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His name is known even to those uninterested and unread in economics, offered as it often is in defense of Laissez-faire policies, its mere incantation considered potent enough to constitute a conclusive argument against market regulation.

His magnum opus, Wealth of Nations, is considered the beginning of classical economics, constituting an early and powerful argument for “free markets” and “free enterprise”.

So Adam Smith and his work would appear to cast a large shadow.  Which is why his foundational text makes a great place to start to understand the economic system a large portion of the world lives within.  There is a problem though.  Wealth of Nations was published in 1776, and I find 18th century prose, for the most part, pretty intolerable.  And the Edwin Cannan Modern Library hardcover version is 1130 pages.  That’s 1130 pages of mostly dry, academic, 18th century writing.  I’m as masochistic as the next person, but my self hatred doesn’t run that deep.

I think, however, that I’ve found a solution in Robert Hielbroner’s The Essential Adam Smith.  It’s an abridged version of Wealth with modernized spellings.  It also contains Smith’s Theory of Moral Sentiments along with a few other selections of his writing and teaching.

What I’m not sure of is how exactly I’m going to write about the book.  I don’t think a book report or long synopsis will be helpful or particularly interesting, so what I plan to do is to provide some very brief words on the overall content of the sections I’m writing about and then focus on passages I find particularly interesting or illuminating.  But things may change.  Wealth is composed of five books, and each book is broken up into chapters, and I figure it makes sense that I break up my writing in the same way.  We start at the beginning:

Book 1

The title of book one is “Of the causes of improvement in the productive powers of labour, and of the order according to which its produce is naturally distributed among the different ranks of the people” and its length and syntax may provide a clue as to why I don’t much like 18th century writing.  Along with the full title of Wealth: “An Inquiry Into the Nature and Causes of the Wealth of Nations.”, this gives you a clue as to the project Smith is undertaking with the book, i.e. an investigation into why some nations are wealthier than others.

Chapter 1

“Of the Division of Labour”.  This is probably the most famous chapter of the book, at least it was the only chapter that I knew anything about before picking the book up.  It contains the description of a pin factory, and how division of labor and machines increases productivity by at least 240 times.  I think most will find his argument pretty commonsensical, though he does seem to sell pretty hard when discussing how inefficient bouncing from task to task is:

The habit of sauntering and of indolent careless application, which is naturally, or rather necessarily acquired by every country workman who is obligated to change his work and his tools every half hour, and to apply his hand twenty different ways almost every day of his life; renders him almost always slothful and lazy, and incapable of any vigorous application even of on the most pressing occasions.

The hyperbole here reminds me of infomercials that try to sell products by making the simplest tasks look herculean and fraught with danger.

Chapter 2

“Of the Principle which gives occasion to the Divison of Labour”.  Here Smith investigates how the division of labor arose, concluding that it wasn’t the “effect of any human wisdom”, but the gradual consequence of the propensity of people to barter and exchange.  If people are exchanging goods they will naturally produce that which they are best at producing so as to have the most/best of something with which to get the most in return when they barter.  In this chapter we encounter a famous quote:

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.

My initial reaction to this aphorism was to find it insightful, if maybe a touch banal.  But reading this Philip Pilkington piece at Naked Capitalism got me thinking.  I wonder how much economic models, or conceptions ( perhaps better put as simplifications for purposes of describing complex phenomena ), especially those that come from famous economists, rather than describe human economic behavior, actually end up influencing and defining how we view ourselves and society.

In distilling things down in this fashion, in putting self-interest forward as the most important connection between atomized individuals, I wonder if we’ve already encountered Smith’s most important ( though not necessarily intended ) influence on the modern world.

Also, the more I read those lines quoted above, the more I think that Rand’s novels and her Objectivism can be viewed as a reductio ad absurdum of the sentiments underlying them.  Which makes it interesting when we come across these lines later in the chapter:

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labor.  The difference between the most dissimilar characters, between a philosopher and a common street ports, for example, seems to arise not so much from nature, as form habit, custom, and education.

This rather sober (and I think accurate) survey of humanity as fitting mostly in the middle of a large bell curve, stands in stark contrast to the neat Randian bifurcation of humanity into the elite genius producers, the atlases holding the world on their shoulders, and the rest, the takers, the parasites.  (Clear echoes of the Randian sentiment can be heard in Romney’s infamous comments concerning the 47%)

Unfortunately the next several chapters get very wonky, discussing the origin of money and then interested mainly with the component parts of the price of comodities and how a price is arrived at.  And I’m spent after only 2 chapters.  This may take a while.

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Made in America

I feel the definite word on Rand has been said here:

There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.

Yet I press on.

It’s understandable that a girl whose family was roughly treated by the Bolsheviks during the Russian revolution would develop a hatred of anything smacking of “collectivism” to such a degree that she’d lionize “the individual” to the extent of psychopathy.  What’s far less understandable, and far more frightening is that she would be taken seriously and that the seed of her philosophy would find fertile ground in the United States in the 21st century.

It’s not that greed and self interest need a good salesman.  Those things do tend to sell themselves to humanity, usually within limits.  But why Ayn Rand?  Why such a transparently vicious ideology, explicated in a critically panned, overheated romance novel?  Whittaker Chambers wrote in the conservative National Review:

It is the more persuasive, in some quarters, because the author deals wholly in the blackest blacks and the whitest whites. In this fiction everything, everybody, is either all good or all bad, without any of those intermediate shades which, in life, complicate reality and perplex the eye that seeks to probe it truly. This kind of simplifying pattern, of course, gives charm to most primitive story-telling. And, in fact, the somewhat ferro-concrete fairy tale the author pours here is, basically, the old one known as: The War between the Children of Light and the Children of Darkness. In modern dress, it is a class war. Both sides to it are caricatures.

It does make sense that in the marketplace of extreme ideologies, subtly, nuance, and good taste may not be kindly rewarded.  And Rands personal story, growing up within the crucible of the Bolshevik revolution, the collectivist bogeyman of the 20th century, can’t hurt.  But successful national politics in the United States does not generally intersect with extreme ideas.  So what does a Rand follower who is running for Vice President of the United States do?  Turns out he pulls back, obfuscates, and ostentatiously sings the praises of entitlement programs.

Paul Ryan, Congressman from Wisconsin and Republican Vice Presidential candidate, spoke in 2005 at the Atlas Society’s “Celebration of Ayn Rand.”  (Audio can be found here)  He had a few things to say about the woman of the hour:

I just want to speak to you a little bit about Ayn Rand and what she meant to me in my life and [in] the fight we’re engaged here in Congress. I grew up on Ayn Rand, that’s what I tell people..you know everybody does their soul-searching, and trying to find out who they are and what they believe, and you learn about yourself.

I grew up reading Ayn Rand and it taught me quite a bit about who I am and what my value systems are, and what my beliefs are. It’s inspired me so much that it’s required reading in my office for all my interns and my staff. We start with Atlas Shrugged.

But the reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand. And the fight we are in here, make no mistake about it, is a fight of individualism versus collectivism.

That last bit about Rand being the reason for a career in public service seems odd given Rand’s low opinion of government bureaucrat types.  Rand as high school guidance counselor is more likely to suggest careers like “genius industrialist”, “genius copper mine baron”, or “genius architect”.  I can only figure that Rand can inspire a person to go into public service in the sense that the walls of Troy inspired the Greeks to build and gift the city with a horse.  Sincerity is not likely part of the equation.

But on August 14 of this year, Ryan went on Fox News and Brit Hume asked him about Rand (video here), and this is what he had to say:

I really enjoyed her novels, Atlas Shrugged in particular, it triggered my interest in economics, that’s where I got into studying economics, that’s why I wanted to study the whole field of economics.  I later in life learned about what her philosophy was, it’s called Objectivism, it’s something I completely disagree with, it’s an atheistic philosophy.

Put to the side that this is like saying you enjoyed the New Testament, but only later if life learned about this whole Christianity thing.  Why would Ryan speak at “Celebration of Ayn Rand” in praise of a woman whose philosophy he completely disagrees with?  In 2005 did he still think Rand was just a writer of crackerjack novels with interesting economic themes and hadn’t figured out that she had this whole philosophy thing going?  Not likely.

Not only have we been saddled, in the person of Alan Greenspan (Rand stood next to him when he was sworn in as Chair of the Council of Economic Advisers), with a Rand acolyte at the center of monetary policy for two recent decades, not only do we have Rand followers in congress, we now have one who may be Vice President, or who knows, President of the United States.  So to answer the enigmatic question posed in Atlas Shrugged, “Who is John Galt?”…it looks like he is a tragically unfunny, adolescent joke, played on us all.

A Serious Man

“But even though you can’t figure anything out, you will be responsible for it on the midterm.”
A Serious Man, Focus Features

How does the world work?  In this complex world there are any number of experts, specialists, and commentators who are eager to tell us what to think about various topics, what the meaning of events is, and what event caused what.  For me, as I imagine for many, growing up was a process of being regularly disabused of the notion that any significant portion of those presented to inform us have the slightest idea what they are talking about.  Not so much a phenomenon in the hard sciences that rarely push deeply into popular discussion, but in the softer sciences, especially that curious discipline with pretenses to rigor and that increasingly dominates our world: economics.  For in a world as frighteningly uncertain as it is complex, you can can be reasonably certain that the people spouting opaque, contradictory, or meaningless burblings about emerging markets or where bond rates are going have not the slightest idea if what they are saying is true.

So where does that leave us?  On our own, like Larry Gopnik’s students, unable to figure anything out, yet responsible for it on the midterm.  And there is always a midterm.  Life tests us constantly and we often don’t even understand the questions.  But maybe we can figure some of it out, or at least make the questions comprehensible.  That is what I hope to do with this blog, through reading, thinking, writing, and hopefully through the participation of readers.

As Keynes warned:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.  Indeed the world is ruled by little else.  Practical men, who believe themselves exempt from any intellectual influences, are usually the slaves of some defunct economist.