Word
Gems
What is a
man but the sum of his thoughts?
Economics:
Adam
Smith
- Adam Smith (1723-1790),
- the great Scottish philosopher and
economist,
- best known
for his book The
Wealth of Nations
"It
is not from the benevolence of the butcher, the brewer, or the baker that we expect our
dinner, but from their regard to their own interest. We address ourselves, not to their
humanity but to their self-love, and never talk to them of our own necessities but of
their advantages."
Adam Smith's famous
work, The Wealth of Nations, constitutes a stinging critique of mercantilism, the
crippling trade protectionism of his day. Smith argued that if people were set free to
better themselves, it would, "as if by an invisible hand,"
actually benefit the whole of society. The book influenced thought and politics profoundly
and was one of the foundations of future liberal free trade.
Further, The Wealth of
Nations sought to reveal the nature and cause of a nation's prosperity. The main cause
of prosperity, argued Smith, was increasing division of labor. Smith gave the famous
example of pins. He asserted that ten workers could produce 48,000 pins per day if each of
eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labor, a worker
would be lucky to produce even one pin per day.
Adam Smith the moral philosopher saw clearly that personal freedom
advances most quickly within free markets. I think the phrase of some years ago,
"trickle down economics," creates a misperception. People, ordinary people of
society -- if they enjoy personal and economic freedom -- will, themselves, create and
increase both wealth and general prosperity, without aid from on high. This power of the
enlightened and engaged individual is the true -- yes, the only -- engine of economic
growth for any nation and needs no "regulation."
Listen to Dr. Smith defend this idea -- he can barely contain
himself. We see him now rising from his professorial chair, daring anyone to challenge his
assertion:
"It is the highest impertinence and presumption, therefore, in kings and
ministers [politicians] to pretend to watch over the economy of private people, and to
restrain their expense. They [the politicians] are themselves, always, and without any
exception, the greatest spendthrifts in the society. Let them look well after their
own expense, and they may safely trust private people with theirs. If their own extravagance does
not ruin the state, that of their subjects never will... Perfect liberty can never happen if government heeds, or is
entrusted to, the mean rapacity, the monopolizing spirit of [protectionist] merchants and
manufacturers who neither are, nor ought to be, the rulers of mankind."
Today Smith's reputation rests on his explanation of how rational
self-interest in a free-market economy leads to economic well-being. It may surprise some
who would discount Smith as an advocate of ruthless capitalism that he was also a
celebrated moral philosopher at the University of Glasgow. Smith's
economics, properly understood, must be viewed within his vision of a just society, one
that would benefit all, poor and rich.
Human
nature & economic growth:
Virtue is more to be feared than vice,
because its excesses are not subject to the regulation of conscience.
The uniform, constant and
uninterrupted effort of every man to better his condition, the principle from which public
and national, as well as private opulence is originally derived, is frequently powerful
enough to maintain the natural progress of things toward improvement, in spite both of the
extravagance of government, and of the greatest errors of administration. Like the unknown
principle of animal life, it frequently restores health and vigour to the constitution, in
spite, not only of the disease, but of the absurd prescriptions of the doctor.
The
Wealth of Nations, Book II Chapter III
Little else is requisite to carry a state to the highest degree of opulence from the
lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the
rest being brought about by the natural course of things.
Lecture
in 1755, quoted by Dugald Stewart
Consumption is the sole end and purpose of all production; and the interest of the
producer ought to be attended to, only so far as it may be necessary for promoting that of
the consumer.
The
Wealth of Nations, Book IV Chapter VIII
Man was made for action, and to promote by the exertion of his faculties such changes in
the external circumstances both of himself and others, as may seem most favourable to the
happiness of all.
The
Theory of Moral Sentiments, Part II Section III Chapter 3
Such is the delicacy of man alone, that no object is produced to his liking. He finds that
in everything there is need for improvement.... The whole industry of human life is
employed not in procuring the supply of our three humble necessities, food, clothes and
lodging, but in procuring the conveniences of it according to the nicety and delicacy of
our tastes.
Lectures
on Justice, Policy, Revenue and Arms
The invisible hand:
Every individual...generally, indeed, neither intends to promote the public interest, nor
knows how much he is promoting it. By preferring the support of domestic to that of
foreign industry he intends only his own security; and by directing that industry in such
a manner as its produce may be of the greatest value, he intends only his own gain, and he
is in this, as in many other cases, led by an invisible hand to promote an end which was
no part of his intention.
The
Wealth of Nations, Book IV Chapter II
The rich ... divide with the poor the produce of all their improvements. They are led by
an invisible hand to make nearly the same distribution of the necessaries of life which
would have been made, had the earth been divided into equal proportions among all its
inhabitants.
The
Theory of Moral Sentiments, Part IV Chapter 1
Man has almost constant occasion for the help of his brethren, and it is in vain for him
to expect it from their benevolence only.
The
Wealth of Nations, Book I Chapter 1
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect
our dinner, but from their regard to their own interest. We address ourselves, not to
their humanity but to their self-love, and never talk to them of our necessities but of
their advantages.
The
Wealth of Nations, Book I Chapter II
No benevolent man ever lost altogether the fruits of his benevolence.
The
Theory of Moral Sentiments, Part VI Section II Chapter I
How selfish soever man may be supposed, there are evidently some principles in his nature,
which interest him in the fortune of others, and render their happiness necessary to him,
though he derives nothing from it, except the pleasure of seeing it.
The
Theory of Moral Sentiments, Part I Section I Chapter I
The division of labour:
The greatest improvement in the productive powers of labour, and the greater part of the
skill, dexterity and judgement with which it is any where directed, or applied, seem to
have been the effects of the division of labour.
The
Wealth of Nations, Book I, Chapter I
The difference between the most dissimilar characters, between a philosopher and a common
street porter, for example, seems to arise not so much from nature, as from habit, custom,
and education.
The
Wealth of Nations, Book I, Chapter II
As it is the power of exchanging that gives occasion to the division of labour, so the
extent of this division must always be limited by the extent of that power, or, in other
words, by the extent of the market.
The
Wealth of Nations, Book I, Chapter III
A gardener who cultivates his own garden with his own hands, united in his own person the
three different characters, of landlord, farmer, and labourer. His produce, therefore,
should pay him the rent of the first, the profit of the second, and the wages of the
third.
The
Wealth of Nations, Book I, Chapter VI
The whole annual produce of the land and labour of every country...naturally divides
itself into three parts; the rent of the land, the wages of labour, and the profits of
stock.
The
Wealth of Nations, Book I, Chapter XI
The profusion of government:
In the midst of all the exactions of government, capital has been silently and gradually
accumulated by the private frugality and good conduct of individuals, by their universal,
continual, and uninterrupted effort to better their own condition. It is this effort,
protected by law and allowed by liberty to exert itself in the manner that is most
advantageous, which has maintained the progress of England towards opulence and
improvement in almost all former times...
It is the highest impertinence and presumption, therefore, in kings and ministers, to
pretend to watch over the economy of private people, and to restrain their expense... They
are themselves always, and without any exception, the greatest spendthrifts in the
society. Let them look well after their own expense, and they may safely trust private
people with theirs. If their own extravagance does not ruin the state, that of their
subjects never will.
The
Wealth of Nations, Book II, Chapter III
Great nations are never impoverished by private, though they sometimes are by public
prodigality and misconduct. The whole, or almost the whole public revenue, is in most
countries employed in maintaining unproductive hands... Such people, as they them-selves
produce nothing, are all maintained by the produce of other men's labour... Those
unproductive hands, who should be maintained by a part only of the spare revenue of the
people, may consume so great a share of their whole revenue, and thereby oblige so great a
number to encroach upon their capitals, upon the funds destined for the maintenance of
productive labour, that all the frugality and good conduct of individuals may not be able
to compensate the waste and degradation of produce occasioned by this violent and forced
encroachment.
The
Wealth of Nations, Book II, Chapter III
The statesman who should attempt to direct private people in what manner they ought to
employ their capitals, would not only load himself with a most unnecessary attention, but
assume an authority which could safely be trusted, not only to no single person, but to no
council or senate whatever, and which would nowhere be so dangerous as in the hands of a
many who had folly and presumption enough to fancy himself fit to exercise it.
The
Wealth of Nations, Book IV, Chapter II
According to the system of natural liberty, the sovereign has only three duties to attend
to ... first, the duty of protecting the society from the violence and invasion of other
independent societies; secondly, the duty of protecting, so far as possible, every member
of the society from the injustice or oppression of every other member of it, or the duty
of establishing an exact administration of justice, and thirdly, the duty of 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...
The
Wealth of Nations, Book IV, Chapter IX
Though the profusion of government must, undoubtedly, have retarded the natural progress
of England towards wealth and improvement, it has not be able
to stop it.
The
Wealth of Nations, Book II Chapter III
If a nation could not prosper without the enjoyment of perfect liberty and perfect
justice, there is not in the world a nation which could ever have prospered.
The
Wealth of Nations, Book IV, Chapter IX
The man of system, on the contrary, is apt to be very wise in his own conceit, and is
often so enamoured with the supposed beauty of his own ideal plan of government, that he
cannot suffer the smallest deviation from any part of it. He goes on to establish it
completely and in all its parts, without any regard either to the great interests or the
strong prejudices which may oppose it: he seems to imagine that he can arrange the
different members of a great society with as much ease as the hand arranges the different
pieces upon a chess-board; he does not consider that the pieces upon the chess-board have
no other principle of motion besides that which the hand impresses upon them; but that, in
the great chess-board of human society, every single piece has a principle of motion of
its own, altogether different from that which the legislature might choose to impress upon
it. If those two principles coincide and act in the same direction, the game of human
society will go on easily and harmoniously, and is very likely to be happy and successful.
If they are opposite or different, the game will go on miserably, and the society must be
at all times in the highest degree of disorder.
Some general, and even systematical, idea of the perfection of policy and law, many no
doubt be necessary for directing the views of the statesman. But to insist upon
establishing, and upon establishing all at once, and in spite of all opposition,
everything which that idea may seem to require, must often be the highest degree of
arrogance. It is to erect his own judgment into the supreme standard of right and wrong.
It is to fancy himself the only wise and worthy man in the commonwealth, and that his
fellow-citizens should accommodate themselves to him, and not he to them. It is upon this
account that of all political speculators sovereign princes are by far the most dangerous.
The
Theory of Moral Sentiments, Part VI, Section II, Chapter 2
Planning, regulation, and subsidies:
[The man of system] seems to imagine that he can arrange the different members of a great
society with as much ease as the hand arranges the different pieces upon a chess-board; he
does not consider that the pieces upon the chess-board have no other principle of motion
besides that which the hand impresses upon them; but that, in the great chess-board of
human society, every single pieces has a principle of motion of its own, altogether
different from that which the legislator might choose to impress upon it.
The
Theory of Moral Sentiments, Part VI, Section II, Chapter 2
The natural effort of every individual to better his own condition ... is so powerful,
that it is alone, and without any assistance, not only capable of carrying on the society
to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which
the folly of human laws too often encumbers its operations.
The
Wealth of Nations Book IV Chapter V Section IV
To judge whether a workman is fit to be employed, may surely be trusted to the discretion
of the employers whose interest it so much concerns. The affected anxiety of the law-giver
lest they should employ and improper person, is evidently as impertinent as it is
oppressive.
The
Wealth of Nations, Book I Chapter X
The real and effectual discipline which is exercised over a workman is ... that of his
customers. It is the fear of losing their employment which restrains his frauds and
corrects his negligence.
The
Wealth of Nations, Book I Chapter X
The bounty to the white-herring fishery is a tonnage bounty; and is proportioned to the
burden of the ship, not to her diligence or success in the fishery; and it has, I am
afraid, been too common for vessels to fit out for the sole purpose of catching, not the
fish, but the bounty.
The
Wealth of Nations, Book IV, Chapter V
Taxation:
The Wealth of Nations, Book V Chapter II
Part II Appendix to Articles I and II
I. The subjects of every state ought to contribute towards the support of the government,
as nearly as possible, in proportion to their respective abilities...
II. The tax which each individual is bound to pay ought to be certain, and not arbitrary.
The time of payment, the manner of payment, the quantity to be paid, ought all to be clear
and plain to the contributor, and to every other person...
III. Every tax ought to be levied at the time, or in the manner, in which it is most
likely to be convenient for the contributor to pay...
IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets
of the people as little as possible, over and above what it brings into the treasury of
the state.
First, the levying of it may require a great number of officers... Secondly, it may
obstruct the industry of the people, and discourage them from...business... Thirdly, by
the forfeitures and other penalties which those unfortunate individuals incur who attempt
unsuccessfully to evade the tax, it may frequently ruin them, and thereby put an end to
the benefit which the community might have received from the employment of their
capitals... Fourthly, by subjecting the people to the frequent visits and the odious
examination of the tax-gatherers, it may expose them to much unnecessary trouble...
The
Wealth of Nations, Book V Chapter II Pt II
Privatization:
In every great monarchy of Europe the sale of the crown lands would produce a very large
sum of money, which, if applied to the payment of the public debts, would deliver from
mortgage a much greater revenue than any which those lands have ever afforded to the
crown...When the crown lands had become private property, they would, in the course of a
few years, become well-improved and well-cultivated...the revenue which the crown derives
from the duties of customs and excise, would necessarily increase with the revenue and
consumption of the people.
The
Wealth of Nations, I Book V Chapter II Part II
Public services are never better performed than when their reward comes in consequence of
their being performed, and is proportioned to the diligence employed in performing them.
The
Wealth of Nations,
Princes, however, have frequently engaged in many other mercantile projects, and have been
willing, like private persons, to mend their fortunes by becoming adventurers in the
common branches of trade. They have scarce ever succeeded. The profusion with which the
affairs of princes are always managed, renders it almost impossible that they should. The
agents of a prince regard the wealth of their master as inexhaustible; are careless at
what price they buy; are careless at what price they sell; are careless at what expense
they transport his goods from one place to another... No two characters seem more
inconsistent than those of trader and sovereign.
The
Wealth of Nations, Book V, Chapter II, Part I
The great object of the political economy of every country, is to increase the riches and
power of that country.
The
Wealth of Nations, Book II, Chapter V
As soon as the land of any country has all become private property, the landlords, like
all other men, love to reap where they never sowed, and demand a rent even for its natural
produce.
The
Wealth of Nations, Book I Chapter VI
Monopoly and competition
Monopoly...is a great enemy to good management.
The
Wealth of Nations, Book I Chapter XI Part I
The monopolists, by keeping the market constantly understocked, by never fully supplying
the effectual demand, sell their commodities much above the natural price.
The
Wealth of Nations, Book I, Chapter VII
The price of monopoly is upon every occasion the highest which can be got.
The
Wealth of Nations, Book I, Chapter VII
People of the same trade seldom meet together, even for merriment and diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to raise
prices. It is impossible indeed to prevent such meetings, by any law which either could be
executed, or would be consistent with liberty and justice. But though the law cannot
hinder people of the same trade from sometimes assembling together, it ought to do nothing
to facilitate such assemblies; much less to render them necessary.
A regulation which obliges all those of the same trade in a particular town to enter their
names and places of abode in a public register, facilitates such assemblies...
A regulation which enables those of the same trade to tax themselves in order to provide
for their poor, their sick, their widows, and orphans, by giving them a common interest to
manage, renders such assemblies necessary.
An incorporation not only renders them necessary, but makes the act of the majority
binding upon the whole.
The
Wealth of Nations, Book I, Chapter X
To widen the market and to narrow the competition is always the interest of the dealers
... 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, till
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.
The
Wealth of Nations, Book I Chapter XI
The natural price, or the price of free competition ... is the lowest which can be taken,
not upon every occasion indeed, but for any considerable time together...[It] is the
lowest which the sellers can commonly afford to take, and at the same time continue their
business.
The
Wealth of Nations, Book I, Chapter VII
In a free trade an effectual combination cannot be established by the unanimous consent of
every single trader, and it cannot last longer than every single trader continues of the
same mind.
The
Wealth of Nations,, Book I, Chapter X
In every profession, the exertion of the greater part of those who exercise it, is always
in proportion to the necessity they are under of making that exertion... and, where
competition is free, the rivalship of competitors, who are all endeavouring to justle one
another out of employment, obliges every man to endeavour to execute his work with a
certain degree of exactness... Rivalship and emulation render excellency, even in mean
professions, an object of ambition, and frequently occasion the very greatest exertions.
The
Wealth of Nations, Book V, Chapter I, Park III, Article III
Demand and value:
A very poor man may be said in some sense to have a demand for a coach and six; he might
live to have it; but his demand is not an effectual demand, and the commodity can never be
brought to market in order to satisfy it.
The
Wealth of Nations, Book I, Chapter VII
The desire of food is limited in every man by the narrow capacity of the human stomach;
but the desire of the conveniences and ornaments of building, dress, equipage and
household furniture, seems to have no limit or certain boundary.
The
Wealth of Nations, Book I, Chapter XI, Part II
By necessaries I understand, not only the commodities which are indispensably necessary
for the support of life, but whatever the custom of the country renders it indecent for
creditable people, even of the lowest order, to be without.
The
Wealth of Nations, Book V, Chapter II, Part II
[Value] is adjusted...not by any accurate measure, but by the higgling and bargaining of
the market, according to that sort of rough equality which, though not exact, is
sufficient for carrying on the business of common life.
The
Wealth of Nations,, Book I, Chapter V
The distribution of wealth:
What improves the circumstances of the greater part can never be regarded as an
inconveniency to the whole. No society can surely be flourishing and happy, of which the
far greater part of the members are poor and miserable.
The
Wealth of Nations, Book I Chapter VIII
No complaint ... is more common than that of a scarcity of money.
The
Wealth of Nations, Book IV, Chapter I
Banking and capital accumulation:
The judicious operations of banking, by substituting paper in the room of a great part of
this gold and silver, enables the country to convert a great part of this dead stock into
active and productive stock.
The
Wealth of Nations, Book II, Chapter II
In exchanging the complete manufacture ... something must be given for the profits of the
undertaker who hazards his stock in this adventure.
The
Wealth of Nations, Book I, Chapter VI
Capitals are increased by parsimony, and diminished by prodigality and misconduct.
The
Wealth of Nations, Book II, Chapter III
Parsimony, and not industry, is the immediate cause of the increase of capital. Industry,
indeed, provides the subject which parsimony accumulates. But whatever industry might
acquire, if parsimony did not save and store up, the capital would never be the greater.
The
Wealth of Nations, Book II, Chapter III
The proprietor of stock is necessarily a citizen of the world, and is not necessarily
attached to any particular country. He would be apt to abandon the country in which he was
exposed to a vexatious inquisition, in order to be assessed to a burdensome tax, and would
remove his stock to some other country where he could either carry on his business, or
enjoy his fortune more at his ease. By removing his stock he would put an end to all the
industry which it had maintained in the country which he left. Stock cultivates land;
stock employs labour. A tax which tended to drive away stock from any particular country,
would so far tend to dry up every source of revenue, both to the sovereign and to the
society. Not only the profits of stock, but the rent of land and the wages of labour,
would necessarily be more or less diminished by its removal.
The
Wealth of Nations, Book V, Chapter II
Free trade and the burden of America:
By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in Scotland,
and very good wine too can be made of them at about thirty times the expense for which at
least equally good can be brought from foreign countries. Would it be a reasonable law to
prohibit the importation of all foreign wines, merely to encourage the making of claret
and burgundy in Scotland?
The
Wealth of Nations, Book IV, Chapter II
It is the maxim of every prudent master of a family, never to attempt to make at home what
it will cost him more to make than to buy...What is prudence in the conduct of every
private family, can scarce be folly in that of a great kingdom. If a foreign country can
supply us with a commodity cheaper than we ourselves can make it, better buy it of them
with some part of the produce of our own industry, employed in a way in which we have some
advantage.
The
Wealth of Nations, Book IV Chapter II
To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia
should ever be established in it. Not only the prejudices of the public, but what is much
more unconquerable, the private interest of many individuals, irresistibly oppose it.
The
Wealth of Nations, Book IV Chapter II
The property which every man has in his own labour; as it is the original foundation of
all other property, so it is the most sacred and inviolable… To hinder him from
employing this strength and dexterity in what manner he thinks proper without injury to
his neighbour is a plain violation of this most sacred property.
The
Wealth of Nations, Book I, Chapter X, Part II
All systems either of preference or of restraint, therefore, being thus completely taken
away, the obvious and simple system of natural liberty establishes itself of its own
accord. Every man...is left perfectly free to pursue his own interest in his own way....
The sovereign is completely discharged from a duty, in the attempting to perform which he
must always be exposed to innumerable delusions, and for the proper performance of which
no human wisdom or knowledge could ever be sufficient; the duty of superintending the
industry of private people, and of directing it towards the employments most suitable to
the interest of the society.
The
Wealth of Nations, Book IV, Chapter IX
A great empire has been established for the sole purpose of raising up a nation of
customers who should be obliged to buy from the shops or our different producers all the
goods which these could supply them. For the sake of that little enhancement of price
which this monopoly might afford our producers, the home-consumers have been burdened with
the whole expense of maintaining and defending that empire. For this purpose, and for this
purpose only, in the last two wars, more than a hundred and seventy millions has been
contracted over and above all that had been expended for the same purpose in former wards.
The interest of this debt alone is not only grater than the whole extraordinary profit,
which, if it ever could be pretended, was made by the monopoly of the colony trade, but
than the whole value of that trade, or than the whole value of the goods, which at an
average have been annually exported to the colonies.
The
Wealth of Nations, Book IV, Chapter VIII
David Hume:
Thus died our most excellent, and never to be forgotten friend; concerning whose
philosophical opinions men will, no doubt, judge variously...but concerning whose
character and conduct there can scarce be a difference of opinion... Upon the whole, I
have always considered him, both in his lifetime and since his death, as approaching as
nearly to the idea of a perfectly wise and virtuous man, as perhaps the nature of human
frailty will permit.
Letter
to William Strahan, 9 November 1776.
|