On the Wealth of Nations
By P.J. O’Rourke. Atlantic, $21.95, 242 pp.
In a fit of hubris a couple of decades ago, I decided I was advanced enough intellectually to tackle Adam Smith’s The Wealth of Nations. After all, I had read Friedman, Sowell and Bastiat for pleasure. Surely, with a little bit of work, I could handle Adam Smith.
I got to about page 20. A few years later, I tried again and got about twice as far.
I had never appreciated my economics professor at Northwood University, Lawrence Reed, more than at that moment. Larry -- now head of the Mackinac Center, Michigan’s regional version of the Heritage Foundation -- taught us everything we needed to know about Adam Smith, but he never made his students crack the book, at least not his undergrads. "Life is too short," he quipped. And he undoubtedly did not want to discourage our interest in the subject he loved.
Economics is not boring, but lots of economic professors make it seem so by emphasizing charts and graphs as though human activity can be predicted mathematically. However, in his latest book, On the Wealth of Nations, P.J. O'Rourke muses that The Wealth of Nations just might be the only economics book that would be far less impenetrable with a few graphs here and there. Such things, alas, hadn’t been invented when Smith put his quill to paper.
Thankfully, O’Rourke is doing for everyone what Reed did for his students: making Adam Smith accessible, understandable and even interesting. Not just Adam Smith’s theories but Smith the man.
And I think that Smith would admire the effort, as it illustrates one of his basic precepts —the division of labor. In short, O’Rourke has read The Wealth of Nations so we don’t have to.
Smith’s enduring contributions, O’Rourke summarizes, are threefold:
- The positive contribution of self-interest
- The division of labor
- The principle of voluntary exchange
At the time, his most revolutionary concept was the notion that looking after one’s self-interest was not ignoble. While Smith was certainly a moralist, he put forth the notion that men had to be free to pursue advancement individually in order for civilization to advance.
From this flowed Smith’s idea of the division of labor. Instead of everyone needing to be jacks of all trades, Smith proposed that society would be much better off if everyone just did what he was best at; and the market would take care of the rest.
Also, contrary to the zero-sum outlook of the mercantilists and the current American Left, Smith proved the idea that any transaction involving profit has a winner and a loser was wrong. Absent fraud, both sides are beneficiaries of any voluntary exchange. These three elements were the logic behind Smith’s famed "Invisible Hand."
Smith also was among the first to recognize the social importance of the middle-class merchant and businessman. As O’Rourke writes:
"A good head for business is a middle-class invention. The ancient Greeks and Romans, for all their genius, didn't have it. Otherwise they would have abandoned slave labor with its health benefit and pension plan burdens. They would have freed the slaves, turned them into customers, and outsourced the unskilled jobs to Sogdiana and Gaul. The medieval burghers, besides becoming really free, became really smart in our present sense of the word. ‘The habits,’ Smith wrote, "of order, aeconomy and attention, to which mercantile business naturally forms a merchant, render him much fitter to execute, with profit and success, any project of improvement.’"
The publication of The Wealth of Nations in 1776 had an enormous effect on the thinkers of American Revolution — though, O’Rourke points out, American colonists were already living Smith’s principles.
"Even in the heady days leading up to the Declaration of Independence there was a prosaic and businesslike aspect to the American Revolution. The French Revolution did not get its start in a tiff over custom duties. The sans-culottes were not middle-class entrepreneurs like Paul Revere and Sam Adams, and running around without pants they weren't likely to become so. The Jacobins didn't put on feather bonnets to stage a commercial protest. If there ever had been a Paris Tea Party, the revolutionaries would not have been dumping oolong, they would have been scalping everyone in sight and then each other. No beer is named after Dr. Guillotin."
It might surprise some conservatives who have never read Smith but like to paraphrase him -- particularly his "Invisible Hand" concept — that archaic language is not the only thing that keeps The Wealth of Nations from being the bible of free-market economics.
Smith wrote The Wealth of Nations as an attack on mercantilism and to set out principles of how freedom is good for the economy; but his book is merely a work of genius, not divine inspiration. In short, some basic economic principles simply eluded him.
The one that seems so obvious to moderns is that Smith had no clue that supply and demand determine price. Even though his discussions of why silver prices should not be regulated and why great singers earn more than ordinary laborers illustrate how supply and demand determines the prices of commodities and occupations, Still, Smith held fast to the old "labor theory of value." He stubbornly refused to let go of the notion that a product was worth the labor put into it and the cost of ingredients.
Smith also had trouble putting a value on the service economy, O’Rourke points out.
"Later economists... felt that Smith undervalued the economic contributions of service. And he did. The eighteenth century had servants, not a service economy. It was hard for a man of that era to believe that the semi-inebriated footman and the blowsy scullery maid would evolve into, well, the stoned pizza delivery boy and the girl behind the checkout counter with an earring in her tongue."
One might think that O’Rourke and Smith are the unlikeliest of pairings: Smith was analytical in the extreme, while O’Rourke says, "My job is to make quips, jests, and waggish comments." But while it is that contrast that makes P.J. O’Rourke the perfect guide to cut through the endless text, he ironically shares one of Smith’s weaknesses.
Any contemporary reader of The Wealth of Nations is bound to get bogged down in the endless examples of the economics of 1776. O’Rourke’s too contemporary (but very funny) jabs at people no one will have heard of in 50 years, such as Bill Moyers and Paris Hilton, keeps the book from being the timeless commentary it might otherwise have been.
O’Rourke does something else that is valuable as well and completely unexpected. He resurrects Smith the writer, and discovers that Smith, like P.J himself, had a dry sense of humor and took plenty of jabs at those who violated the principles he was setting forth.
In the book’s final chapter, O’Rourke presents us with dozens of witty and insightful universal nuggets of wisdom panned from the silt of Smith’s seemingly endless specifics about trade policies of his day.
Reading P.J. O’Rourke On the Wealth of Nations is the way to understand one of the most important and influential thinkers of the past millennium —a t least for anyone with a normally busy life. O'Rourke also provides the bonus service of briefly discussing Smith's first, mostly forgotten work, The Theory of Moral Sentiments, giving additional intellectual context to Smith's later more famous work.
On the Wealth of Nations is a pretty fair one-volume introduction to the basic tenets of economics, also-- though Thomas Sowell’s masterful Basic Economics: A Citizen’s Guide to the Economy is the current king in that regard, ending the long reign of Henry Hazlitt’s classic, and still valuable, Economics in One Lesson.