An Inquiry into An Inquiry
into the Nature and Causes
of the Wealth of Nations
The Wealth of Nations is, without doubt, a book that changed the
world. But it has been taking its time. Two hundred thirty-one
years after publication, Adam Smith's practical truths are only
beginning to be absorbed in full. And where practical truths are
most important-amid counsels of the European Union, World
Trade Organization, International Monetary Fund, British Parliament,
and American Congress-the lessons of Adam Smith
end up as often sunk as sinking in.
Adam Smith's Simple Principles
Smith illuminated the mystery of economics in one flash: "Consumption
is the sole end and purpose of all production." There
is no mystery. Smith took the meta out of the physics. Economics
is our livelihood and just that.
The Wealth of Nations argues three basic principles and, by
plain thinking and plentiful examples, proves them. Even intellectuals
should have no trouble understanding Smith's ideas.
Economic progress depends upon a trinity of individual
prerogatives: pursuit of self-interest, division of labor, and freedom
There is nothing inherently wrong with the pursuit of self-interest.
That was Smith's best insight. To a twenty-first-century
reader this hardly sounds like news. Or, rather, it sounds like
everything that's in the news. These days, altruism itself is proclaimed
at the top of the altruist's lungs. Certainly it's of interest
to the self to be a celebrity. Bob Geldof has found a way to
remain one. But for most of history, wisdom, beliefs, and mores
demanded subjugation of ego, bridling of aspiration, and sacrifice
of self (and, per Abraham with Isaac, of family members, if
you could catch them).
This meekness, like Adam Smith's production, had an end
and purpose. Most people enjoyed no control over their material
circumstances or even-if they were slaves or serfs-their
material persons. In the doghouse of ancient and medieval
existence, asceticism made us feel less like dogs.
But Adam Smith lived in a place and time when ordinary
individuals were beginning to have some power to pursue
their self-interest. In the chapter "Of the Wages of Labour," in
book 1 of The Wealth of Nations, Smith remarked in a tone approaching
modern irony, "Is this improvement in the circumstances
of the lower ranks of the people to be regarded as an
advantage or as an inconveniency to the society?"
If, in the eighteenth century, prosperity was not yet considered
a self-evidently good thing for the lower ranks of people,
it was because nobody had bothered to ask them. In many
places nobody has bothered to ask them yet. But it is never a
question of folly, sacrilege, or vulgarity to better our circumstances.
The question is how to do it.
The answer is division of labor. It was an obvious answer-except
to most of the scholars who had theorized about economics
prior to Adam Smith. Division of labor has existed since
mankind has. When the original Adam delved and his Eve
span, the division of labor may be said to have been painfully
obvious. Women endured the agonies of childbirth while men
fiddled around in the garden.
The Adam under present consideration was not the first
philosopher to notice specialization or to see that divisions are
as innate as labors. But Smith was arguably the first to understand
the manifold implications of the division of labor. In fact
he seems to have invented the term.
The little fellow with the big ideas chips the spear points.
The courageous oaf spears the mammoth. And the artistic type
does a lovely cave painting of it all. One person makes a thing,
and another person makes another thing, and everyone wants
Hence trade. Trade may be theoretically good, or self-sufficiency
may be theoretically better, but to even think about
such theories is a waste of that intermittently useful specialization,
thought. Trade is a fact.
Adam Smith saw that all trades, when freely conducted, are
mutually beneficial by definition. A person with this got that,
which he wanted more, from a person who wanted this more
than that. It may have been a stupid trade. Viewing a cave
painting cannot be worth three hundred pounds of mammoth
ham. The mutuality may be lopsided. A starving artist gorges
himself for months while a courageous oaf of a new art patron
stands bemused in the Grotte de Lascaux. And what about that
wily spear point chipper? He doubtless took his mammoth
slice. But they didn't ask us. It's none of our business.
Why an Inquiry into Adam Smith's Simple Principles
Is Not an Inquiry, First, into Adam Smith
Most things that people spend most of their time doing are none
of our business. This is a very modern idea. It makes private
life-into which we have no business poking our noses-more
fascinating than private life was to premoderns. Adam Smith
was a premodern, therefore this book is organized in an old-fashioned
way. The man's ideas come first. The man comes afterward.
Adam Smith helped produce a world of individuality,
autonomy, and personal fulfillment, but that world did not produce
him. He belonged to an older, more abstracted tradition
When a contemporary person's ideas change the world, we
want to know about that person. Did Julia Child come from a
background of culinary sophistication, or did her mother make
those thick, gooey omelets with chunks of Velveeta cheese and
Canadian bacon like my mother? I fed them to the dog. What
elements of nature and nurture, of psychology and experience,
developed Julia Child's thinking? But there was a time when
thinking mostly developed from other thinking. The thinkers
weren't thinking about themselves, and their audience wasn't
thinking of the thinkers as selves, either. Everyone was lost in
thought. Dugald Stewart, who in 1858 published the first biography
of Adam Smith, excused its scantiness of anecdote
with the comment, "The history of a philosopher's life can
contain little more than the history of his speculations."
Another reason to put the history of Adam Smith's speculations
ahead of the history of Adam Smith is that Smith led
the opposite of a modern life-uneventful but interesting. He
was an academic but an uncontentious one. He held conventional,
mildly reformist political views and would have been
called a Whig if he'd bothered to be involved in partisan politics.
He became a government bureaucrat. Yet the essence of
his thinking-"It's none of our business"-will eventually (I
hope) upend everything that political and religious authorities
have been doing for ten thousand years. In a few nations
the thinking already works. There are parts of the earth where
life is different than it was when the first physical brute or
mystical charlatan wielded his original club or pronounced his
initial mumbo jumbo and asserted his authority in the first
The whole business of authority is to interfere in other
people's business. Princes and priests can never resist imposing
restrictions on the pursuit of self-interest, division of
labor, and freedom of trade. Successful pursuits mean a challenge
to authority. Let people take the jobs they want and
they'll seek other liberties. As for trade, nab it.
A restriction is hardly a restriction unless coercion is involved.
To go back to our exemplary Cro-Magnons, a coercive
trade is when I get the spear points, the mammoth meat, the
cave painting, and the cave. What you get is killed.
Coercion destroys the mutually beneficial nature of trade,
which destroys the trading, which destroys the division of
labor, which destroys our self-interest. Restrain trade, however
modestly, and you've made a hop and a skip toward a Maoist
Great Leap Forward. Restrain either of the other economic prerogatives
and the result is the same. Restrain all three and
you're Mao himself.
Adam Smith's Less Simple Principles
It is clear from Adam Smith's other writings that he was a
moral advocate of freedom. But the arguments for freedom in
The Wealth of Nations are almost uncomfortably pragmatic.
Smith opposed most economic constraints: tariffs, bounties,
quotas, price controls, workers in league to raise wages, employers
conniving to fix pay, monopolies, cartels, royal charters,
guilds, apprenticeships, indentures, and of course slavery.
Smith even opposed licensing doctors, believing that licenses
were more likely to legitimize quacks than the marketplace
was. But Smith favored many restraints on persons, lest brute
force become the coin of a lawless realm.
In words more sad and honest than we're used to hearing
from an economist, Smith declared, "The peace and order of
society is more important than even the relief of the miserable."
Without economic freedom the number of the miserable
increases, requiring further constraints to keep the peace
among them, with a consequent greater loss of freedom.
Smith was also aware that economic freedom has its discontents.
He was particularly worried about the results of excess
in the division of labor: "The man whose whole life is spent in
performing a few simple operations ... generally becomes as
stupid and ignorant as it is possible for a human creature to
become." We've seen this in countless politicians as they handshake
and rote-speak their way through campaigns. But it's
worth it. Productivity of every kind can be increased by specialization.
And the specialization of politics at least keeps
politicians from running businesses where their stupidity and
ignorance could do even greater harm to economic growth.
Adam Smith's More Complicated Principles
Smith's logical demonstration of how productivity is increased
through self-interest, division of labor, and trade disproved the
thesis (still dearly held by leftists and everyone's little brother)
that bettering the condition of one person necessarily worsens
the condition of another. Wealth is not a pizza. If I have too
many slices, you don't have to eat the Domino's box.
By proving that there was no fixed amount of wealth in a
nation, Smith also proved that a nation cannot be said to have
a certain horde of treasure. Wealth must be measured by the
volume of trades in goods and services-what goes on in the
castle's kitchens and stables, not what's locked in strongboxes
in the castle's tower. Smith specifies this measurement in the
first sentence of his introduction to The Wealth of Nations: "The
annual labour of every nation is the fund which originally
supplies it with all the necessaries and conveniences of life
which it annually consumes." Smith thereby, in a stroke, created
the concept of gross domestic product. Without GDP
modern economists would be left with nothing much to say,
standing around mute in ugly neckties, waiting for MSNBC
to ask them to be silent on the air.
If wealth is all ebb and flow, then so is its measure, money.
Money has no intrinsic value. Any baby who's eaten a nickel
could tell you so. And those of us old enough to have heard
about the Weimar Republic and to have lived through the
Carter administration are not pained by the information. But
eighteenth-century money was still mostly made of precious
metals. Smith's observations on money must have been slightly
disheartening to his readers, although they had the example
of bling-deluged but impoverished Spain to confirm what he
said. Gold is, well, worth its weight in gold, certainly, but not
so certainly worth anything else. It was almost as though
Smith, having proved that we can all have more money, then
proved that money doesn't buy happiness. And it doesn't. It
Adam Smith's Principles: Their Principal Effect
The Wealth of Nations was published, with neat coincidence, in
the very year that history's greatest capitalist nation declared
its independence. And to the educated people of Great Britain
the notion of the United States of America was more unreasonable,
counterintuitive, and, as it were, outlandish than
any of Adam Smith's ideas. Wealth was not light reading, even
by the weightier standards of eighteenth-century readers. But
it was a succes d'estime and something of an actual success.
The first edition sold out in six months, shocking its publisher.
Other than this, there is no evidence of Smith's work shocking
For instance, Smith's suggestion of the economic primacy of
self-interest didn't appall anyone. That self-interest makes the
world go round has been tacitly acknowledged since the world
began going round-a little secret everyone knows. And the
worrisome thought that money is imaginary had been worried
through by Smith's good friend David Hume a quarter of a century
earlier. Indeed the fictitious quality of money had been well
understood since classical times. In the two hundred years between
the reigns of the emperors Nero and Gallienus, imperial
fictions reduced the silver content of Roman coinage from 100
percent to none.
But, though its contents didn't make people gasp, something
about The Wealth of Nations was grit in the gears of Enlightenment
thinking. And that something is still there, grinding on our
minds, l could feel it myself when the subject of self-interest
Gosh, I'm not selfish. I think about the environment and
those less fortunate than me. Especially those unfortunates
who don't give a hoot about pollution, global warming, and
species extinction. I think about them a lot, and I hope they lose
the next election. Then maybe we can get some caring and
compassionate people in public office, people who aren't selfish.
If we elect an environmentalist mayor, the subdivision full
of McMansions that's going to block my view of the ocean
won't get built.
And let's face it, the "lower ranks of the people" do have
too much money. Look at Britney Spears. Or I'll give you a
better example, the moneybags buying those chateaux-to-go
on the beachfront. You with your four-barge garage and the
Martha-bitchin'-Stewart-kitchen that you cook in about as
often as Martha does the dishes. You may think you're not
the lower ranks because you make a lot of dough, but your
lifestyle is an "inconveniency to the society" big time, as you'll
find out when I key your Hummer that's taking up three
I know your type. All you do is work all day, eighty or a
hundred hours a week, in some specialized something that nobody
else understands, on Wall Street or at fancy corporate law
firms or in expensive hospital operating rooms. A person has
to balance job, life, and family to become a balanced ... you
know, person. This is why my wife and I are planning to grow
all our own food (rutabagas can be stored for a year!), use only
fair-traded Internet services with open code programming,
heat the house by means of clean energy renewable resources
such as wind power from drafts under the door, and knit our
children's clothes with organic wool from sheep raised under
humane farming conditions in our yard. This will keep the kids
warm and cozy, if somewhat itchy, and will build their characters
because they will get teased on the street.
Okay, yes, I admit that total removal of every market restraint
would be "good for the economy." But money isn't
everything. Think of the danger and damage to society. Without
government regulation the big shots who run companies
like Enron, WorldCom, and Tyco could have cheated investors
and embezzled millions. Without restrictions on the sale
of hazardous substances young people might smoke, drink,
and even use drugs. Without the licensing of medical practitioners
the way would be clear for chiropractors, osteopaths,
and purveyors of aromatherapy. If we didn't have labor
unions, thirty thousand people would still be wage slaves at
General Motors, their daily lives filled with mindless drudgery.
And if there weren't various forms of retail collusion in
the petroleum industry, filling stations could charge as little
as they liked. I'd have to drive all over town to find the best
price. That would waste gas.
Also consider the harm to the developing world. Cheap pop
music [MP.sub.3] downloads imported from the United States will
put every nose-flute band in Peru out of business. Plus some
jobs require protection, to ensure they are performed locally
in their own communities. My job is to make quips, jests, and
waggish comments. Somewhere in Mumbai there is a younger,
funnier person who is willing to work for less. My job could
be outsourced to him. But he could make any joke he wanted.
Who would my wife scold? Who would my in-laws be offended
by? Who would my friends shun?
Excerpted from "On The Wealth of Nations (Books That Changed the World)" by P. J. O'Rourke. Copyright © 2006 by P. J. O'Rourke. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.