Archives for posts with tag: The Wealth of Nations


Yeah.. tell that to Otto von Bismark

Why did I even mention his name?
Simple. He was the first secular – anti-clerical, to be more precise, political leader to consider a society as an ‘organism’.
He passionately hated the self styled ‘socialists’ yet he had treated the ‘working class’ a lot fairer than the future ‘popular democracies’ which revindicated themselves from Marx’s teachings.

But enough, for now, about Marx’s blunders.

Who among us has not yet read a personal improvement book?
And what was it about?
How to make yourself ‘better’?

How to ‘stand out’?!?

How many of you have read a ‘personal improvement’ book which mentioned ‘fitting in’ as opposed to ‘standing out’ at all costs?
Finding a place where your contribution will make a more significant ‘difference’ towards the shared well being versus making ‘your’ difference more noticeable to the whole world?

‘Do such books even exist?!?’

And the first three which come to my mind – well, four actually, are:

The Bible,

The Wealth of Nations – coupled with The Theory of Moral Sentiments, of course,

The Origin and Evolution of Species.

Also helpful would be
What Evolution Is by Ernst Mayr and
The Social Construction of Reality by Peter L. Berger and Thomas Luckmann.

I’d start with the last two though. And then jump directly to Adam Smith.

Happy reading!

We, but let me start with the beginning.

First of all, I find it very interesting that Adam Smith never used the expression.
He explained the intricacies of the market without describing it as being ‘free’. For him, the market had to be free in order to function properly…

But, perhaps, no country has ever yet arrived at this degree of opulence. China seems to have been long stationary, and had, probably, long ago acquired that full complement of riches which is consistent with the nature of its laws and institutions. But this complement may be much inferior to what, with other laws and institutions, the nature of its soil, climate, and situation, might admit of. A country which neglects or despises foreign commerce, and which admits the vessel of foreign nations into one or two of its ports only, cannot transact the same quantity of business which it might do with different laws and institutions. In a country, too, where, though the rich, or the owners of large capitals, enjoy a good deal of security, the poor, or the owners of small capitals, enjoy scarce any, but are liable, under the pretence of justice, to be pillaged and plundered at any time by the inferior mandarins, the quantity of stock employed in all the different branches of business transacted within it, can never be equal to what the nature and extent of that business might admit. In every different branch, the oppression of the poor must establish the monopoly of the rich, who, by engrossing the whole trade to themselves, will be able to make very large profits. Twelve per cent. accordingly, is said to be the common interest of money in China, and the ordinary profits of stock must be sufficient to afford this large interest.”

OK, he was talking about the XVIII-th century China… but I’m sure you already know that.

Then what was it which lead Britain on what is currently known as the ‘free market path’ but blocked China, until very recently, from following suit?
After all, the participants to both markets were driven by the same self interest and their efforts were determined by the same division of work. Not to mention the fact that China’s was a many times bigger market than Britain’s. Initially, of course.

Both countries had a lot in common. Both populations were similarly stratified and class conscious, both monarchies had reached the same level of impotency, both states were run by specialized coteries … what was the difference?

“A country which neglects or despises foreign commerce…”

For a market to be truly free – as in ‘fully functional’, those who participate in it need to be free to do as they see fit and to go wherever they wish.
For this to happen the participants have to feel free – to be conscious of their freedom, and those who oversee the market need to act only as ‘arbiters’ and never as rulers.

This was the difference between the XVIII-th England and China. The British authorities were a lot more permissive than those ‘in charge of’ China and the British subjects felt a lot freer than the Chinese.
While the British authorities did nothing more than police the market, the Chinese Mandarins actually run the day to day activity.
The end result being that the British merchant men learned to deal with each-other and ask for help only when the law was broken, while the Chinese were conditioned to look up for directions at every corner of the road.
As a consequence, the free participants to the free market have learned to respect each-other, and to collectively defend their freedom, while the mainland Chinese have been conditioned to accept that bowing your head was safer.

But people learn fast.
Just look at what’s currently happening in Hong-Kong.

“Capitalism has generated massive wealth for some, but it’s devastated the planet and has failed to improve human well-being at scale.”

Drew Hansen, Unless It Changes, Capitalism Will Starve Humanity by 2050,
Forbes, feb. 9, 2016.

I’m afraid we are dealing with a huge confusion.
Capitalism hasn’t generated anything and hasn’t starved, nor fed, anybody.
People did!

Capitalism is nothing more, nor less, than a particular manner in which we, ‘the people’, relate to property while ‘the free market’ is one of the manners in which economies are run.

And here’s the place where things become ‘murky’.

‘Oekonomia’ is Greek for ‘making ends meet’.

“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

According therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion.

Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776

The way I read it, Smith sees ‘wealth’ as people’s/nation’s ability to supply for their ‘necessaries and conveniencies’.
In other words, ‘to make ends meet’.

How we define our needs, the manner in which we choose to fulfill them and what we are disposed to ‘spend’ in the process… is our responsibility.

What is it that we need/want?
A healthy planet? Clean air/water/soil and a fair opportunity for each of us to earn their keep?

Or a dog eats dog type of contest for ‘who has the biggest pile of money’?

Capitalism can encompass both.

Unfortunately, the second scenario has nothing to do with ‘making ends meet’.
On the contrary!

“We are the last (semi) stable democracy on the planet without a universal health care system. Elsewhere in the world, health care is a utility taken for granted, like safe tap water or electricity. They pay for it, just like we pay for garbage service or highways, and it costs far less than our broken system. That is not an opinion. That is a reality easily revealed with a bit of travel. Like embattled cult members, we deny ourselves better policy outcomes to protect our deluded beliefs about the nature of markets and preserve our odd pathologies around race. That’s a choice we make…”

Chris Ladd,
Why Republicans Cannot Replace the ACA, Or Accomplish Anything Else,, Jul 20, 2017

ACA means “Affordable Care Act”.

‘Affordable’ for whom?

For those left out, of course…
And who was going to pay the difference?
Those already in, obviously…

See what I mean?

Health care can be seen in many ways.
As yet another opportunity for profit to be made – one of the best actually, since health is such a valuable commodity.
As a ‘social benefit’ extended by the society at large to (all?) its constituents. America already takes care of its elders, children and veterans, doesn’t it?
A combination of the first two. A free market where many independent health care providers cater for the needs of their customers – free to choose among the various providers – while the bills are picked up by a third party, financed through public contributions.

The only problem with the third option being our current obsession with money.
For as long as we’ll let ourselves be governed by the current mantra, “greed is good”, we’ll continue to perceive health care as nothing but yet another opportunity for some to get rich at the expense of everybody else.

How about an Efficient (Health) Care Act?
Opening the market – by allowing the patients to freely choose their doctors and by preventing  monopolies – would drive down the costs.
Cutting the middle-men – the insurance companies would no longer be needed since the public contributions would be collected by a public authority – would also help.

Would such a scheme work?
As I mentioned earlier, not before we give up ‘greed‘.
In order to trust yet another public authority with even more money we’d need at least some hope about that authority being populated by really honest people.
We’d also need many more ‘health care providers’ who actually love to help their patients – and make a decent living out of it – instead of so many people becoming involved with this ‘industry’ simply because it is among the very ‘rewarding’ ones.
And when I say ‘health care providers’, I mean all of them. Not only the doctors and the nurses – most of them do love their jobs and perform them almost heroically. (Some of/too many of) the Big and Small Pharma, (some of) the hospital ‘owners’, etc., etc….

Should we extend this scheme to other areas? Education, for instance? You bet!

Should we apply the same ‘weltanschauung’ to the rest of the economy?
Minus the ‘single payer principle’, of course?
Well, last time I read his work, Adam Smith was talking about “the Nature and Causes of the Wealth of Nations” and about “Moral Sentiments“, not about greedy individuals becoming filthy rich at the expense of their fellow human beings.

“In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But 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. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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. Nobody but a beggar chuses to depend chiefly upon the benevolence of his fellow-citizens. Even a beggar does not depend upon it entirely. The charity of well-disposed people, indeed, supplies him with the whole fund of his subsistence. But though this principle ultimately provides him with all the necessaries of life which he has occasion for, it neither does nor can provide him with them as he has occasion for them. The greater part of his occasional wants are supplied in the same manner as those of other people, by treaty, by barter, and by purchase. With the money which one man gives him he purchases food. The old cloaths which another bestows upon him he exchanges for other old cloaths which suit him better, or for lodging, or for food, or for money, with which he can buy either food, cloaths, or lodging, as he has occasion.”


Darwin had wrote “On the Origin of Species by Means of Natural Selection“.
Some of us had mistakenly understood ‘evolution’ as being a ‘fight for survival’.
‘Fight’ as in ‘kill/subdue all those around you’, not ‘strive to improve yourself’, unfortunately.

Ernst Mayr had put things right. ‘Evolution is not about the survival of the fittest but about the demise of the unfit.

Adam Smith, a philosopher, had explained to us that free market capitalism functions because ‘the butcher, the brewer and the baker‘ cooperate across their respective ‘professions’, fully understanding that by respecting each-others work each of them would better serve their individual interests than by struggling individually.
Unfortunately too many of his contemporaries, and some later exegetes, mistook Smith’s words as meaning that ‘Greed is Good’.
And proceeded accordingly. Which was just another ‘application’ of Gresham’s Law. The ‘greedier’ among the capitalists slowly climbed to a dominant position and created a situation later described as ‘savage capitalism.’
Since people have a tendency to over-react, and to make matters worse instead of solving the problem, Karl Marx came up with an even more stupid idea than ‘Greed is Good’. According to him, the world should be run, in an equally authoritative manner, by a different class of people. Not by the ‘greedy capitalists’ but by the ‘virtuous communists’.
As if there ever was any real difference between dictators…

Almost a century later than Smith, Emil Durkheim, a sociologist, revisited the concept of ‘cooperation’ – from another angle, and demonstrated that society had leaped forward when each of its members developed his/hers particular talents instead of toiling together indiscriminately.  And then traded, on the free market, the results of their efforts. Nothing really new, just told in a different manner.
A marked difference from the ‘rantings’ of Marx. Who, by the way, had assessed the situation perfectly. Which makes it all the more baffling the fact that he was able to propose such aberrant remedies.

Almost simultaneously with Durkheim, another guy had noticed two very interesting things.  After a successful career as an engineer Vilfredo Pareto had started to study economics. Then he turned his attention to sociology. As an economist he had noticed the Pareto Principle – 80% of the results (income) are produced by 20% of the causes (agents), while as a sociologist he discovered that whenever social mobility, upwards as well as downwards, is hampered, the society where this happens will, sooner rather than later, experience serious difficulties. In fact this observation is quite straightforward. Whenever young people from the ‘lower strata’ cannot accede, despite being better qualified and harder working, to more meaningful positions because those positions are ‘safeguarded’ for members belonging to the ruling minority, the people from the lower strata stop striving while those from the ruling minority become lazy and careless. The recipe for disaster, don’t you think?
If we put both Pareto’s observations together we discover something similar to Smith’s budding concept of a free market. Whenever an individual, or a group of individuals, become so powerful as to dwarf those around them, economically as well as politically, the free market, economically as well as socially, stops working.

That’s why all monopolies have never failed to collapse.
That’s why all authoritarian regimes, including those built according to Marx’s rantings, have eventually failed – causing great harm to those fool enough to believe in them.

That’s why dinosaurs had disappeared – they had grown too big for their own good.
They behaved as if they were ‘greedy’. They seemed more interested in dominating the world instead of minding their own business.
Fishes – which are older than dinosaurs – survived and thrived.
Crocodiles, alligators, turtles, tortoises, snakes and you name whatever other reptiles come to your mind have survived the same conditions that have cut the mighty dinosaurs down to size.

That’s why Mayr goes on warning us. ‘Evolution is not about the survival of the fittest but about the demise of the unfit.

Let’s not destroy ourselves, as a species, attempting to prove him wrong.

Pareto’s elite theory is rather straightforward.
As soon as a society ‘grinds to a halt’ tension starts to build up. A ‘lion’ – or a coalition of lions, will sooner or later seize the opportunity and ‘make a grab for it’.
By tearing the calcified sinews which tied the society down the lions actions unleash – for the moment, at least, the creative forces that could not assert themselves. Things become markedly better than they used to be.
Because the lions are ‘lazy’ they soon hire ‘foxes’ to run the show. Unfortunately the foxes tend to be rather narrow minded and soon their narrow-mindedness coupled with the decrepitude of the lion ‘in charge’ bring back the society to the original – aka bogged down, situation.
A younger lion/fresh coalition of lions restarts the cycle.
Basically we have the definition of the boom-bust cycle.
A very compelling example would be the manner in which communist states had crumbled under their own weight. Or the manner in which all monopolies – or even companies in dominant positions, eventually screw up. The automobile industry – a mature economic field, would be a very good example for this.
Nothing dramatically different from Schumpeter’s ideas, albeit at a different scale.
Ideally, in a free (aka fully functional) ‘market’ there are a number of lions which keep each-other at bay and a big enough number of foxes to keep the show together. The lions, acting in concert, make sure that the foxes do not take over while the foxes prevent the lions from driving the whole thing over the cliff.
If the circulation of the elites is hampered, in any way, shape or form, the continuous/evolutionary social and economical fine tuning no longer works and the society reverts to the boom-bust cycle.
A really free market would closely resemble Darwin’s, or more exactly Mayr’s, evolution while the present situation is one where the circulation of the elites has been brought almost to a halt.
The whole process tends to be rather ‘circular’. As in a vicious circle.
Or a virtuous one. As it used to be, until very recently.

NB. This blog is more like a collection of notes than anything else.
I write them down because doing this streamlines my thinking process and I make them public because readers’ feed-back (mostly on FB) is very helpful.

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