P.J. O'Rourke Takes On 'The Wealth of Nations' Author and journalist P.J. O'Rourke delves into the content and influence of Adam Smith's classic, The Wealth of Nations. He talks about digesting the massive tome on economics, so you don't have to.

P.J. O'Rourke Takes On 'The Wealth of Nations'

P.J. O'Rourke Takes On 'The Wealth of Nations'

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Author and journalist P.J. O'Rourke delves into the content and influence of Adam Smith's classic, The Wealth of Nations. He talks about digesting the massive tome on economics, so you don't have to.


This is TALK OF THE NATION. I'm Neal Conan, in Washington.

Writer and broadcaster P.J. O'Rourke has visited a lot of difficult, drowsy, and sometimes dangerous places over the years. And now he's ventured where very few of us dare to tread: through all the pages of "The Wealth of Nations."

The nearly thousand-page doorstop by the 18th century Scot Adam Smith is regarded as the foundation of economics, the origin of econometrics, the intellectual cradle of capitalism, and sheer torture for generations of students and scholars. P.J. O'Rourke joins us in a moment.

We're also going to talk about economics later in the program, and particularly the effects of the unusual weather in many places this winter. Temperatures climbed well into the 70s here in the northeast over the weekend.

But first, "The Wealth of Nations" and P.J. O'Rourke. If you have questions about the content and influence of Adam Smith's classic, our number here in Washington is 800-989-8255. That's 800-989-TALK. Our e-mail address is talk@npr.org. We also welcome calls about the writer's travels and his other books. His latest is the first of a new series on "Books That Changed the World." P.J. O'Rourke joins us here in Studio 3A. Nice to have you on the program today.

Mr. P.J. O'ROURKE (Author, Journalist): Well, thank you. And thank you for having me on. And I just want to clear up, I am not going to write the rest of the series. One book that changed the world is just plenty.

CONAN: Well, the others - the Koran, the Bible, Thomas Paine - there's a bunch of them. What, you get the short straw?

Mr. O'ROURKE: Yeah, I guess I did. It was - Toby Mundy is the editor of the British branch of Grove/Atlantic Press. And Toby asked me to write this, and I needed to money, and I thought, gee, 900 pages. How bad can it be? I read good. I was an English major.

(Soundbite of laughter)

Mr. O'ROURKE: You know, I - whoa...

(Soundbite of laughter)

Mr. O'ROURKE: ...little did I know.

CONAN: And not only did you real "The Wealth of Nations," you read Adam Smith's other book, which nobody has ever read.

Mr. O'ROURKE: It has been a long time since anybody read "The Theory of Moral Sentiments," and it's actually the better book.

CONAN: Really?

Mr. O'ROURKE: Yeah. "Theory of Moral Sentiments" could be read for pleasure. I mean, once you get with the 18th century prose style - and Smith is a rather good prose stylist - "The Theory of Moral Sentiments" is a brilliant book. It's about how we create a moral system for ourselves based on little except sympathy. But, of course, just sympathy won't alone won't do it. We need to apply ourselves to that sympathy. And it is an absolutely brilliant book. I have to say in many ways I enjoyed that more than I enjoyed "The Wealth of Nations," although "The Wealth of Nations," as the person said of the egg, is very good in parts.

(Soundbite of laughter)

CONAN: There is a lot of the book, I gather from reading your book - because I'll admit, I didn't read "The Wealth - I've read quotes from "The Wealth of Nations," but...

Mr. O'ROURKE: Not too many people have...

CONAN: Yeah.

Mr. O'ROURKE: ...when you come right down to it.

CONAN: But nevertheless, there's a lot of the book that spends its time attacking the current system - current 18, excuse me, 1760 or so - mercantilism.

Mr. O'ROURKE: Yes. I mean, one of the - there are five books. "Wealth of Nations" is actually five books. And one whole book of that is devoted essentially to attacking mercantilism. And it would be nice to say this was beating a dead horse, but in point of fact, the idea of mercantilism - the idea that you should import more than you export, and that the way a country gets rich is by importing, excuse me, is by exporting everything and importing money - it's an idea that animates the entire government of China. It's an idea that panics and terrifies all of the good-great-gray thinkers about economics in the United States.

I'm talking about you, Paul Krugman. It flips out people politically. It's something that led poor Japan into about 10 years of economic stagnation. Mercantilism is still out there, and so that book is, it's - that part of "The Wealth of Nations" is very much worth reading.

CONAN: And you argue that, in fact, even though its widely regarded as immensely influential, that a lot of "The Wealth of Nations" hasn't been applied very much.

Mr. O'ROURKE: It hasn't, because "The Wealth of Nations" - a thing that I really liked about "The Wealth of Nations" and a reason that it's a worthwhile book is that it's essentially a moral book. It's a book about individual freedom, about individual liberty, and about individual responsibility. And the fundamental thesis of "The Wealth of Nations" is that to the extent that we are free and to the extent that we are equal before the law and to the extent that that law is a just and reasonable law, that is the extent to which we get rich. And if you look around the world, leaving aside always those goofy little nations that just happen to be sitting on pots and pots of oil...

CONAN: Mm-hmm.

Mr. O'ROURKE: ...but if you look around the world, you will find that the places where people are free, where they are equal before the law and where the law is a decent law are the places that are rich. And it doesn't matter if it's Iceland, which is just a pile of volcanic ash - they got nothing - or whether it's the United States of America, with all our marvelous resources and stuff, you know, that - yeah, sure, of course we're rich. But why is Iceland rich? Why is Belgium rich? Why is Holland rich? You know, why is - well, Norway's got oil. But why is Finland rich? Finland is a rich country. What have they got? They got Nokia phones and plywood. How'd they get so rich? Because they're free.

CONAN: China, though - and not all people there are equal before the law - China's getting rich.

Mr. O'ROURKE: It's got a long way to go. China is - people look at China and they go, wow. Oh, my gosh, that is really amazing what's happening in China. Well, China is using something known as the miracle of the zero baseline. When you start with nothing, everything looks good, you know. I mean, you could take me in the space of say - say if you got Tiger Woods to really work on me for a month, you could - there would be an amazing change in my golf game. But, of course, that would be amazing proportionate to what it is now.

CONAN: And not necessarily to your teacher's.

(Soundbite of laughter)

Mr. O'ROURKE: No, it wouldn't compare to Tiger's game.

CONAN: Let's see if we can get some listeners on the line. We're talking with P.J. O'Rourke. His latest book is "On the Wealth of Nations," part of a series on books that changed the world. We'll begin with Dean. Dean's calling us from Charlotte, North Carolina.

Mr. O'ROURKE: Hi, Dean.

DEAN (Caller): Yes, hi. Listen, I wanted to find out, did Adam Smith ever give us a clear understanding of what fair wages is or how it's achieved?

Mr. O'ROURKE: No. There's a quick answer to that one, and it is no.


Mr. O'ROURKE: And actually, he does talk about this a bit. And he even tries to come up with some theory about this. And in the end, it isn't really an answerable question. You know, all questions having to do with value, all questions having to do with price theory, as they say, are essentially nonsensical when you get down to them. Something is worth what somebody will pay for it. Nothing else, nothing more, nothing less.


DEAN: (unintelligible) So...

Mr. O'ROURKE: But unfortunately, the same happens to be true with wages, which is, you know - irks the heck out of us since we all feel that we are very valuable people. We should be paid a high amount of money. In the end, Smith said, the only real answer to getting good wages for people is to have a society so prosperous that it just costs a darn lot of money to hire anybody because somebody else will hire them if you don't, you know.

And it's a situation that, oh, you wouldn't think that we have it here in the United States because minimum wage jobs are underpaid - badly paid jobs, or very badly paid by our likes. By historical comparison - compared to how people lived and what they were paid 100, 200, 300 years ago - the worst jobs in America are astonishingly well paid. Of course, that's a global comparison, and that doesn't help buy diapers and food for the kid, I know.

CONAN: Yeah.

DEAN: That's right.

CONAN: Dean, it sounds like you read the book.

DEAN: I struggled through it, but I was just wondering - my last question - I just wondered does von Mises get closest to fair wages or the theory of value?

Mr. O'ROURKE: You know, I don't think anybody's really been successful with theorizing about value or creating a price theory. I don't know enough of von Mises to say, but what I know about von Mises has mostly to do with a monetary policy. I know a little bit about his ideas about monetary policy, but as I said at the beginning of the program, I'm an English major, you know. And there's a - we could spend a long, long time talking about parts of economics that I don't know.

DEAN: You know, I appreciate the answer. I think it was pretty excellent.

(Soundbite of laughter)

CONAN: Dean, thanks very much for the call.

Mr. O'ROURKE: Thank you.

DEAN: All right.

CONAN: There's a lot about economics that Adam Smith apparently didn't know, either. You point out that he was friends with James Watt, the major improver of the steam engine, and yet, he kind of missed the whole Industrial Revolution.

Mr. O'ROURKE: This just tickles me. I mean, this is why we should never listen too carefully to economists, no matter how brilliant they seem to be.

Yes, Adam Smith knew Watt - not only knew him, but actually got him a place to work. The ironmongers in Glasgow wouldn't let Watt work on his steam engine because he didn't belong to their little union group, their little trade association. And so, Smith was instrumental in getting Watt a space to work at Glasgow University. And he actually invested in a couple of machines that Watt developed. And he wrote about Watt and what a genius he was and still, he missed the whole Industrial Revolution.

And it's interesting how he missed it. Smith thought the Industrial Revolution had taken place already. This is the 1770's that he is writing - 1760's, 1770's, he thinks it's already happened. Because he says, look, in the long run, the only way we could really create increased productivity is through labor-saving devices. He can put more people to work, but obviously, there's a limit to how many people there are. We can people to work more hours, but there are only so many hours in a day.

It's labor-saving machinery, and he goes on to give some examples. He thought it had happened. What he didn't foresee wasn't the Industrial Revolution, it was the quantity. He foresaw the quality of the Industrial Revolution. He didn't foresee its amazing quantity. And one wonders, you know, when we're looking at the so-called electronic revolution. You know, are we equally wrong about this? Is this thing maybe, like, hundreds and hundreds of times more important than we actually think it is, even though we think it's really important? Or is it over already? I mean, is - you know, it's like PlayStation as far as it's going to take us? If PlayStation and Wikipedia - that's it.

CONAN: It might be as important as all those investors thought, what, six years ago.

Mr. O'ROURKE: Yeah, maybe. You'll never know.

(Soundbite of laughter)

Mr. O'ROURKE: Yeah, you don't know.

Mr. O'ROURKE: And it goes this - you never will know, because economics - the beauty of economics is that it is all about free people. We've got billions of free people, not as many as we'd like to have, but let's hope we'll have more billions of free people. And you don't know what people are going to do next. You never know.

CONAN: We're talking with satirist and author P.J. O'Rourke about his take on Adam Smith, "The Wealth of Nations." It's the first in a series on books that changed the world. When we come back from a short break, we'll take more of your calls - 800-989-8255. 800-989-TALK. You can also send us E-mail, the address is talk@npr.org. I'm Neal Conan, this is the TALK OF THE NATION from NPR News.

(Soundbite of music)

This is TALK OF THE NATION. I'm Neal Conan in Washington. Our guest is P.J. O'Rourke. He's with us to discuss his new book, "On The Wealth of Nations." He's read Adam Smith's 900-page tome so you don't have to. "On The Wealth of Nations" is part of a series of books that changed the world. You can read the first chapter of this book - that's P.J.'s, not Adam's - at npr.org/talk.

Next up in the series, British historian Janet Browne joins us to talk about Charles Darwin's "The Origin of Species." In March, we'll talk with religion professor Bruce Lawrence about the Koran.

And we're taking your calls on "The Wealth of Nations," and on P.J. O'Rourke's other writings. You can join us at 800-989-8255. You can zap us an e-mail. The address is talk@npr.org. And let's go to Kyle, Kyle with us from Edwardsville in Illinois.

Mr. O'ROURKE: Hello, Kyle.

KYLE (Caller): How are you sir? Thank you for your time.

CONAN: I'm well, and you're welcome.

KYLE: Yes. I have a question about the division of labor. I know Smith addresses the division of labor. I think he opens up one of his books with something like, the most important advancement in labor was the division of labor.

Mr. O'ROURKE: Yes.

KYLE: And I...

CONAN: I don't think he considered the designated hitter part of that, though.

(Soundbite of laughter)

Mr. O'ROURKE: We'll never know how Smith felt about the designated, no.

KYLE: Anyway, I was just wondering how the division of labor affected globalization. And as the division of labor increases, mechanical advancements increase and so forth, which I think leads - led to - which led to globalization. I'll take your answer off the air. Thank you.

CONAN: All right, Kyle. Thanks.

Mr. O'ROURKE: Yeah, the two key aspects of, well, the three key aspects of Smith are pursuit of self-interests, freedom of trade and division of labor. Obviously, globalization is all three of those things wrapped up in one. And what we are doing with globalization is we're moving the easy jobs away from the expensive places, towards the less expensive places. And at least, in an ideal world, the harder jobs - managing hedge funds - stay here.

Now, at a level of economic theory - and also at the level of moral theory of freedom - this is all to the good. Does it cause dislocations? Yeah, it causes pretty serious dislocations. And what do we do with the stupid people at home who are only capable of doing the kind of simple jobs that are being sent overseas?

CONAN: Satire, for example.

Mr. O'ROURKE: I would say yes. Satire. I was going to say radio guest.

(Soundbite of laughter)

Mr. O'ROURKE: That's the - I would say TV reality shows are taking up quite a bit of the slack, I mean...So far, it has been remarkable, the developed economies in free countries with the rule of law - that is to say, Western Europe, North America, a few other little spots around the world, like Australia and New Zealand, and few places in Asia. It's been remarkable how well these countries have adapted to having all the menial work in their country - or all or the exportable menial work in their country - exported.

They have remained prosperous. The standards of living have not gone down significantly. There have been certain areas - you know, I mean, there had been problems in relocations. But these countries have continued to grow. And it just goes to show there's enormous, enormous amount of human creativity if you let people loose, if you let people be free and you make sure that they're equal before the law, equally protected by the law and that those laws aren't too stupid. It's amazing, you know, what they can do.

And so I think globalization is absolutely wonderful. I don't think it's wonderful because American companies make a lot of money from it. I think it's wonderful because it hold out the chance for a decent level of prosperity, and it is to be hoped, first, material freedom and then, political, religious and civil freedoms for the mass of people all around the world.

I like China. I'm hoping things are going to work out. It may take a while. It may take a while. And I'm hoping that after China - I mean, India is doing extraordinarily well. I got, you know, I'm hoping that Africa can follow.

CONAN: One of the things that he did write about globalization was that - at the time - the United States has just been invented, and there's a very strong protectionist element then. Sounds familiar.

Mr. O'ROURKE: Yeah.

CONAN: And he said, look, if the Americans erect these high towers and stuff, they're going to wish they never had it. I think it's going to be a complete disaster, and of course he was totally wrong.

Mr. O'ROURKE: He was completely wrong. Again, you know, showing that he was - besides being a genius, he was also an economist, which usually means being wrong. Yeah, he thought that America had turned out to be a very protectionist country, and it remained a very protectionist country down into living memory.

My grandmother was this rock-revved Republican, and I remembered when I was young enough to have the guts to ask her about the difference between Democrats and Republicans, one of the things she said was that - besides making a few crude jokes about Democrats - one of the things she said was that Republicans were in favor of high tariffs and Democrats in favor of low tariffs. She was a little out of date, but I mean, this was 1955 she's saying something like this me.

And what happened to make Smith wrong was America turned out to have an enormous free internal market that offset the high trade barriers that it established around its borders. And, of course, we're talking about a day when things didn't get shipped on supertankers in cargo containers for fractions of a cent a pound. We're talking about a day that when imports came in on sailing ships were it cost equivalent in modern money of thousands of dollars a pound to import everything.

So the high trade barriers didn't have the same deleterious effects, or as broad effects in those days as they would have now. But had we continued to allow trade barriers to exist between the states, Smith would have been spot on. We wouldn't have developed.

CONAN: Let's got another caller in. And oops - let's see if we can get to - that's two I'm trying to get to. Mike. Mike's with us from Edmond, Oklahoma.

Mr. O'ROURKE: Hi, Mike.

MIKE (Caller): Yes. Hi. Thank you for taking my call.

CONAN: Sure.

MIKE: I just want - your guest had mentioned the morality, or at least touched on it without going into much explanation of that. But in regards to the subject of morality and economics, especially with the subject of the issue of a living wage, where's the value of a person's labors in such a - subject of a free - with regards to freedom? Isn't that how we got rid of slaveries, that the lowest bevel society wouldn't just keep on supporting the richer levels of society and the corporations?


(Soundbite of laughter)

Mr. O'ROURKE: I'm going to give a short answer. We got rid of slavery by giving people property rights in themselves. What is that slaves do not have? They don't have any property rights at all, and they don't have the first and most fundamental property right, which is the right to sell.

MIKE: But we got rid of slavery for a moral - the moral issue. I'm trying to...

Mr. O'ROURKE: Ah, well. Property in yourself, owning yourself - having property rights in yourself is a moral issue, and this is one of Adam Smith's great points. Now, the living wage question is a difficult one. You see, we get into an interesting moral area here between the morality - what are called negative rights and positive rights.

We have a lot of power over negative rights. Negative rights are the things that our Constitution is based on. It is the right that you have to be free from coercion of others. It is the right that you have to believe whatever you want religiously, the right to speak whatever you want. It is all - negative rights are all the rights that you have that do not and cannot impinge upon the rights of other people.

My religious beliefs cannot impinge on your right, of course, unless I happen to have a religious belief that I'm supposed to kill you. We're going to have to make an exception for that.

Positive rights are a different thing. Positive rights are the right to shelter, the right to education, the right to health care, the right to a living wage. These things are - these are, I would call them, more properly, political rights rather than positive rights. And they are extremely tricky, because now we are dealing with things that are zero sum.

There are only so many resources, and we have to figure out a political way to distribute those resources...

MIKE: Right.

Mr. O'ROURKE: And it is always a mess. Now, as a conservative, I've got one point of view on this. Perhaps you're a liberal and you have another point of view on this, but it's something that has to be argued and thrashed out within the political system. Whereas, when you talk about negative rights - the right to be free from certain kinds of oppression, including the right to be free from having yourself owned by some other person - those things are absolute, and we don't have to argue about those because we know one doesn't impinge on the other.

CONAN: One of the things you address in your book, P.J., is the argument or the contention that a lot of people have is that Adam Smith was - "The Wealth of Nations" was an amoral stance, basically summed up by the Gordon Gekko philosophy, greed is good.

Mr. O'ROURKE: Yeah, greed is good. And it turns out that the only way that Adam Smith ever argues that greed is good is that he says that greed keeps - you know, shopkeepers and manufacturers and other businesspeople will get together and collude and try and keep prices high and wages low, he said, but they're too damn greedy to ever stick to the agreements they make.

They're always cheating on each other. And one lowers his prices a little bit so he can get some sales, and the other one raises his wages a little bit so he can get better workers. And the only way that greed is good, as far as Adam Smith is - is because it keeps greedy people - it makes greedy people too dishonest to be effective.

Adam Smith is misread as being amoral precisely because people don't read his first book, because they don't read "The Theory of Moral Sentiments." And they don't realize that Adam Smith is - he's not amoral. He's just compartmentalizing. "The Theory of Moral Sentiments" is about our moral existence. "The Wealth of Nations" is about our material existence.

And there was to be a third book, which he never wrote, which was to be about our political existence - a book on jurisprudence that he burned his notes on shortly before he died. We don't know what he was going to say about that.

But one of the things that chills one a little bit when you start reading "The Wealth of Nations" is he makes these arguments against slavery, and they're all practical arguments. They're pragmatic arguments. He said, slavery doesn't really work because this is not the way to motivate people for them to get the most done and so on.

He said you think slavery is just cost of maintenance of the slaves you have, but actually it's a terrible expensive way to get - and you think, gee, this is a cold way to argue against slavery. But, when you go and read "The Theory of Moral Sentiments," you realize he's made his moral arguments already in that book. And they are blistering moral arguments. They are brilliant.

And, I mean, they're the kind of thing that, you know, would come from Martin Luther King. But he's done. He's finished with that. So he's on to the next thing. He's on to the pragmatic thing. That's one of the reasons that "Wealth of Nations" tends to get misread.

CONAN: Hmm. Mike, thanks very much for the call.

MIKE (Caller): Thank you. Bye.

CONAN: We're talking with P.J. O'Rourke. His new book is "P.J. O'Rourke On The Wealth of Nations," part of the new series "Books That Changed The World." If you'd like to join conversation, 800-989-8255, 800-989-TALK. Our e-mail address is talk@npr.org. And you're listening to TALK OF THE NATION, which is coming to you from NPR News.

Let's get Brian on the line. Brian with us from Elkhart, Indiana.

BRIAN (Caller): Yeah, thank you.

CONAN: Sure.

BRIAN: Yeah. I went through a large part of "The Wealth of Nations." I think I'd rather translate the Bible from Latin than to finish it. But his "Moral Sentiment," I did get through most of that, too. And one thing - especially on - I guess on his deathbed, he had made some claims about - and in "Moral Sentiment" he alluded to this idea of one of his fears, along with other great minds, was financial aristocracies forming.

You know, oligarchs, and, you know, this level that it's so unfair, you know, someone who - a certain group gets so rich that, you know, it becomes unfair. And we've always had rich and poor, but the level that we are right now, the difference between the levels of rich and poor are growing to, you know, what some might argue as those extremes.

And does your guest have any, you know, know anything about his thoughts on that? And like I said I've heard of arguments on his deathbed of, you know, mistakes and this fear of his. So I'll take my answer off the air.

CONAN: Ok, Brian. Thanks.

Mr. O'ROURKE: I don't think it was a real - yes, it was a genuine worry that Smith had. I don't know of a real deathbed, you know, freak out that he had about this. But it was a big concern of his. And there were a couple of reasons for his concern that make that concern slightly dated.

One was that he was - although the trade and industry were growing extremely important in Smith's time, he still lived in a fundamentally agricultural economy. And, of course, agricultural land is zero-sum.

CONAN: There's only a certain amount of it.

Mr. O'ROURKE: Only a certain amount of it. And if I get more agricultural land, I have to get it from stealing your backyard. That was one problem.

The other problem is he did not have democracy. He had rule of law, and he had a measure of parliamentary input from some of the people and into the laws of Britain. And Britain was lucky in that it had a long and excellent tradition of common law that protected people's property rights and so on.

But he didn't have the corrective mechanism of democracy yet. And he didn't foresee it - just as he didn't foresee the Industrial Revolution - for very good reason, which was the only thing people in the 18th century knew about democracy was ancient Athens. And in the Peloponnesian War, ancient Athens had screwed up pretty badly.

Other than that, they had the Dutch Republic, which was really an Oligarchy. Even worse were the Italian city-states. They hadn't behaved very well. Few of the Swiss cantons during the Protestant Reformation had been Republics of a kind. They ended up burning people at the stake because they were the wrong kind of Lutheran or something.

A knowledgeable intellectual of the 18th century didn't have a lot of good democracy to look at because it hadn't been tried yet. And it wasn't really until America succeeded and arguably until America got through the Civil War and really proved that it would survive that people could look and say, oh, democracy is one way that we can provide some buffer between these sources of power - the very rich and the very poor.

One thing that kept Smith from worrying as much as he might of about the divisions between the rich and poor was his understanding that A, this was a fluid situation, that the same person who was rich right now and poor right now is not necessarily going to be the same person 10 years hence. But most important was the insight, key insight that Adam Smith had - brilliant insight - that wealth is not zero-sum, that you can make more of practically everything that's important.

He understood this even while he was still living in a largely agricultural economy. He realized that because somebody is rich, that's not what makes other people poor. Wealth is not a pizza where, if I have too many slices, you have to eat the Dominos box. My wealth does not create your poverty. Your wealth does not create my poverty. They're separate questions. And we can generate more wealth.

CONAN: Our guest is P.J. O'Rourke, and if he sounded a little grumpy today - eighth day without cigarettes?

Mr. O'ROURKE: Am I sounding grumpy? I hope not. Yeah, this is my eighth day without - actually, cigars. I found myself inhaling cigars, and that's bad.

CONAN: That's hardcore.

Mr. O'ROURKE: That is really bad.

CONAN: Good luck with it.

Mr. O'ROURKE: Thank you.

CONAN: And thanks for very much for being with us.

Mr. O'ROURKE: I hope I wasn't too grumpy.

CONAN: When we come back, weird weather in the northeast has made for some unexpected economic winners and losers. Wonder what Adam Smith would've made of that? We'll talk to some of them after the break and find out what's happening where you live. 800-989-8255. I'm Neal Conan. It's the TALK OF THE NATION from NPR News.

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Excerpt: 'On The Wealth of Nations'

O'Rourke sets out to digest Adam Smith's treatise on economics, and argues that the work is still relevant. James Kegley hide caption

toggle caption
James Kegley

Chapter 1

An Inquiry into An Inquiry into the Nature and Causes of the Wealth of Nations

The Wealth of Nations is, without doubt, a book that changed the world. But it has been taking its time. Two hundred thirty-one years after publication, Adam Smith's practical truths are only beginning to be absorbed in full. And where practical truths are most important — amid counsels of the European Union, World Trade Organization, International Monetary Fund, British Par¬liament, and American Congress — the lessons of Adam Smith end up as often sunk as sinking in.

Adam Smith's Simple Principles

Smith illuminated the mystery of economics in one flash: "Consumption is the sole end and purpose of all production." There is no mystery. Smith took the meta out of the physics. Economics is our livelihood and just that.

The Wealth of Nations argues three basic principles and, by plain thinking and plentiful examples, proves them. Even intellectuals should have no trouble understanding Smith's ideas. Economic progress depends upon a trinity of individual prerogatives: pursuit of self-interest, division of labor, and freedom of trade.

There is nothing inherently wrong with the pursuit of self-interest. That was Smith's best insight. To a twenty-first-century reader this hardly sounds like news. Or, rather, it sounds like everything that's in the news. These days, altruism itself is proclaimed at the top of the altruist's lungs. Certainly it's of interest to the self to be a celebrity. Bob Geldof has found a way to remain one. But for most of history, wisdom, beliefs, and mores demanded subjugation of ego, bridling of aspiration, and sacrifice of self (and, per Abraham with Isaac, of family members, if you could catch them).

This meekness, like Adam Smith's production, had an end and purpose. Most people enjoyed no control over their material circumstances or even — if they were slaves or serfs — their material persons. In the doghouse of ancient and medieval existence, asceticism made us feel less like dogs.

But Adam Smith lived in a place and time when ordinary individuals were beginning to have some power to pursue their self-interest. In the chapter "Of the Wages of Labour," in book 1 of The Wealth of Nations, Smith remarked in a tone approaching modern irony, "Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society?"

If, in the eighteenth century, prosperity was not yet considered a self-evidently good thing for the lower ranks of people, it was because nobody had bothered to ask them. In many places nobody has bothered to ask them yet. But it is never a question of folly, sacrilege, or vulgarity to better our circumstances. The question is how to do it.

The answer is division of labor. It was an obvious answer— — except to most of the scholars who had theorized about economics prior to Adam Smith. Division of labor has existed since mankind has. When the original Adam delved and his Eve span, the division of labor may be said to have been painfully obvious. Women endured the agonies of childbirth while men fiddled around in the garden.

The Adam under present consideration was not the first philosopher to notice specialization or to see that divisions are as innate as labors. But Smith was arguably the first to understand the manifold implications of the division of labor. In fact he seems to have invented the term.

The little fellow with the big ideas chips the spear points. The courageous oaf spears the mammoth. And the artistic type does a lovely cave painting of it all. One person makes a thing, and another person makes another thing, and everyone wants everything.

Hence trade. Trade may be theoretically good, or self-sufficiency may be theoretically better, but to even think about such theories is a waste of that intermittently useful specialization, thought. Trade is a fact.

Adam Smith saw that all trades, when freely conducted, are mutually beneficial by definition. A person with this got that, which he wanted more, from a person who wanted this more than that. It may have been a stupid trade. Viewing a cave painting cannot be worth three hundred pounds of mammoth ham. The mutuality may be lopsided. A starving artist gorges himself for months while a courageous oaf of a new art patron stands bemused in the Grotte de Lascaux. And what about that wily spear point chipper? He doubtless took his mammoth slice. But they didn't ask us. It's none of our business.

Why an Inquiry into Adam Smith's Simple Principles Is Not an Inquiry, First, into Adam Smith

Most things that people spend most of their time doing are none of our business. This is a very modern idea. It makes private life — into which we have no business poking our noses — more fascinating than private life was to premoderns. Adam Smith was a premodern, therefore this book is organized in an old-fashioned way. The man's ideas come first. The man comes afterward. Adam Smith helped produce a world of individuality, autonomy, and personal fulfillment, but that world did not pro¬duce him. He belonged to an older, more abstracted tradition of thought.

When a contemporary person's ideas change the world, we want to know about that person. Did Julia Child come from a background of culinary sophistication, or did her mother make those thick, gooey omelets with chunks of Velveeta cheese and Canadian bacon like my mother? I fed them to the dog. What elements of nature and nurture, of psychology and experience, developed Julia Child's thinking? But there was a time when thinking mostly developed from other thinking. The thinkers weren't thinking about themselves, and their audience wasn't thinking of the thinkers as selves, either. Everyone was lost in thought. Dugald Stewart, who in 1858 published the first biography of Adam Smith, excused its scantiness of anecdote with the comment, "The history of a philosopher's life can contain little more than the history of his speculations."

Another reason to put the history of Adam Smith's speculations ahead of the history of Adam Smith is that Smith led the opposite of a modern life — uneventful but interesting. He was an academic but an uncontentious one. He held conventional, mildly reformist political views and would have been called a Whig if he'd bothered to be involved in partisan politics. He became a government bureaucrat. Yet the essence of his thinking — "It's none of our business" — will eventually (I hope) upend everything that political and religious authorities have been doing for ten thousand years. In a few nations the thinking already works. There are parts of the earth where life is different than it was when the first physical brute or mystical charlatan wielded his original club or pronounced his initial mumbo jumbo and asserted his authority in the first place.

The whole business of authority is to interfere in other people's business. Princes and priests can never resist imposing restrictions on the pursuit of self-interest, division of labor, and freedom of trade. Successful pursuits mean a challenge to authority. Let people take the jobs they want and they'll seek other liberties. As for trade, nab it.

A restriction is hardly a restriction unless coercion is involved. To go back to our exemplary Cro-Magnons, a coercive trade is when I get the spear points, the mammoth meat, the cave painting, and the cave. What you get is killed.

Coercion destroys the mutually beneficial nature of trade, which destroys the trading, which destroys the division of labor, which destroys our self-interest. Restrain trade, however modestly, and you've made a hop and a skip toward a Maoist Great Leap Forward. Restrain either of the other economic prerogatives and the result is the same. Restrain all three and you're Mao himself.

Adam Smith's Less Simple Principles

It is clear from Adam Smith's other writings that he was a moral advocate of freedom. But the arguments for freedom in The Wealth of Nations are almost uncomfortably pragmatic. Smith opposed most economic constraints: tariffs, bounties, quotas, price controls, workers in league to raise wages, employers conniving to fix pay, monopolies, cartels, royal charters, guilds, apprenticeships, indentures, and of course slavery. Smith even opposed licensing doctors, believing that licenses were more likely to legitimize quacks than the marketplace was. But Smith favored many restraints on persons, lest brute force become the coin of a lawless realm.

In words more sad and honest than we're used to hearing from an economist, Smith declared, "The peace and order of society is more important than even the relief of the miserable." Without economic freedom the number of the miserable increases, requiring further constraints to keep the peace among them, with a consequent greater loss of freedom.

Smith was also aware that economic freedom has its discontents. He was particularly worried about the results of excess in the division of labor: "The man whose whole life is spent in performing a few simple operations... generally becomes as stupid and ignorant as it is possible for a human creature to become." We've seen this in countless politicians as they hand-shake and rote-speak their way through campaigns. But it's worth it. Productivity of every kind can be increased by specialization. And the specialization of politics at least keeps politicians from running businesses where their stupidity and ignorance could do even greater harm to economic growth.

Adam Smith's More Complicated Principles

Smith's logical demonstration of how productivity is increased through self-interest, division of labor, and trade disproved the thesis (still dearly held by leftists and everyone's little brother) that bettering the condition of one person necessarily worsens the condition of another. Wealth is not a pizza. If I have too many slices, you don't have to eat the Domino's box.

By proving that there was no fixed amount of wealth in a nation, Smith also proved that a nation cannot be said to have a certain horde of treasure. Wealth must be measured by the volume of trades in goods and services — what goes on in the castle's kitchens and stables, not what's locked in strongboxes in the castle's tower. Smith specifies this measurement in the first sentence of his introduction to The Wealth of Nations: "The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes." Smith thereby, in a stroke, created the concept of gross domestic product. Without GDP modern economists would be left with nothing much to say, standing around mute in ugly neckties, waiting for MSNBC to ask them to be silent on the air.

If wealth is all ebb and flow, then so is its measure, money. Money has no intrinsic value. Any baby who's eaten a nickel could tell you so. And those of us old enough to have heard about the Weimar Republic and to have lived through the Carter administration are not pained by the information. But eighteenth-century money was still mostly made of precious metals. Smith's observations on money must have been slightly disheartening to his readers, although they had the example of bling-deluged but impoverished Spain to confirm what he said. Gold is, well, worth its weight in gold, certainly, but not so certainly worth anything else. It was almost as though Smith, having proved that we can all have more money, then proved that money doesn't buy happiness. And it doesn't. It rents it.

Adam Smith's Principles: Their Principal Effect

The Wealth of Nations was published, with neat coincidence, in the very year that history's greatest capitalist nation declared its independence. And to the educated people of Great Britain the notion of the United States of America was more unreasonable, counterintuitive, and, as it were, outlandish than any of Adam Smith's ideas. Wealth was not light reading, even by the weightier standards of eighteenth-century readers. But it was a succès d'estime and something of an actual success. The first edition sold out in six months, shocking its publisher. Other than this, there is no evidence of Smith's work shocking his contemporaries.

For instance, Smith's suggestion of the economic primacy of self-interest didn't appall anyone. That self-interest makes the world go round has been tacitly acknowledged since the world began going round — a little secret everyone knows. And the worrisome thought that money is imaginary had been worried through by Smith's good friend David Hume a quarter of a century earlier. Indeed the fictitious quality of money had been well understood since classical times. In the two hundred years between the reigns of the emperors Nero and Gallienus, imperial fictions reduced the silver content of Roman coinage from 100 percent to none.

But, though its contents didn't make people gasp, something about The Wealth of Nations was grit in the gears of Enlightenment thinking. And that something is still there, grinding on our minds. I could feel it myself when the subject of self-interest came up.

Gosh, I'm not selfish. I think about the environment and those less fortunate than me. Especially those unfortunates who don't give a hoot about pollution, global warming, and species extinction. I think about them a lot, and I hope they lose the next election. Then maybe we can get some caring and compassionate people in public office, people who aren't selfish. If we elect an environmentalist mayor, the subdivision full of McMansions that's going to block my view of the ocean won't get built.

And let's face it, the "lower ranks of the people" do have too much money. Look at Britney Spears. Or I'll give you a better example, the moneybags buying those châteaux-to-go on the beachfront. You with your four-barge garage and the Martha-bitchin'-Stewart-kitchen that you cook in about as often as Martha does the dishes. You may think you're not the lower ranks because you make a lot of dough, but your lifestyle is an "inconveniency to the society" big time, as you'll find out when I key your Hummer that's taking up three parking spaces.

I know your type. All you do is work all day, eighty or a hundred hours a week, in some specialized something that nobody else understands, on Wall Street or at fancy corporate law firms or in expensive hospital operating rooms. A person has to balance job, life, and family to become a balanced... you know, person. This is why my wife and I are planning to grow all our own food (rutabagas can be stored for a year!), use only fair-traded Internet services with open code programming, heat the house by means of clean energy renewable resources such as wind power from drafts under the door, and knit our children's clothes with organic wool from sheep raised under humane farming conditions in our yard. This will keep the kids warm and cozy, if somewhat itchy, and will build their characters because they will get teased on the street.

Okay, yes, I admit that total removal of every market restraint would be "good for the economy." But money isn't everything. Think of the danger and damage to society. Without government regulation the big shots who run companies like Enron, WorldCom, and Tyco could have cheated investors and embezzled millions. Without restrictions on the sale of hazardous substances young people might smoke, drink, and even use drugs. Without the licensing of medical practitioners the way would be clear for chiropractors, osteopaths, and purveyors of aromatherapy. If we didn't have labor unions, thirty thousand people would still be wage slaves at General Motors, their daily lives filled with mindless drudgery. And if there weren't various forms of retail collusion in the petroleum industry, filling stations could charge as little as they liked. I'd have to drive all over town to find the best price. That would waste gas.

Also consider the harm to the developing world. Cheap pop music MP3 downloads imported from the United States will put every nose-flute band in Peru out of business. Plus some jobs require protection, to ensure they are performed locally in their own communities. My job is to make quips, jests, and waggish comments. Somewhere in Mumbai there is a younger, funnier person who is willing to work for less. My job could be outsourced to him. But he could make any joke he wanted. Who would my wife scold? Who would my in-laws be offended by? Who would my friends shun?

This anonymous fellow, tens of thousands of miles away, might let his sense of humor run wild. He might, for example, be doing that amusing article I write about once a year concerning the trials and tribulations (and heartwarming moments) of taking the children to Manhattan at Christmastime. The kids get squashed against the glass department store windows, shoved under the tree at Rockefeller Center, and sliced to ribbons on the Central Park skating rink by hordes of Midwesterners, Europeans, and Japanese. Mumbai-Me might be tempted to slip in a bit of tasteless doggerel.

In yule New York, while suff'ring the

Ugly, rude tourist parade. A Gift-giving

thought occurred to me — Donation to


For the sake of accountability, sensitivity to hurtful language, and all things socially responsible, Adam Smith's flow of goods and services needs to be accompanied by at least the threat of another flow — getting a drink thrown in my face.

Then there is the matter of those goods and services — Adam Smith's gross domestic product. I am as grossly domestic as anyone. Where's the product? How come all the goods and services flow out of my income instead of into it? Of course, I understand that money isn't what's valuable. Love is what's valuable. And my bank account is full of love or something closely related to it, sex. That is, I've got [expletive]-all in the bank. And if money isn't worth anything, why was Alan Greenspan such a big cheese for all those years? Did he just go to his office and do Sudoku puzzles all day?

None of us, in fact, take the axioms of Adam Smith as givens — not unless what's given to us are vast profits, enormous salaries, and huge year-end bonuses resulting from unfettered markets, low labor costs, increased productivity, and current Federal Reserve policy. Like the AFL-CIO, France, and various angry and addled street protestors, we quarrel with Adam Smith. If this is to be an intelligent squabble we need to examine Smith's side of the argument in full. The Wealth of Nations is — as my generation used to say when my generation was relevant — relevant.