Book Review: On the Wealth of Nations

There are few more seminal figures in the field of economics than Adam Smith.  His book, An Inquiry into the Causes and Nature of the Wealth of Nations (hereafter referred to as ‘The Wealth of Nations’, so I don’t get carpal tunnel from repeatedly typing that name) is considered one of the first (if not THE first) book on economics, and originated concepts as diverse as the advantage of the division of labor to the ‘invisible hand of the market’ (Smith’s own term, by the way).  The Wealth of Nations is a true economic classic, and well worth a read.

Unfortunately, it’s also over 900 pages long, with a tendency to digress (there’s a 67 page digression on the history of silver prices, for example), making it a rather hard book for modern readers to get through. That’s where On The Wealth of Nations from P.J. O’Rourke comes in; you can get an understanding of the text without having to read through it yourself.  (Consider it a funnier, more snarky version of Cliff Notes(R).)  Does O’Rourke do justice to Smith and help you to understand The Wealth of Nations?  We’ll just have to find out.

Summary

Chapter one presents the start of the analysis of The Wealth of Nations.  Smith’s work emphasizes three individual prerogatives: the pursuit of self-interest, the division of labor, and the freedom of trade.  Pursuing our self-interest and desires causes us to want more than we could produce by ourselves, which drives freedom of trade, which allows labor to be divided, which allows specialization and creation of more objects that are desired by others, gradually leading to the betterment of all society.  Further points made by Smith include the fact that coercion from outside forces destroys the benefits of free trade, and that preserving the order of society is more important than the relief of misery.

The second chapter is aptly titled, ‘Why is The Wealth of Nations So Damn Long?’  The short answer is due to a combination of social pressure towards long books, the fact that economics was a new field and Smith had to explain every term he used, and that Smith frequently digressed (a 67 page digression on the history of silver prices is mentioned several times in the book).  The third chapter provides an overview of Smith’s first book, The Theory of Moral Sentiments, which is about how moral systems arise.  In it, Smith postulates the existence of an ‘Impartial Spectator’, the brain’s moral center, which seeks ‘to protect the weak, to curb the violent, and to chastise the guilty.’  This view of morality informs and shapes Smith’s economic writing in The Wealth of Nations.

Chapter four gets into the evaluation of The Wealth of Nations proper, starting with the first book, which looks into how wealth is produced and distributed.  It starts with an explanation of how humans are uniquely helpless, relying on the cooperation of many to sustain ourselves.  It goes on to discuss how property rights derive from the ownership of our labor and the products thereof and how humans specialize to maximize our productivity.  It also mentions the importance of specialization in increasing output and the (hopefully obvious) realization that price is what someone is willing to pay for something.

The fifth chapter covers the second book, a commentary on economics directed at the powerful in society.  Smith maintained that money was imaginary (albeit, not in so many words), that banks should work to render capital active and productive, and that there was great importance to regulating banks.  He also made many of the arguments for and against fiat currency (paper money not backed by gold or any other physical asset; it’s also the current form of every major currency on the Earth), back when such a thing was nearly unthinkable.  Chapter six finishes off the second book, providing some of Smith’s lessons on economic planning, including the government being a service to the need to control public spending.

Book three (and chapter seven) serve to cover an abbreviated economic history of the Western world, from the fall of the Roman empire to the situation Smith faced in the eighteenth century.  One of the more impressive stories is how feudalism was undermined.  Free traders (called burghers) grew in power and influence by giving the nobles fixed yearly tributes in exchange for freedom (the tributes, being fixed, would decrease in real worth every year), played the king and nobles off each other to keep either group from getting too powerful, and finally, created opulent items that led the nobles to spend more on baubles than on keeping their legions supplied.

Chapter eight is about political economy (the subject of Smith’s fourth book), which O’Rourke applies in particular to China and its current relationship with the United States.  The main points made by both men are that global trade is a net plus for all involved parties, the balance of trade is always good (assuming no coercion, each side is getting something that they want), and that tariffs, however well intentioned, will end up hurting the working class most.  Much of the remaining part of the fourth book (and chapter nine) are primarily attacks on the physiocrats, an economic theory (arguably, the first economic theory) that was popular in France during Smith’s time.  The major qualm Smith had with them was a love of the theory, the need for a broad, overarching theory that covered everything.

Chapter ten covers the last part of book four, Smith’s thoughts on the events occurring in America at the time (let it be noted that The Wealth of Nations was published in 1776, an interesting year for Americans).  Smith predicted the future of British-American relations as being very close due to a shared language and history, even following the revolution.  His suggestions to Great Britain included either simply giving America independence, or forming a combined government with them (neither option was followed, as any student of American history could tell you).  Let it be noted that Smith (himself a Scot) was not a great fan of America; he considered the colonists a group of skinflints who didn’t contribute to the cost of their own protection.

Chapter eleven covers Smith’s attempts at delving into public policy.  He touches on number of government policies, from the qualifications to be in government (Smith favored those with ‘superiority of birth’) to tax policy (he favored property taxes and a progressive tax policy, as well as a surcharge on anyone serving in government) to national debt (he considered it a public outrage).  Chapter twelve covers more of Smith’s political views, which was to be the subject of his third, never published book.  Other than a need for some government to protect property, it’s difficult to discern how Smith would have suggested structuring a government, as his previous statements on the issue of government hadn’t been overly clear, and at times were downright conflicting.

The last few chapters take a closer look at Smith himself.  Chapter thirteen reveals him to be a rather upstanding, not particularly quarrelsome fellow.  Never married, well-thought of by many of his contemporaries (an impressive group including statesmen, philosophers, and nobles), and beloved by his students when he was a teacher; he wouldn’t be a likely subject for a tell-all biography.  Chapter fourteen covers Smith’s religious beliefs; if anything, that’s an even more inscrutable subject.  Smith seems to have been a good Christian (at a time when many of the intellectuals with whom he was acquainted were Deists), but other than that, he was quite disinterested in metaphysics and seemed skeptical of most belief systems, including skepticism.  The book concludes with an appendix of Smith quotations applied to modern phenomena like caring and celebrities, with much of O’Rourke’s usual wit and intelligence.

Pros

-Very Readable: Not to speak ill of the dead (particularly when the dead have been as important to revolutionizing economics as Adam Smith), but attempting to get through his works can be a major undertaking, at least to modern readers.  O’Rourke has a tendency toward semi-obscure and highly literate references, but most of them will at least make sense to a modern reader.  The overall book is fairly light and entertaining fare, at least for an economics text.

-Well Researched: O’Rourke does a very good job of understanding not only Smith’s text, but also putting it into the context of the time Smith lived and wrote.  While much of Smith’s work applies as readily today as during the late eighteenth century, O’Rourke helps to illustrate how Smith’s vision would apply to our more modern world.

-Funny; Very, Very Funny: As I’ve noted in my past review of O’Rourke’s work, he’s pretty darn funny, even when discussing dry economic data.  Add in the fact that Smith has a decent sense of wit (if a dry, Scottish sort of wit) about him, and the book becomes much more humorous than the typical economics fare.

Cons

-Not Quite as Good as The Wealth of Nations: This isn’t Smith’s original 900 page tome, nor is it a Cliff’s Notes (R) version either.  Instead, it’ll give you a general idea of Smith’s meaning in a creative, funny wrapper.  Consider it a primer, rather than a substitute.

-Gets Off Track at Times: While the bulk of the book is a thorough review of The Wealth of Nations and the important points thereof, O’Rourke does digress himself from time to time (although, not for 67 pages at a stretch).  In particular, the chapters on Adam Smith’s personal life don’t add much to the discussion of his writing (especially with some of O’Rourke’s added innuendo); a decent understanding of the work can be had by stopping at the twelfth chapter.

Overall

On The Wealth of Nations is, as mentioned, not a substitute for reading Smith’s work itself, so if you have a test on The Wealth of Nations, you’ll need to go through it on your own.  On the other hand, if you’re simply trying to get a better feel for Smith, his most famous work, and some of the thoughts he had that are still a major part of economics discussions today, this makes a decent primer.  Just remember that O’Rourke isn’t Smith, and that his opinions on the work don’t represent Smith’s opinions (however hilarious O’Rourke might be).

4 Responses to Book Review: On the Wealth of Nations

  1. Hey,

    I have to admit, I’m no economist and I’d never heard of The Wealth of Nations before. I’m just and average guy who at one time was terrible with finances and had to learn tips on budgeting and frugality just to get by a few years ago, and now after soaking up all I can get, feel pretty good about where I’m headed.

    But thank for the inevitable challenge I’m sure I will someday curse myself with, committing to read 900+ pages on finance.

    I definitely think I’ll start with the primer ‘On The Wealth of Nations’ and see where that leads me.

    Thanks for the review,
    .-= Guy G.´s last blog ..How to Save Money – Tips on Budgeting =-.

    • Hi, Guy. Don’t worry; you definitely don’t need to read through ‘The Wealth of Nations’ to understand money management or personal finance. (Which is definitely a good thing, because clocking in at 900 some odd pages is a great way to ensure that your book won’t be read by very many modern readers.) If you do decide to give it a whirl, be aware that there are plenty of places to find it for free online, including Project Gutenberg (the link is included in the first paragraph). ‘On the Wealth of Nations’ is a pretty good book, and might make a good primer for ‘The Wealth of Nations’, so good luck with that, as well.

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