Thursday, March 10, 2011

Book Review, Wealth of Nations Book 3

(Note: I don't yet see a way share all of my highlighted Kindle passages with the public. But one nice thing about the Kindle is that Amazon stores all of my notes/highlights so that I can see them and paste relevant ones here. It also allows me to tweet notes via 3G for free, and do some basic web browsing for free via 3G on about a dozen common websites. Nice!).

Wealth of Nations turned 235 years old this week. Timely because ABC World News has been running a nightly series titled "Made in America," where a couple nights ago Diane Sawyer openly applauded socialist Independent Bernie Sanders for pushing legislation through Congress that would require our national museums to buy only American-made souvenirs for the gift shop. I would argue that the legislation is profoundly un-American.

"But the great object of the political economy of every country, is to increase the riches and power of that country. It ought, therefore, to give no preference nor superior encouragement to the foreign trade of consumption above the home trade, nor to the carrying trade above either of the other two...It ought neither to force nor to allure into either of those two channels a greater share of the capital of the country, than what would naturally flow into them of its own accord."

The core principle of WoN is that trade is good, and that we shouldn't impede gains from trade. As the people posted this week:
"[Smith's] greatest breakthrough was the realisation that we do not have to grow or make things in order to increase our wealth. We can also increase it by simply exchanging things. If you have something I want and I have something you want, we are both better off by swapping it. And that is the foundation of market exchange and trade, and of the specialisation that makes our production and exchange system so spectacularly efficient, creating and spreading benefit throughout the world."
Sawyer and ABC's series is inherently nationalistic and racist. I suppose she was scared by what she saw in China last year and feels we should put as many of them out of jobs and back in rural poverty as possible. And she wants Congress to force capital into manufacturing rather than service because apparently she believes centuries of American economic development have clearly been mistaken and somehow lowered our living standards. She should read Wealth of Nations (or retire, or better yet-- BOTH) to find out that by trying to save the nation by "buying American" she'll end up moving it further backwards. (Or read some other 20th century history)

Book 3 of WoN focuses on the development of European cities after the fall of the Roman Empire. I find that Rodney Stark got a lot of his info on this period from WoN. The growth of cities is what eventually eliminated the monarch + lord/serf system and, eventually, established representative democracy and this chapter explains:

"In countries such as France and England, where the authority of the sovereign, though frequently very low, never was destroyed altogether... [Cities] became, however, so considerable, that the sovereign could impose no tax upon them, besides the stated farm-rent of the town, without their own consent. They were, therefore, called upon to send deputies to the general assembly of the states of the kingdom, where they might join with the clergy and the barons in granting, upon urgent occasions, some extraordinary aid to the king...Hence the origin of the representation of burghs in the states-general of all great monarchies in Europe."

Further, the growth of cities led to better development of the countryside around them. How? Smith:
First, by affording a great and ready market for the rude produce of the country, they gave encouragement to its cultivation and further improvement...
2. Secondly, the wealth acquired by the inhabitants of cities was frequently employed in purchasing such lands as were to be sold, of which a great part would frequently be uncultivated. Merchants are commonly ambitious of becoming country gentlemen, and, when they do, they are generally the best of all improvers...
3. Thirdly, and lastly, commerce and manufactures gradually introduced order and good government, and with them the liberty and security of individuals, among the inhabitants of the country, who had before lived almost in a continual state of war with their neighbours, and of servile dependency upon their superiors.

Ed Glaeser probably includes this in his new book about cities, but I don't know.

Toward the end of the book, Smith purports that dynasties die out as the wealth is diluted due to competition:

"It does not, perhaps, relate to the present subject, but I cannot help remarking it, that very old families, such as have possessed some considerable estate from father to son for many successive generations, are very rare in commercial countries."

And he ends with this ominous note, echoing the previous book:

The ordinary revolutions of war and government easily dry up the sources of that wealth which arises from commerce only."

I don't know if Adam Smith was a pacifist, but he certainly comes across as one. Odd that political conservatives who pay homage to Smith tend to be defense/war hawks. I'd definitely like to see more conservatives making Smith's arguments against defense spending and war.

Books II and III are pretty short. The first three books of WoN make up less than 50% of WoN.

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