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Adam Smith

Free trade vs Protectionism

There is a lot of criticism of how we are sending US jobs abroad. As someone who believes in the free market, it is often hard for me to defend against this. Free trade vs protectionism is an old debate. Even I have doubts, then my doubts have doubts. So if you are someone who is arguing for the protection of US jobs, you are preaching to the choir.  I agree. However, to achieve this protection of jobs is exactly where the free-trade camp differs from the protectionists.  Free traders believe high-level jobs replace the low paying jobs lost. Protectionist do not buy it. Once I let my emotions calm and I yield to the logic of the argument of Adam Smith,  I once again find myself in the free-trade camp. Let me explain how it works. If you disagree please comment.

Free trade is like two women taking a bath

After this metaphor, free trade will never look so good to you. Imagine there are two bathtubs of water. One hot and one cold. The hot one represents a rich country like the USA or Germany. The cold bathtub represents a relatively poor country like India or Poland. Imagine anyone you want in these tubs. For this example, I use two women.

The USA exports jobs like customer service call centers to India and Germany exports jobs like manufacturing cars to Poland or accounting services as does the USA.

When two economies are linked hot water warms the cold tub. Both tubs eventually gravitate towards the same temperature. The rich countries seem to lose jobs and income while the poor gain and become richer.

This is the argument against free trade. This is why there is fear. People fear that they will lose their nice bath and be sitting in a cool tub. Then some of the bubbles may disappear also. And we would not want that now, would we?

One bath gets warmer while the other bath gets cooler until you add more hot water. That would not be added unless free trade existed. This is why it makes the world rich so we all can take hot baths.

However, one country losing warm water at the expense of another is only true when you have a static model. What happens is the exchange of water temperature generates tremendous synergy and thermodynamic energy if you will. There is a third valve which is rewarding the people in the hot tub. It is new hot water pouring in. It is like some invisible hand reaches from behind one of these girls and pours a vase of refreshing warm water down their back (imagine who you like here). This is the reward of free trade.

Hot water is coming into the USA in the form of lower prices for consumers, more innovation, more competition and the rewards of ownership capital. Further, the developing markets will start to have the power to consume our products. It is not as tangible at first glance as the outsourcing, but it is real and more powerful.

My experience with American wealth – I left the USA 7 years ago and moved to Poland. From time to time I return home and am even thinking of moving back. When I am in the USA I do not remember so many Americans with so many gadgets and big cars and so many people selective about organic vegetables.  Despite the impression Americans have of themselves, I see the USA as a rich country. This is because Americans are the great free traders of the world. I have lived in controlled economies and it is no fun.

Do not confuse a business cycle caused by reckless credit expansion by the Federal Reserve bank or government out of control with Free trade. Free trade has made the world rich from the beginning of time.

If free trade was so bad why …?

If free trade was so bad how would you explain 250 years of American prosperity? How would you explain a city like Hong Kong? Trade routes from ancient times. Adam Smith pointed out that everyone wins. No matter who you look at it, they do. Just compare the free economies of the world (like South Korea) and the controlled economies of the world (like North Korea).

The mercantilism approach (modern-day protectionism) of hoarding ye gold bullion might inspire the rabble and populous parties but they will lose their power if implemented.

Economic meltdown if free trade stopped – Think about it if one morning you woke up and free trade stopped. If your wife could not drive her car with foreign oil to get some Italian olive oil at Whole Foods and buy a Turkish made blouse on sale at the strip mall, and you could not use your laptop or mobile device made in China to check either the Drudge report or the Huffington Post, a lot of people would be pretty cranky. And that would only be the beginning.

Economist Greg Mankiw got into some hot water when he tried to explain this argument related to free trade and outsourcing. I recommend you check out this argument which is really the argument of Adam Smith.

State protectionism example

Here is another analogy that might further clarify the benefits of free trade. What if Connecticut banned intrastate free movement of labor and capital with Massachusetts. What would happen? Or if one town would not trade with another. Boston would not trade or do business with that wild frontier town west of the Charles river Cambridge, MA.  Or one household would not trade with another? Sure we all could be producing everything ourselves in our own homes A to Z from gardening to doctoring, but civilization would not progress as far. Even the Amish trade between communities and households.

So next time someone questions if the USA should follow a free trade or protectionist policy for economics think of my two women in the bath. Let me know your thoughts. Just do not vote, but leave a comment.

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Adam Smith

Adam Smith Laissez-Faire

Was Adam Smith laissez-faire?

What did it mean that Adam Smith was laissez-faire? This asks another question, did Adam Smith really support an economy free from government interference? Generally yes, but there is more to the story and it is worth trying to understand more on the subject. The most important thing is to understand why Adam Smith believed, what he believed in. He believed a government that leaves people alone to live their lives according to their own judgment is the best for all.

The reasoning behind this is the collective unconsciousness of society moves at the speed of light to shift and respond to the patterns of consumer demand.  What is valued today will change and people will intuitively pick up on societies demands and bring to market those needs.

This is me, your humble author. I am an Economics professor, but I have several small fields of organic vegetables. I am responding to free-market forces which in the last few years have changed and demanded local organic food.

Capitalism does not have to be bad. Adam Smith recommended laissez-faire with a government that facilitates the development of the human mind and promotes the peace, however, not one that has its hands the market.

The core tenets Laissez-faire

  • The individual is the basic unit and mover in economics
  • Individual rights and freedoms are to be protected, this is the role of government
  • The natural order of things in nature, the physical world, and economics are self-regulating creating a harmony
  • Watch corporations for the disruption of the spontaneous order

Spontaneous order is what happens when you leave people alone—when entrepreneurs… see the desires of people… and then provide for them. They respond to market signals, to prices. Prices tell them what’s needed and how urgently and where. And it’s infinitely better and more productive than relying on a handful of elites in some distant bureaucracy.  – Lawrence Reed

For everyone protesting capitalism and free-market economics, consider the good it does. As in this illustration above, I am incentivized by the market to grow organic vegetables. How is that bad? How is that not enlightened self-interest? It benefits society as a whole. It is not the cold-hearted pedantic Objectivism of Ayn Rand, nor the greed of dishonest Wall Street bankers, nor the bloated ludicrous Washington, DC establishment, (like Panem in the Hunger Games), but rather, you and I left to our own creative expressions to take things to market.

Who do you have more confidence in, an entrepreneur who not afraid to get this hand dirty or government worker? Then why not choose the Adam Smith free market?

The government? They move at a snail’s pace and complicate things.  Laissez-faire economics, in contrast, draws on the intelligence and creativity of individuals in aggregate. A free market that has limited, but some government.

Workers are not exploited in a free market but rather entrepreneurship flourishes in workshops and projects with intellectual capital.

Adam Smith’s laissez-faire economics meant:

When people are given the freedom to be the best they can be, the result is the rich and the poor have a better economic situation. Yes, the poor are the ones who win in the free trade capitalism of Adam Smith.  The purpose of government is not to make everyone equal. It can not happen, but rather give everyone the freedom to make choices on their own enlightened self-interest.

The philosophers of the enlightenment believed that the role of government was to protect the rights of the individual so people and society as a whole would be happier. After all, happiness is the goal of life. In my heart of hearts, I truly believe in the ideals of the enlightenment. It was a great time for humanity and philosophy. I believe in the innate goodness of men. I believe that all people have the ability to achieve great things in this world, everyone.

  • The only two things that can hold you back are wrong thinking or wrong government.

It believed that men basically have the same innate ability to do well in life if given a chance. This means freedom. After all, I am an American who has to spend a good part of my life in Eastern Europe. I can compare two economies, one that is free and one that is not.

In contrast, John Maynard Keynes in his essay The End of Laissez-faire in 1926 believed the market can not regulate everything and the government should be involved on a case-by-case basis. Keynesian economics has caused uncounted suffering of people because it has been the playbook for government in the 20th and 21st century discounting the ideas of Adam Smith.

What does this have to do with laissez-faire?

With this freedom from the burden of government people strive to be the best they can be, individuals will be happier and so will society.

The poor will become middle class relatively fast with laissez-faire.

Laissez-faire means ‘let do’ translated from French or ‘let it be’. Adam Smith never uses the term in his Wealth of Nations nor in his The Theory of Moral Sentiments. This is surprising as it often connected to Adam Smith.  I think simply because it was a French expression. However, there is another reason.

I think people confuse his idea of the invisible hand with laissez-faire. The invisible hand is more about the unintended consequences of individual action on society as a whole. While laissez-faire is a philosophy where the government is hands-off business. And does not compete, regulate, tax business excessively. Similar ideas but a slightly different focus. The classical liberal thinkers like Adam Smith wanted to answer the question of how to maximizes your happiness.

The origins of laissez-faire

This French word import dates back several hundred years. It comes from M. Le Gendre when he and some French business leaders were asked my the French Mercantilist economic minister what the government could do to help their business. His reply was laissez-faire, lets us be. Every job creator knows the best thing government can do is let the markets work. Vincent de Gournay was the French 1750s version of Ronald Reagan. The French commerce minister fought hard against encroaching government regulation. He tried to deregulate business and the result was positive. We need this today.

Leave it to itself has been the proper motto of public powers since the dawn of civilization. Appalling is the principle of seeking glory solely by debasing our neighbors. In it are but the malice and spitefulness of heart typical of fat cats; the public interest lies elsewhere. Leave it to itself, for the love of God. Leave it. – Colbert–Le Gendre – Journal économique 1751

In English it first appears two years before Wealth of Nations, in 1774 in 1774, Principles of Trade by George Whatley, he co-authored the book with Benjamin Franklin. The first classical economics to use the term was Jeremy Bentham.

What does Adam Smith have to do with laissez-faire?

It is interesting that Adam smith does not use this term once in any of his works. Smith was describing something similar, but more radical and detailed than the simple notion of ‘let us be’.  Adam Smith was making an argument that when government protects individuals freedoms. This is classical liberalism. I rather than business, societies will thrive, people will be happy.

Rent controls are a classic example of government action in the free market, decreases the happiness of the supplies and consumers of apartments. In contrast, free enterprise competition brings society to equilibrium or harmony.

Wealth of Nations Adam Smith laissez-faire economics did not mean:

  • Greed
  • Selfishness
  • No government
  • Taking advantage of workers

Adam Smith is one of the most referenced economists of all time, but I think many people use his thinking to support their own views on Political economy without reading him. I have created a free e-book of Adam Smith’s wealth of nations. This book was not written for the capitalist class, but for all people especially the poor. I created a free e-book that has his complete Wealth of Nations for free to download if you want to read him directly and read about laissez-faire economics first hand.

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Adam Smith

Wealth of Nations in PDF for free

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

Everyone talks about Adam Smith but how many people actually have read him? His book can change your life the way you understand politics and economics. People say OK free trade and the invisible hand, however, there is a lot more.
Do not read what other people say about him, read his actual words.

You can download it here -> Wealth of Nations

My gift to you is a complete unabridged version e-book. This is a free download of the Wealth of Nations by Adam Smith in PDF. It is in a clear and easy to read the book. I created a beautiful professionally designed book for any type of e-book reader or simply on your computer.

Once you read Adam Smith your view of the world, politics, and economics will change. You will see why the Wealth of Nations was a banned book in many Western and Eastern countries. It is radical thinking, even today.

This is a free download of Adam Smith’s book in Adobe PDF, which can be read on every type of mobile device. I was going to publish it in hard copy but it’s too big of a book. It is better you have a PDF version and if you get bored skim it. I made it in a very easy on the eyes format.

Why read the Wealth of Nations?

  • Smith was a radical.
  • Adam Smith clearly explains why countries are rich and poor.
  • The Wealth of Nations explains why some people are wealthy and others are not.
  • It will answer your questions about outsourcing, manufacturing going overseas and China.
  • Adam Smith will explain an individual’s behavior with greater clarity than any psychologist.
  • It is an interesting book.
  • It will put you at a higher level than many experts on the economy who have not read Wealth of Nations.
  • You will have a clear rebuttal to any liberal.
  • Do you think the current President has read Wealth of Nations?

The book was published the same year as America declared independence from England, 1776. Some people have used it as the basis of economic theory, while others use it as the book that explains the world of trade and political economy. For me, I have used it as a model for my own personal financial success.

The Smith five books of Political Economy are:

  • The causes of improvement
  • Nature, accumulation, and employment of stock
  • The different progress of opulence in different nations
  • System of political economy.
  • The revenue of sovereign or commonwealth
Original book cover of Wealth of Nations by Adam Smith

Let me know what you think of Adam Smith’s book. I think it can be applied to everything from free trade vs. protectionism to low or high taxes, government spending, health care, government debt, banking and a lot more. If you have an interest in Hume, the enlightenment it will be of interest. If you have an interest in the Road to Serfdom by Hayek, it will be of interest to you. If you want to know how to solve the economic crisis read Adam Smith. I think the most important point in Adam Smith’s book is how to help the poor. How to help the working classes and the average man. Forget pop culture and mass-marketed books, read this classic.  If you read Smith’s book you will be a richer person in more ways than one.

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Adam Smith

Adam Smith on how to make money

Did you know Adam Smith outlines why people are poor and others are rich? If you apply his thinking to a modern free information global economy, you can free yourself from poverty and make money. With this insight from a great economist from the past, you can add value to society as well as have a better economic life.

This is a pretty long post so I recommend you print the post and read it as well as the posts referenced here, in the bath or while you are shopping. This can the first step to making money from the wisdom of the classical economist Adam Smith. First, bookmark this website or subscribe to my political economy website.

I have applied these ideas to my own life and now I do not have to work as I make money in other ways.

The rich are lucky and the poor are unlucky – or can we all make money?

I once read that poverty is a mental disease.  I don’t know if I would go that far.

  • However, your attitude is a major determinate criterion for how much you can potentially earn.
  • There are many reasons why people make money.
  • I would say that luck and circumstance in which they were born is the primary reason that people are richer or poor to the age of about thirty. After that, you need to start taking some responsibility for your own life.

Take a look around you, if you were born in Connecticut as opposed to Africa, you would have a better chance of earning a higher income in your preppy, country club surroundings, than in a poverty-stricken zone with no infrastructure or where educational facilities are less in Africa. The real trick is to understand this but not to let it limit you in life. By about the age of thirty, you can start being aware of this and take charge of your life.

What Adam Smith recommends how to make money

Once you become aware of the fact that earning money is something that everybody has the potential to do, then you can free yourself to some extent from your circumstances.  Your belief and not environment limit you. It is toxic to believe otherwise.

Adam Smith believed we all have about the same innate ability.  You must believe this. You can not believe your place of birth or your brain or anything else limits you. You must trust the thinking of Adam Smith in this regard. Read his words and arguments yourself.

It is only the difference in the upbringing, education and belief system that limits our ability to make income. Adam Smith wrote about this while writing about the division of labor, but the message is very clear. He was an enlightenment philosopher. I believe in the ideal of the enlightenment.  Be enlightened. I recommend you take this idea to heart if you want to better give a comfortable life for your family. Adam Smith believes you can make money as well as anyone else given the right education. With the Internet and mass literacy, there is not the reason you can not self educate yourself.

My economics professor at Trinity was working in a steel mill until about thirty, he decided, why should I make just a wage when I can do something I really want to do with my life and make more. He started to study economics.

The worst thinking there is when it comes to money

  • The belief that you do not have a talent or are not smart or you are different than others. – We are all adding up to 100%. Even if you think you have below-average intelligence, talent, looks or whatever lies your mental programming is tell you, you can make money, more than you can imagine. Even if you can imagine a lot.
  • The belief that the government will help or almost as bad as your company. -No one will knock on your door and give you ten thousand dollars a month, every month. Forget politics and start thinking economics.

Let us say you believe you have low creativity. Why not look into this free method for increasing your intelligence called ‘image streaming’?  You are not good-looking? I have never seen a person that did not have beauty, join the gym and get a nice hair cut and some style.  Education is limiting you, buy some books and educate yourself. Be radical and take charge of your life.

Examples of things I did to set me free and allowed me to make money

I will give you specific examples of things I did. Maybe this will sink in our brain more than economic theory. Things that I did that allowed me to quit my job, and why I recommend you quit your job, eventually, if you are serious about making money.

  • I spent many years buying books and reading on my learning from square one. Books are better than the Internet and school for education. I learned to program on my own as well as philosophy, including Adam Smith’s Wealth of Nations. Read the classics like Ludwig von Misses and Friedrich Hayek on economics, Milton Friedman, etc. Do not read liberal economics which will tell you its the government, read free market classics. Do not read about selfishness, read about spirituality based on work and sacrifice and love, like Mother Theresa. The read specific knowledge books that will help you be the person you want to be. Read classics that are positive and uplifting not cynical.
  • I not only moved my city, but I also moved to a new country where I did not speak the language, I learned a language even though I am horrible with languages. Do not let where you live to limit you. Your life is an empty canvas.
  • I am actively indifferent to whether I have money or not, it is more about doing what you really love to do in your life and see myself as a humble imperfect servant of God. If you need help ask for it from above and see what happens. However, whatever is God’s will accept it.
  • I believe in a hard way.

The attitude from Adam Smith or American get rich books?

Attitude determines altitude is a very American idea, it is a very popular idea gained self-help books. The reason I prefer Adam Smith to these self-empowerment books as he was not writing to inspire emotions, but as an observation and seeker of the truth. He was not trying to sell you. He also had one important message that people leave out in modern books or at least devalue.

The idea that income is generated because you create something of value.  To create something of value and of interest to other people this takes patience and hard work.  I believe in the hard way in life, mostly.  I don’t believe in getting rich quick.  I believe that everybody can give and add to society.

Understand money is a store of value or a store of productive efforts, not something you get just because.

Books I recommend for changing your attitude about economics and wealth

Buy books and take inspiration from classic or books are written by economists and great thinkers of the past. Ignore most modern writers like Antony Robbins or the Four hour work week guy. Why? The latter tends to evoke raw emotion, while the former will get your slowly thinking about life and the world. It is better to read three pages of someone like Adam Smith than a whole modern book.  So read only a few pages, this is OK.

Start with Adam Smith’s Wealth of Nations, then maybe the  book Small is Beautiful by E. F. Schumacher (This book outlines thinking about small-scale economics. Not exactly a capitalist book but some ideas are good for those who believe it take working for a company to get rich), or Free to Choose by Milton Freidman, the Road to serfdom by Hayek.   One modern book I would recommend is by Erik Wesner Success made simple on why the Amish succeed in business. You can take inspiration from the Amish in America.  The Amish use very little technology, however, is America’s most successful business community. A spiritual idea I recommend is the idea of active indifference in the Spiritual exercises of St. Ignatius or anything by Mother Theresa.

How to create wealth

Therefore, the question is not how to make money, rather what can you personally create that would be of value to other people? If you don’t know the answer to this here is how you can discover it.  Go back to what you like to do when you were a child. What interested you before your parents and teachers got involved in your brain.  Society basically programmed you work for corporate America. You have to de-program and learn to think about adding value and create.  You can create value to other people even if you have no technology were capital at your disposal.

My basic idea is you don’t need anything more than you are already given by God.

Examples of making money with your own talent you have already from childhood

America is a classic example of taking your childhood passions and turning into your work.  The 10 richest people in America, only two finished their university.  This does not mean you don’t have to work and you can make money fast, it just means you have to use your own creativity and intelligence and not rely on other people to show you the way. The next step is not a scratch your head thinking how can I add value it simply doing what you love to do naturally.

Me, I love languages, so I write language software.  My friend loves history, so he spent three years studying the Amish community and wrote a book.  I know somebody else who loves to make handmade quilts.  Another person loves computer games and wrote a very simple game, and from this makes a lot of money.  All these things take years, none of these people went to school for what they did, rather they just did what can natural.

This is post is an updated version of Adam Smith’s theory of labor and division of labor.  His ideas came from the enlightenment and you can take a clue from is insights and apply it to your own life. If you do not read this part of Adam Smith’s wealth of nations you are swindling yourself out of your own ability to earn more income for your life. Do not cheat yourself out of your own life, and read this part of the Wealth of Nations.

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Adam Smith

Adam Smith on division of labor

Call me an idealist but I agree with the enlightenment philosopher Adam Smith when it comes to people’s abilities. I believe the effects of the division of labor, education, and character are responsible for a person a lot in life and not a genius or genetic ability. It is a fairy-tale and lies of some modern academics to attribute too much emphasis on innate ability or genetics and not education and character.

Believe me, I have had enough experience in business to see the arrogant proclaim themselves a genius. However, it is a real genius like Adam Smith who can explain the reason for success more clearly, than any modern academic, or big headed corporate warrior.  Adam Smith wrote that division of labor, education, and character, not genetics is what is important.

Adam Smith on the division of labor

Adam Smith writes more eloquently than I so here is his quote.

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 labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education. When they came in to the world, and for the first six or eight years of their existence, they were, perhaps, very much alike, and neither their parents nor play-fellows could perceive any remarkable difference. About that age, or soon after, they come to be employed in very different occupations. The difference of talents comes then to be taken notice of, and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance.

This is the division of labor according to Adam Smith. This is how Adam Smith saw why some people are rich and others are not.

How can it make more clear? We all add up to 100% and our work and character bring us talent and not the other way around.  Marcus Aurelius wrote ‘character is destiny’. I do not know why people have forgotten this and are blaming everyone else for problems and expecting the government to take the lead in fixing them.

Market and division of labor

In the Wealth of Nations Smith went on to comment on how specialization of labor was limited by market conditions.

When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for.

With globalization, this no longer applies to a modern economy and people with the Internet. It is more about developing a specialization that will pay.

If you want to make money and have a successful life try specializing in something that is a high paying profession. Instead of digging ditches or pushing the paper in the office, try to develop a niche skill and market it. I do not think school is the best way to develop your specialization, but rather just buy a book and learn it yourself.  I am a big believer in the ideal of the enlightenment and clear courageous thinking like the philosophy of Adam Smith. The classics really do contain the keys to living a better life and work.

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Adam Smith

Adam Smith on socialism

The purpose of this post is to answer the question of what were Adam Smith’s views on Socialism. Some people believe Adam Smith was a socialist. What would Smith think of the world today and the state-run economies? Is it all that bad?

The wonderful world of Adam Smith was not so wonderful. There was slavery, rigid class systems, super wealthy that would make Warren Buffet seem upper middle class and poverty. The real question is why was the book Wealth of Nations written?  He wrote the book because he was a moral philosopher. He wanted to explain not only why certain countries have wealth, but why there is poverty and hinted at ways to end hardship for humanity.  He wanted the world around helped. He was an enlightenment philosopher.

The key point people do not understand about Adam Smith’s capitalism is, it is not a zero-sum game.  That is, just because someone makes a lot of money does not mean you lose. It usually means you win. Economics is a positive sum game.  I hope people in government are enlightened and understand this or the general poverty of the nation will increase.

Socialism is the new feudalism

Taxes and Socialism

What determines the level of socialism in a country? It is the tax levied by the government. Taxes are the defining characteristic of socialism. Government debt is nothing more than a deferred tax.  Therefore, large deficits and debt is a tax.  The level which a government taxes people on productive work is the level in which a country exist on the spectrum of freedom or socialism.

Adam Smith wrote:

Absurd and destructive as such taxes are, however, they take place in many countries.

This is so clear I think there is no dispute that Adam Smith, not a Socialist.  He believed taxes were both ridiculous and draining for a country. He said this in unambiguous terms.

The next time a revisionist historian asks what how does Adam Smith and Socialism fit together, show them the above quote.

Smith also wrote:

There is no art which one government sooner learns of another, than that of draining money from the pockets of the people.

What does this mean to you?

Adam Smith on socialism and its effect on unemployment

In the wealth of nations you will find this quote:

It (profit) is the compensation, and, usually, it is no more than a very moderate compensation for the risk and trouble of employing the stock. The employer must have this compensation, otherwise he cannot, consistently with his own interest, continue the employment.

Smith felt that if government interfere with the market you will have higher levels of unemployment. This exists in the more socialist countries of Europe where the natural full employment rate is 10% compared to 5 % in the USA (when the market is allowed to adjust, unlike the last three years).

Socialism is the new feudalism

Adam Smith wrote:

In the disorderly state of Europe, during the prevalence of the feudal government, the sovereign was obliged to content himself with taxing those who were too weak to refuse to pay taxes.

If you replace a few words and read this quote:

…the social government, was obliged to content himself with taxing those citizens that could not afford good accountants.

It does not change the meaning of the sentence but rather uses a more modern language. The capitalist frees the worker from the feudalism of the government by providing earnings based on freedom and choice.  Modern media tries to portray the capitalist as the villain, but the reality is socialism is the new feudalism.

Economists after Adam Smith were more direct about Socialism

  • Hayek argued that with market distortions from a socialist economy the market could not accurately convey information about prices. Therefore, people could not make rational or ideal decisions. Further, government redistribution of capital would result in greater poverty and inefficiency.
  • Misses argued socialism would not work in the long-run because people make economic choices on non-price rationing
  • I am an American living in a post-communist country and an arch-chair economist.  Based on personal experience and observation there is no way socialism works.  It is something that I have seen with my own eyes. If you have any doubts I invite you to live in Eastern Europe for a while.
  • Adam Smith was a thinker that comes around only once every one hundred years. although Adam Smith did not mention socialism by name is stance was clear.

Although I am personally a fan of Adam Smith as I studied economics and believe the classics have more wisdom than media which plays on emotions, I am not a pure libertarian or Ann Ryan selfish or greedy capitalist. I like Smith believe in enlighten self-interest for reduction of poverty and suffering in the world. I think Smith acknowledged the role of government to keep order and structure so a market economy could function.

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Adam Smith

Adam Smith on Women

What did Adam Smith think of the effect of wealth on women and family? This is an interesting question as many American guys complain that American society has become so wealthy that it has corrupted women’s ability to provide a happy family life.  They feel American women are spoiled and do not make good mothers and wives.  I am staying out of this one, as I do not know anything about it. It is just what my American friends complain about.   I am  American and Polish and my wife Polish. 

I am very happy with my marriage and family life.  Most if not all the guys I know here in Poland are very happy with their marriage and the super low divorce rate I think confirms this.

What was  Adam Smith’s take on Women and wealth? Let’s take a look.

Poverty… seems even to be favourable to generation (having children). A half-starved Highland (Scottish) woman frequently bears more than twenty children, while a pampered fine lady (a women who has wealth) is often incapable of bearing  (having) any, and is generally exhausted by two or three.

Adam Smith

Therefore, Adam Smith was conveying if a woman has too much money and wealth then the population of this society declines or at least stays in population equilibrium. 

This can be observed in developed counties in the world like Sweden. However, in poorer countries, women have more children. It is not the Scottish Highlands, today but maybe a country like India.  Adam Smith seems to put the onus on women.  Simply that women become too obsessed with the pursuit of pleasure to have children. Further, an easy life weakens basic primal strengths. Self manifest in present consumption replaces and family as the center of fulfillment.

Think about how many movie stars wait until they are 40 years old until they have a child.  Would you not rather marry a healthy Eastern European countryside girl with education in comparison to a hyper-consumptive 90210 lady? I would I did.

Remember, Smith was a moral philosopher and in contrast to the collective unconsciousness of today, that tells us consumption is the journey in life, his work Theory of Moral Sentiments tells a different story. Smith recommended, in the language and mores of the 18th century to live a meaningful life. This is in contrast to a life governed by one’s appetites.

A ‘lovely life’ to Smith was a moral life of balance and self-actualization and not appetitive hyper-consumption. He observed how people develop a ‘mutual sympathy of sentiments’. This could included marriage and family which paradoxically he never had.

Adam Smith on Women with Wealth

I like to go back to the primary source, that is the Wealth of Nations:

Barrenness (women not having children), so frequent among women of fashion, is very rare among those of inferior station (the poor or working class). Luxury, in the fair sex, while it inflames, perhaps, the passion for enjoyment (women going shopping and having a nice life in the suburbs), seems always to weaken, and frequently to destroy altogether, the powers of generation (having a family).

I am not agreeing or disagreeing with this. I am just evaluating this based on the primary source. Adam Smith believed excess wealth corrupts a woman’s ability to have a family. 

I am also saying I married a brainy educated girl from Eastern Europe and I am very happy, while many of my friends from Western countries that emphasis consumption over sacrifice are not happy in their family life or they themselves come from broken homes.

  • Wealth’s effect on nations is not always obvious to the people living in the society, hence, that is why I quoted Adam Smith for a more objective view.

I think wealth has an effect on women and men. Women as guardians of the family, language, and culture historically have an equal but unique vocation. Therefore, turning to economic classics help people in today’s society become aware of the issue. If you read Adam Smith on Women you can see it more objectively. Agree or disagree, let me think what your thoughts are?

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Adam Smith

Adam Smith’s Invisible Hand

The invisible hand conceived by Adam Smith is the most significant argument against socialism, Kings, Queens, technocrats, bureaucrats, and social engineers. The theory was expressed in the An Inquiry into the Nature and Causes of the Wealth of Nations in 1776 and elements of his philosophy in The Theory of Moral Sentiments in 1759.

The people at the market serving you are driven by enlightened self-interest and society is brought to equilibrium.

The invisible hand is real and works. The opponents of Adam Smith’s economics idea of the free market do not understand economics. Anyone who proposes an alternative system offers an economical system that will leave people at a lower level of happiness.

Smith developed David Hume’s A Treatise on Human Nature that asserted that humans motivated by accumulating ‘utility.’ Smith expressed this in economic incentives and developed. Mandeville’s idea that ‘Private Vices … may be turned into public benefits’.

The people at the market serving you are driven by enlightened self-interest, and society is brought to equilibrium.

The central thesis of the invisible hand metaphor

The core meaning of Adam Smith’s Invisible hand is: there are unintended consequences of individual action. What this means is, when we are all acting on our enlightened self-interest, society as a whole benefit, in ways no one could ever imagine. It is like magic, your enlighten greed, improves society develops in a positive way. In other words, The self-interest of the individual unwittingly serves society’s self-interest by satiating a demand.

The Enlightenment philosophers believed people are innately good, and with education or training, we will seek out activities that we enjoy the most, which also happen to help others. Think about it: what do you do for work? Chances are it in some way helps someone else. There is no way your job you go to every day does not help others.

It is a combination of creative thinking and enlightens greed. It means, you, yes, you have a gift to satisfy the needs of society in ways no supercomputer or world leader could ever envision.

Human interaction and incentives cannot be engineered by the government, or the shelves would be empty.

What is the force behind the invisible hand?

It is people respond to economic incentives. I can not explain it in any other way. The supernatural force behind the invisible hand is simple. People are rational and are motivated by economic incentives. Therefore, they seek out ways to get paid the most for their time because they want to satisfy their needs and chip away at the fundamental problem of economic scarcity. The way you get paid the most is to figure out what people demand. This is a lesson in philosophy as much as a lesson for entrepreneurs.

What should the government do?

Not an economics Professor, nor even a President who went to an Ivy league school could ever have a greater knowledge of economics than you. You personally are that economic agent who thinks of ways to earn money which translates into satisfying some demand. When a new demand arises the market will satisfy it, if money is involved, trust me, people will jump through hoops to get the job done, no matter what it is. How would you explain so many plumbers (I would be a plumber)?

An efficient market arises superior to anything a government could produce. Micromanaging the economy creates distortions and unhappiness. Therefore the government should be handed off.

The hand is a perfect metaphor because it is what we use to be creative and productive, the instrument in which ideas are brought to reality.

Metaphorically you are a finger in that invisible hand that is creating something great. Let’s say you are a painter; the government would be a third person trying to move your figures.

Metaphorically, imagine a hand that plays the violin, yet another person controls each finger. This is what it would be like if the government tries to direct the market. Better is the free market, capitalism, to have a hand playing the violin on its own accord orchestrated by a consciousness. In terms of economics, it is the collective unconsciousness or the aggregate.

If governments just left people alone to trade and create markets, people motivated by self-interest would create positive outcomes. Just let individuals make their own economic choices, and the result between people is a mutually beneficial outcome, rather than at the hand of a third party come between two market agents.

In the wonderful world of Adam Smith, people are free to choose from.

The invisible hand in action

For example, if someone charges less than what you sell your goods, people will buy the other persons well. If you charge too little, it is not worth your time, or your net profit marketing will be too low or negative. This is market equilibrium.

Another example, if the world demands a clean source of energy, then an entrepreneur will start to work on bringing solar to the market. He is motivated by profit; however, society’s demand is satiated.

Metaphorically, the complexities of the market and an amazing self-correcting balancing act are best done by the person on who is walking on a tight rope, rather than someone guiding them from the audience. The invisible hand is the cerebellum of the market.

Ayn Rand is different than Adam Smith

Remember, Smith was a moral philosopher; he was not a cold-hearted capitalist as many of these followers are portrayed. He was seeking answers to how society as a whole could reach its optimal level of equilibrium and commenting on how people act in society to maximize their happiness. I would say Adam Smith would not agree with Ayn Rand’s ethical egoism. Ayn Rand’s Objectivism movement did have a laissez-faire message; however, it was counter to the enlightenment ideals of altruism. Ayn Rand was more of a radical force, countering the ideas of her time at an extreme. Adam Smith was not extreme and advocated limited government to uplift and better society and individuals, such as education. Rand’s philosophy almost had a caustic, angry message, and I think it gives capitalism a bad reputation. In contrast, Adam Smith’s message was uplifting.

However, economists like Milton Friedman and Hayek subsequently championed this idea in their libertarian economics schools of thinking in a more positive way. The Austrian school of economics and neoclassical thought are worthy successors to Adam Smith’s theory because they focused on the operation of the market with more academic rigor kept it about economic theory rather than a replacement of religion or a way of life.

Capitalism, motivated by consciousness, is a great thing. Read Conscious Capitalism by John Mackey or books of this sort; people transform the work through economic incentives. You can be counter-culture, alternative, and capitalist.

Adam Smith looked at life from a behavioral science perspective, with a particular focus on altruism and moral behavior. If you want to succeed in life, jettison wrong ideas about capitalism and read Wealth of Nations.

Do blonds motivate you?

Funny way to look at the Philosophy of Adam Smith

Invisible hand academic reference

In summary

Although everyone speaks about Adam Smith, few people read him. I love reading Adam Smith as you find something that is not in collective wisdom. Anyway, here is Adam Smith’s invisible hand quote. So many people talk about the invisible hand, but in the Wealth of Nations, it only appears once.

What does Adam Smith’s Invisible hand mean? You need to understand who Adam Smith was; he was a moral philosopher and a religious man. He believed that when people act on their enlightened self-interest, then society as a whole benefits in positive ways in which the individual could not imagine.

In the wonderful world of Adam Smith, people are free to choose.

This means man is good. People who are against Adam Smith’s invisible hand believe people are bad and need to be engineered by a wiser, more moral government bureaucrat. Anti-Smith thinkers like Karl Marx believe individuals can not be trusted to live their lives, and the government needs to put into place laws that direct social, economic behavior. Alfred Marshall’s criticism of Smith when in the realm of monopoly or oligopoly is not based on quantifiable data.

Human interaction and incentives cannot be engineered by government or the shelves would be empty.

Smith, as a thinker, was pure genius. How could a government engineer an economy if the most significant benefit comes from unseen consequences of actions? Think about it, please. Adam Smith’s Invisible hand is genius, and minds like this come around only once every few hundred years. I live in Poland and travel to Russian and Ukraine and see the lasting effects of a government engineering an economy.

Adam Smith’s invisible hand was nothing more than Adam Smith believing in the good in people. That you can make free choices about your life and your career and the way you participate in the economy. Is there anything wrong with that?

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Adam Smith

Adam Smith – How Countries get Rich

Why and how countries get rich? Adam Smith explained it clearly. In terms of supply and demand but also in terms of the ability for a nation to produce quality output that would be demanded by others.

The metaphor can be applied to your personal financial situation and is obvious if you can also create things that are original and compelling people will demand it and you will prosper.

This is what Wealth of Nations by Adam Smith is about.  It is basically a book about value.

Adam Smith basically says that production (supply) should outpace consumption (demand).

The annual labor of every nation is the fund which originally
supplies it with all the necessaries and conveniences 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 conveniences for which it has occasion.

Adam Smith said the supply of a nation’s output is determined by:

  • Working smart and creating valuable production
  • Percentage of people contributing to the economy

But this proportion must in every nation be regulated by two different
circumstances: first, by the skill, dexterity, and judgment with which
its labor is generally applied; and, secondly, by the proportion
between the number of those who are employed in useful labor, and
that of those who are not so employed. Whatever be the soil, climate,
or extent of territory of any particular nation, the abundance or
the scantiness of its annual supply must, in that particular situation,
depend upon those two circumstances.

Working smart is the most important

The abundance or scantiness of this supply, too, seems to depend more
upon the former of those two circumstances than upon the latter.

Take away from Adam Smith’s Wealth of Nations

A country or a household will get rich is they can work smart.  This does not mean applying your talents in an efficient way. And in my opinion not working for corporate America. It is developing your talents and skills in a way that people will demand it. Making sure that your economics value is connected to what will satisfy a need for others.

This argument is slightly different from the Austrian economist’s ideas of what is of value. The Austrian economists like Mises and Hayek believe value was determined in a relative and personal way and only in the aggregate do we see a demand and supply curve.

For Smith it was more about objective value, that is it was obvious certain trades or economic production was more valuable than others.

Adam Smith believed actually manufacturing was more important than services. The Austrian school of economics believe that services were an extension of the production process and a nation could get rich in a service economy.

If you want to read more about this argument read this post on the US position in the world and wealth related to the US losing its manufacturing base.

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Adam Smith

Adam Smith was Right

Adam Smith was right. Ronald Reagan was right when he said ‘government is the problem’.

Government and the economy

At first, I was for government intervention. I thought maybe the president was a bright, strong leader and will solve many of the problems of the US economy. But it is very clear to me that the government does not know what he is doing. This is just not a statement. He really does not know what he is doing. He is a smooth talker but understands nothing about economics and the way markets work. Nor do his academic ivory tower advisers understand the natural forces of the market. Government has not worked in the private sector as you and I, nor has been ever started his own entrepreneur firm from nothing. The government could really destroy the economy with this experiment of rewarding inefficient companies with the taxes (your productive energy) and debt (future taxes). Maybe the US will be strong enough not to be destroyed by the government but he really does not know what he is doing.

The government will hurt the economy

Forget the idea of government helping the economy. There is something called the crowding-out effect. The government will hurt the economy because people who want to start businesses and invest in the US Economy and help the economy reorganize to a more effective equilibrium will have less money and have to compete with the government for free capital. Further, the government will be spending your hard-earned dollars rather than you. So the ‘warm fuzzies’ that government’s economic policies will give you will hurt those who want to create change by trying to start a new business or reorganizes their lives. Go into any government office and ask yourself if this government organization cutting edge and ready to compete with the world? Then go into any mom and pop business and see the owner’s working until midnight and saving every penny. What is better in the long run for the economy? An army of government office workers paid your sweat or a country of entrepreneurs? For sure the government will hurt the economy.

Economy and government’s government spending

Anything the government does – you can do more efficiently. This is why the government will hurt the economy. The New Deal in the 1930s made the crisis long and drawn out. Did you ever wonder why the depression was so long? The government took away or crowded out opportunities for those who want to initiate real businesses. government’s new deal II will do the same this is why the government will hurt the economy. This “same kind of good intentions – shifted the country’s cash flow away from productive businesses to government make-work projects, which most likely prolonged the Great Depression.” States the president of Fidelity Investments.

Government’s New Deal II will hurt the economy and you

The bottom line is anytime the government expands there will be a waste. It is again the idea that the government knows how to spend your money better than you. Haha. You will work, then taxed and this money will go to someone else, for example, to pay for someone else’s credit mess. So in a very real sense, you will be working for another man’s wife. How do you feel about that? This is one of the many reasons the government will hurt the economy.

Why Adam Smith’s Economics is still valid

The idea that the government should reach into your house and take control of and manage your business, life, etc. is what Adam Smith was against. In a free society, people act on their own ‘enlightened self-interest’ and society as a whole benefit in ways that can not be imagined. Adam Smith was a moral thinker and a pious man. He was not promoting selfishness; rather, his economics was about helping the world.

This central idea that people know how to run their lives better than the government is still valid in Economics. In fact, government intervention will lead to a real problem in the future.

Many Economists are turning left

Economists are ‘jumping on the bandwagon’ and ‘go with the herd’, with the latest economic ideas. But the economics of Adam Smith is not a trend, it is the idea that you can run their lives better than the government can run your life.

This is why I do not agree with the water cooler crowd at work that Adam Smith’s economics is no more. If anything, his economics should be used to create a more peaceful, happier world.

If you disagree, let me know why, but Adam Smith was a genius and moral thinker. He was also understood how economics and the world works.