Wealth of Nations

Rating:
Summary: Required reading for any educated person.
Review: Adam Smith, a professor of moral philosophy in 18th century Scotland, was, perhaps, the World's first "economist." One must remember that during Smith's era, there simply was no such thing as the formal study of economics, and it is this fact that makes "Wealth of Nations" so interesting as it represents the first attempt, as far as I know, by an individual to explain the intricacies of money, capitalism, profit, etc., in a scientific manner. Truly, "Wealth of Nations" is to economics what Newton's Principia is to physics. It is not perfect, but considering the time in which it was written it was an amazing accomplishment.

The reader will find discussions on a great many topics, but what is especially fascinating is the insight into 1700's Britain that is provided. Remember, this book was published in 1776. Smith even discusses the "recent troubles with the colonies"--America.

It is emminently readable, though it becomes less so in certain sections--the digression on silver, for example. However, if one takes it slowly, then one can easily digest this feast of intellectual achievement in a relatively short time. Afterwards, the works of Ricardo, Marx, Keynes--to name a few--should be tackled.

Again, highly recommended.

Rating:
Summary: Wealth is the product of labor
Review: I appreciate that for most readers, Adam Smith's Wealth of Nations is going to be a deadly dull read, although I think this is a pity. With a little discipline, I think that the erudite reader will take away many enriching (yes, pun intended) lessons from Smith's ground breaking treatise. For me, as a business professional and business student (I have an MBA), the Wealth of Nations was a Damascus Road experience.

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.

Rating:
Summary: The Bible of Economics
Review: To be an economist without having read "The Wealth of Nations" is like being a priest without having read the Bible. As is often the case with second hand accounts, textbooks have distorted and watered down Adam Smith. Going back to the original text is both refreshing and enlightening.

The "Wealth of Nations" remains the most truthful defense of the economic science. But remember that Adam Smith also wrote "The Theory of Moral Sentiments"; for Smith, economics was a search to better people's life rather than simply a quest to optimize mathematical functions or estimate variables using econometric models.

To simply associate Smith with expressions such as the "invisible hand," does not do him justice. Take, for example, the opening chapter on the division of labor: first, Smith defends the division of labor as being efficient; then, he defends it as an essential component of the freedom to allocate one's labor to one's talents; finally, he links the division of labor to trade: without the freedom to exchange the fruits of one's labor, the division of labor is meaningless. The point is that Adam Smith defends the rationale for the market, rather than just explain its mechanics.

Anyone studying economics in school would think that economics is all about efficiency; this preoccupation, inevitably, breeds economists who support the market simply because it works. But to read Adam Smith is to enter the realm of an economic science where the ultimate benchmark is not efficiency but human freedom and welfare. That is, probably, what Smith would remark if he were to sit in an economics class today, and why the "Wealth of Nations" is as revolutionary today as it was two centuries ago.