Five Ideas from the Wealth of Nations

As noted earlier, I am re-reading the Wealth of Nations. It is a long book and there is more about Sheep and Tallow than I would have preferred but Smith has a lot to say about several economic truths.

For example, On Slavery- Smith argues that slave owners in arbitrary regimes are more likely to treat their slaves more fairly than those in systems with established rule of law. Make no mistake about it, Smith has no support for any form of slavery but his comment is an interesting one. In those societies with a rule of law, the state is less likely to involve themselves in issues of property. Thus, in an arbitrary society, the leader has a greater need to be involved in all issues of property and thus is likely to set up better conditions for slaves.

On Famines and Governmental Interventions - Smith argues in Book III that "but by far the greatest number of cases by the fault of the seasons; and that a famine has never arisen from any other cause but the violence of government attempting, by improper means, to remedy the inconveniences of dearth." Smith argues that government will always help to misallocate resources in society be it in responding to a slow down in agricultural production or almost any other cause (this is also covered in other parts of the book). The evidence of some of the worst famines in the last two decades suggests the reality of Smith's observations.

Colonies - Smith argues that colonies result in misallocations of resources in the mother country and in the colony. That is a result of the demands of maintaining the system and is exacerbated by the role of mercantilist doctrine (which was the fundamental focus of the book). Smith's position here is similar to his earlier discussions of the benefits of the Act of Union. Ultimately, the best arrangement for colonies would be a freer status whereby economic trade is free and open between the former colony and the prior colonizer.

Mercantilist Economics - "The effect of bounties (special preferences for mercantile licenses), like that of all other expedients of the mercantile system, can only be to force the trade of a country into a channel much less advantageous than that in which it would naturally run of its own accord." The mercantile system gave exclusive licenses to firms so that they could limit sales of certain products to colonies or in areas of the economy or grant other privileges to some entities in society. That has a couple of negative consequences. First, the producers mis-price the commodities for which they have responsibility. That may mean over or under production of the commodity. Second, the client economy may produce some commodity which will require that economy to use resources which could have been more productively used in other situations. Smith takes on the production of tobacco which he argues employs English capital in areas which cannot be employed because of the concentration to other more productive areas. Smith argues elsewhere that corn is the right base commodity which should influence economic values in the rest of the economy. With tobacco the English produce requires them to inventory the tobacco that does not sell in the English economy. That reduced the total return of invested capital in the economy. Ultimately Smith argues that the system is built to aid producers to the disadvantage of consumers. In the end because it messes with normal market allocations it fails in its goals by not aiding the producers nor the consumers.

Mining - Smith is not a big fan of mining. He argues that the investment to produce revenues in mining are much more uncertain than any other similar investments. Gold and silver are never in veins deep and wide enough to produce a consistent level of return. Thus, some people win big. Smith anticipated the Gold Rush of 1849 in California and most of the Gold and Silver rushes in our history.

TWN is a great book. Smith seems to have been a careful academic, a lot of his discussion of values in the economy is based on research - therefore the discussions of the value of tallow and hides over time. While that detail is sometimes mind numbing - the kernals thrown out by Smith, beyond the Bull Headed Brewer, are worth wading through the comparisons.