produced by force.
Mustafa Kemal Added Jun 23, 2018 - 9:18pm
Katharine, I change my position on Under the SIgn,  I do NOT recommend.
it is too rabid. I eventually got tired trying to sift through the unsupported vitriol against Lenin.  

Too bad, it had a good start.
 
Mustafa
Thomas Sutrina Added Jun 24, 2018 - 8:05am
Food, the product of farm labor is one of the best measurement tools for inflation and other taxes.  The price of a bushel of grain change over time.   This is a good measurement even in the most advanced civilizations. Obviously some governments set the price so no measurement can be taken but when this occurs the rate of production is effected so there still is a relationship.
 
But once the capacity to raise food exceeds the rate of consumption and a surplus is created then we have the use of labor to create other things, civilization.  And I can not think of a civilization that has not down played the capacity to raise food.   The laborers raising food and processing food are considered the dumbest and often the lowest paid.  Yep the people that insure the survival of the civilization, its people are at the bottom.
Stone-Eater Added Jun 24, 2018 - 8:26am
Thomas
 
What people don't seem to realize is that socialism/communism were a try to fight capitalist greed that gave some everything and the rest nothing -> feudalism -> middle age -> "religion".
George N Romey Added Jun 24, 2018 - 11:03am
His assumptions about labor like many here on WB are now largely void. Classic economic theory states employers must pay a wage enough to attract qualified workers. Not so true anymore. Employers can now automate or offshore.
 
And it’s not just low level work. Legal research once done by newly minted attorneys is now done through search engines. The Company I’ve been working contract for will be introducing software that will automate downloading work now performed by people (given that’s what I’ve been doing this doesn’t bode well for me to be given a permanent position once the contract expires at the end of this week.)
 
In fact it’s the higher professional positions that employers get their biggest bang when automating. 
Katharine Otto Added Jun 24, 2018 - 3:34pm
rycK,
You seem to be commenting on my interpretations, not necessarily what Smith himself wrote.  I don't think he was excessively moralistic.  In fact, I was struck with how cold-blooded he seemed, calculating the cost of a workmen's raising enough children to replace himself and the like.  
 
The idea that the government owns the people is also mine, although Smith seemed to accept it without even being aware of it, as people do now.  If you don't believe the government owns you, try not paying taxes.
 
I realize kings paying debts from their wars goes back as long as we pretend to remember, but that doesn't make it right or reasonable.  Why do people fight wars?  I paraphrased Smith in stating the king should have a standing army to protect merchants' stores in foreign lands, but he actually did write that.
 
Smith was mirroring what he saw, but also what he believed.  It shows his values and as a social history mirrors his times, too.  The work is a classic partly because it had such a strong influence on later generations.  
Katharine Otto Added Jun 24, 2018 - 3:54pm
Thomas,
I agree with your assessment, and you just give a couple of examples of how food deprivation is used to conquer or control people.  Julius Caesar starved people in fortified towns.  The Land Grabbers goes into great detail to show how indigenous people on every continent have been tricked or sold out to industrial agricultural exporters.  The book specifically discusses Rhodesia/Zimbabwe, I believe.  
 
Of course The Communist Manifesto recommended state-owned agriculture.  And, it's true that civilizations don't appreciate farmers until it's too late.  Thomas Jefferson did, and that was one of the classic battles between him and Alexander Hamilton.  
 
Anyone who has tried to grow food knows how labor-intensive and difficult it is.  I have a great deal of respect for farmers.  
 
I'm not sure food can or should be over-produced, but in an export/mechanized society that's the practice.  Crop rotation, allowing land to rest, and avoiding mono-agriculture would be more sustainable.  However, middle men like their cut, so we have ethanol mandates, stock markets, debt, and other artificial incentives to over-produce.  Adam Smith said if part of university tuition was paid in corn, the universities fared better, or something to that effect.
Katharine Otto Added Jun 24, 2018 - 3:55pm
Mustafa,
Thanks for the tip.  No wonder it is out of print.  
Katharine Otto Added Jun 24, 2018 - 4:00pm
Stone,
I don't see much difference between capitalist greed and socialist/communist greed.  They are all control freaks that pit different groups against each other and profit from all sides.  The Communist Manifesto recommended a central bank, centralized agriculture, and a progressive income tax.  One of my sources claims Marx was a third cousin of the Rothschilds and worked as a shill for them.  
Katharine Otto Added Jun 24, 2018 - 4:02pm
George,
Pretty soon, human beings will be obsolete, and the machines will have no one to work for them.  It will be a sad day for the machines.
A. Jones Added Jun 24, 2018 - 4:45pm
Adam Smith lived when technology was new and open ended, but we're seeing diminishing returns from it now. 
 
Actually, we're seeing increased returns from technology today, and with A.I., nano-tech, stem-cell tech, etc., it's more open-ended than it has ever been — far more open-ended than technology was in Smith's day. I have lots of sources with evidence I can cite for that assertion, but do you have an evidence for your assertion?
 
As usual, you don't.
A. Jones Added Jun 24, 2018 - 4:51pm
I don't see much difference between capitalist greed and socialist/communist greed.
 
But the important point you're missing is that people living under each of those systems DO see a difference between the different kinds of greed . . . that's why large numbers of people living under a system of communist greed always try to escape to countries run by capitalist greed, and never the other way around.
 
You were too busy bragging to us about all the research you claim to have done on this issue to notice how real people actually "vote with their feet".
Thomas Sutrina Added Jun 24, 2018 - 5:29pm
Very good point A Jones >> why large numbers of people living under a system of communist greed always try to escape to countries run by capitalist greed, and never the other way around.>> And the capitalist greed is usually of the crony capitalist variety, that is government provides favorable treatment to the crony capitalist and in return get their support to stay in power.  No much different then socialism as actually practiced.  Industrialist, bankers, corporate farmers, etc. are in bed with government.   This is not the capitalism of a classless society the founders built.  Favorable treatment creates a class structure.  
 
Is man and the government of man incapable of creating rules that do not provide favorable treatment.  Adam smith didn't think so. From Free to Choose Milton & Rose Friedman 1979 Introduction ( I have turned into bold print the quote on government intervention.):
 
Adam Smith key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit. ... Adam Smith put it, an individual who "intends only his own gain" is led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good." ... "an individual who intends only to serve the public interest by fostering government intervention is "led by an invisible hand to promote" private interest, "which was no part of his intention."
 
Adam Smith's words, "the uniform, constant, and uninterrupted effort of every man to better his conditions, the principle from which public and national, as well as private opulence is originally derived," has been, "powerful enough to maintain the natural progress of things towards improvement, in spite both of the extravagance of governments and of the greatest errors of administration. Like the unknown principle of animal life, it frequently restores health and vigour to the constitution, in spite, no only of the disease, but of the absurd prescription of the doctor."
 
Wealth of Nations Vol 1, page 325 book II chapter III 1776 edition edited by Edwin Cannan 5th edition London Methuen & Co Ltd 1930
 
I didn't find this by scanning the noted location even when Edwin Cannan is defined as having been involved in the text it contains.  Not surprised.    I did find private opulence discussed.
A. Jones Added Jun 24, 2018 - 5:48pm
And the capitalist greed is usually of the crony capitalist variety, that is government provides favorable treatment to the crony capitalist and in return get their support to stay in power.  No much different then socialism as actually practiced.  Industrialist, bankers, corporate farmers, etc. are in bed with government.   This is not the capitalism of a classless society the founders built.  Favorable treatment creates a class structure. 
 
Excellent point. Socialism is essentially nothing but cronyism, practiced all the way up and down the line. Under genuine capitalism (that is, old-fashioned, 19th-century "liberalism"), cronyism interfered with overall productivity and economic progress for the masses; but under socialism (whether of the German Nazi variety or the Russian Marxian variety), cronyism is about the only way to produce anything at all, since socialism as a system saps individual initiative, distorts the price mechanism, and chronically misdirects scarce resources (including labor). Socialism is great at creating either shortages of goods that people want, or gluts of goods that people don't want. Either way, it's a mess. As Ludwig von Mises wrote, socialism is a system of PLANNED CHAOS.
 
The Soviet system was able to last over 70 years because of two things: 1) externally, massive aid from the non-communist west (especially the U.S.); and 2) internally, an informal system of cronyism known as "blatnoy" (apparently a slang term meaning "pull" or "influence").
Katharine Otto Added Jun 25, 2018 - 11:11am
Is there a square centimeter of land anywhere on the planet that is not claimed by some government?  When you are only comparing different forms of government overlords, there is no possibility for objectivity.

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