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On reading Adam Smith...

When I got my iPhone, one of the first applications I installed was an e-book reader, and ever since, I've been using spare time on the train, waiting in airports, etc. to read e-books. I started with Austen's Pride and Prejudice, then Machiavelli's The Prince (about how to run a monarchy; for some reason, it's much harder to find his companion volume The Republic about how to run a democracy), and most recently Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, which conservatives the world around hail as their founding document. It's fascinating book.

As I've posted here before, the U.S. seems to have several kinds of "conservatives", whose interests only occasionally and coincidentally agree: free-market conservatives, pro-big-business conservatives, and religious/social conservatives. Adam Smith is most decidedly a free-market conservative, and most decidedly not a pro-big-business conservative: his most scathing criticisms are of businessmen who subvert the power of government to help their particular company at the expense of the public interest. He's a populist capitalist: he has no objection to the rich getting richer, but he is at least equally interested (probably more so) in the poor getting richer, and he gives plausible-sounding arguments that in almost every case, a free market leads to that outcome.

In some areas Smith warns against things that still plague us today, like speculative bubbles, which he calls "overtrading". In other areas he seems blindly optimistic, e.g. his repeated reassurance that, although some few people might fall prey to the temptations of short-term gain or consumption for long-term loss, the number of such people can't be very large, and can't have any significant impact on the whole economy. And of course he doesn't seem aware of the "tragedy of the commons" issue, in which a transaction reaps a benefit to the individual making it, while spreading the costs among the public at large, and so each individual acting to maximize his own profit does not lead to a globally good outcome.

Some chapters seem irrelevant today except for historical curiosity, e.g. extensive discourses on the amount of actual gold or silver in the gold or silver coin of various nations, and on the bizarre (to our eyes) operations of the Bank of Amsterdam. In Smith's day, this bank took deposits in coin or bullion, and issued in return two pieces of paper: one for an amount of "bank money" and the other a "receipt", like a pawnbroker's ticket, for the right to redeem the metal at an agreed-upon price in "bank money". These two pieces of paper could each be sold, at whatever price the market would bear, and not necessarily to the same buyer. In practice, bank money was worth about 95% of the value of the deposit, and the receipt the remaining 5%. Bank money was immortal, but receipts expired after a number of months, after which they could be either renewed at the price of a storage fee on the value of the metal, or defaulted, in which case the metal stayed in the vaults but no particular person had the right to redeem it. Which raises the question of why the metal has to stay in the vaults.... Nonetheless, the bank promised its customers with sacred oaths that it would not lend out any of the coin or bullion in the vaults. Wow.

On the other hand, Smith's arguments against protective tariffs and quotas, whether general or targeted against specific countries, are probably as valid as they ever were.


I'm using Stanza, which is free and easy-to-use, and comes with links to several on-line repositories of free e-books (including Gutenberg).

I'm using Stanza...

Ah. The one that was just bought by Amazon. Do you think it will stay free?