On Adam Smith’s The Wealth of Nations

by Emrys Westacott

I just read Adam Smith’s The Wealth of Nations for the first time. Not every word. It’s over a thousand pages, and there are long “Digressions” (Smith’s term) on matters such as the history of the value of silver, or banking in Amsterdam, which I simply passed over. I was mainly interested in what Smith has to say about work, so I also  merely skimmed some other sections that seemed to have little relevance to my research. Time and again, though, I found myself getting sucked into chapters unrelated to my concerns simply because the topics discussed are so interesting, and what Smith has to say is so thought-provoking. Reading the book is also made easier both by Smith’s admirably lucid writing and by the brief summaries of the main claims being made that he inserts throughout at the left-hand margin.

By any measure The Wealth of Nations is one of the most influential books ever written and represents a monumental intellectual achievement, initiating a paradigm shift in political economy. Before its publication in 1776, the dominant view in Britain and many other countries was some form of mercantilism. According to this theory, the path to prosperity and power for a nation lay in its having a positive balance of trade, exporting more than it imported, thereby accumulating wealth at the expense of its rivals. Government policy thus sought to promote the production of goods while ignoring or even suppressing domestic consumption. Against this, Smith argues that the wealth of a nation does not reside in a store of goods or gold, but consists, rather, in the totality of the economic activity that its people and institutions are engaged in.

The ultimate purpose of all production, he insists, is consumption; and trade with other countries is not a zero-sum game. So if one country is better suited to producing wine and another to producing wool, they should be allowed to trade freely rather than have trade restricted by prohibitions or tariffs. That way, consumers in both countries benefit from better quality goods at lower prices. And if restrictions on trade are removed, economic activity will grow to the long-term benefit of all.

Smith is widely regarded as the grandfather of laisser faire economic policy, and his authority is often invoked by those who believe in minimal government and the benefits of a free market. The Adam Smith Institute, for instance, is a British think tank that advocates “using free markets to create a richer, freer, happier world.” And Smith’s views certainly chime with that outlook in places. It is noteworthy, though, how critical he often is of the rich, how sympathetic to the poor, and how far he is willing to depart from what some view as the ideal of a minimal, non-intervening state.

Regarding this last issue, dyed -in-the-wool libertarians typically limit the functions of government to two: protecting society from external threats (e.g. foreign invasion), and protecting the basic rights of individuals (e.g. from assault or theft). And that’s it. This is the outlook associated with thinkers like Friedrich Hayek, Ayn Rand, and Robert Nozick. It was influential on conservative politicians like Margaret Thatcher and Ronald Reagan, and remains so today. Grover Norquist, whose anti-tax lobbying has been a major influence on Republican politics, famously remarked: “I’m not in favor of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub.”

When Smith discusses the functions of government, he begins with the same two: protecting society from outside aggression, and protecting its members from injustice and oppression. But he also holds that the government needs to take responsibility for

“erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it a great society.”[1]

Here he seems to mainly have in mind what we now call infrastructure: roads, canals, bridges, the postal service, etc..

But that’s not all. In the later chapters of the book Smith keeps adding to the list of things the state should take care of or concern itself with. These include:

  • Basic education for the population. This is necessary if they are to be productive workers. But it is also desirable on moral grounds, since “a man without the proper use of the intellectual faculties of a man, is, if possible, more contemptible than even a coward, and seems to be mutilated and deformed in a still more essential part of the character of human nature.”[2]
  • Educational institutions to make sure that the middle and upper classes are educated in science and philosophy, since this would provide a bulwark against religious fanaticism.[3]
  • Overseeing financial institutions–e.g. limiting the top rate of interest to prevent loan sharks exploiting people likely to make unwise decisions (“prodigals and projectors”).[4]
  • “Lands for the purposes of pleasure and magnificence parks, gardens, and public walks, &c.” which cost more to maintain than any revenue they bring in.
  • Providing the necessary funds for maintaining the “dignity of the sovereign.”[5]

Smith even believes the government must concern itself with the moral fibre of the people. For Plato, this should be the primary concern of any government. For libertarians, the notion is anathema. But on this matter, Smith is evidently with Plato. In a tirade against cowardice, he writes:

“Even though the martial spirit of the people were of no use towards the defence of society, yet to prevent the sort of mental mutilation, deformity, and wretchedness, which cowardice necessarily involves in it, from spreading themselves through the great body of the people, would still deserve the most serious attention of government; in the same manner as it would deserve its most serious attention to prevent a leprosy or any other loathsome and offensive disease, though neither mortal nor dangerous, from spreading itself among them; though, perhaps, no other public good might result from such attention besides the prevention of so great a public evil.”[6]

One should note how in this passage Smith emphasizes that the value of combatting the moral failing in question is distinct from its usefulness; the justification for government intervention goes well beyond the need for security.

Smith is thus not an advocate of the minimal state. And although he certainly applauds enterprise and industriousness, he is notably objective when discussing the relative interests of employers and labourers. His enthusiasm for the way the division of labour greatly increases productivity is tempered by the recognition of its effects on the individual workers. In an often-quoted passage, he writes:

“the understanding of the greater part of men are necessarily formed by their ordinary employments. The man whose life is spent in performing a few simple operations…. has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it possible for a human creature to become.”[7]

So much for the dignity of labour! According to Smith, long hours of tedious, repetitive work both reduce people’s capacity for what J.S. Mill would call the “higher” pleasures and stunt their moral personality.

“The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgement concerning many even of the ordinary duties of private life”[8]

And he goes on to say that “in every improved and civilized society, this is the state into which the labouring poor… must necessarily fall, unless government takes some pains to prevent it.”[9]Yet another call for government intervention.

Smith’s overriding concern, however, is with prosperity, not equality. There is a certain irreducible conflict of interest between the rich, who are generally driven by greed and avarice, and the poor, who desire leisure and pleasure. The law is, naturally, on the side of the rich and powerful:

“Civil government, so far as it instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none.”[10]

Exemplifying this point were the laws banning labour combinations, which Smith acknowledges benefit the employers, even though the latter also combine in order to act against the public interest by suppressing wages or raising prices.[11] On the whole, however, Smith seems to accept inequality as an inevitable correlate of social wealth:

“Wherever there is great property, there is great inequality. For one very rich man, there must be at least five hundred poor, and the affluence of the rich supposes the indigence of the many.”[12]

Happily, though, he is not especially consistent in his generalizations about people and society. Elsewhere he writes:

No society can surely be flourishing and happy, of which the greater part of the members are poor and miserable. It is equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.”[13]

The Wealth of Nations does not really address the political question of how to realize its ideas and ideals. In fact, although its economic vision is generally optimistic, there is an amusingly cynical strain running through the work. When discussing which social class is most fit to legislate, for instance, Smith identifies three possible candidates: those who live from rents, those who work for wages, and those live off profits. The first group, he says, since they don’t have to work, are too lazy; and the second group, since they lack education, are too ignorant. But the great prophet of free enterprise is most scathing about the third group, those who live off profits:

“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 til after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”[14]

But that was back then.

* * *

[1]Adam Smith, The Wealth of Nations(New York: Modern Library, 2000), p. 745.

[2]Op. cit. p. 846.

[3]Op. cit. p. 855.

[4]Op. cit. p. 388.

[5]Op. cit. p. 876.

[6]Op. cit. p. 845.

[7]Op. cit. p. 839-40.

[8]Op. cit. p. 840.

[9]Op. cit. p. 840.

[10]Op. cit. p. 771.

[11]Op. cit. p. 164.

[12]Op. cit. p. 766.

[13]Op. cit. p. 91.

[14]Op. cit. p. 288.

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