Book Review: The Wealth of Nations by Adam Smith

Book Review: The Wealth of Nations by Adam Smith

The Wealth of Nations is—far and away—the most difficult book I’ve read.  The writing is dense and the ideas are complex. The book is a behemoth…a paragon in the Libraries of History.

Smith is a legendary thinker. He covers a wide array of topics, from the Chinese economy to the barter system of Ancient Peru. During the process, we realize that we’re in the presence of a GREAT MAN. He’s an economist, a historian, a philosopher…in short, he’s the Age of Enlightenment personified.

Here’s what I took away from the book:

Agriculture is a Vital Part of a Country’s Economy

Smith believed in agriculture. He points out that a country must—first and foremost—be able to feed itself. It needs to produce bread, rice, etc. And when a country cannot feed itself, it’s an economic liability.

The examples are numerous—just look at the Irish Potato famine. Once they lost the ability to feed themselves, a tragedy ensued. Another example can be seen in modern-day Venezuela, which did away with much of its agriculture. When a financial crisis occurred, the people were lacking in basic food commodities. Just look at how many supermarkets were raided in downtown Caracas.

Paper Money Should Be Connected to a Precious Money

According to Smith, paper money needs to be tied to a precious metal: gold, silver, etc. This prevents the country from printing paper money at will, which leads to inflation. Smith provides numerous examples, going as far back as the Roman Empire’s use of bronze as a way to stabilize its currency.

Needless to say, the United States is currently in this dilemma. Since it left the gold standard, the inflation has slowly been rising. This accounts for the fact that a dinner that once was worth five cents (such as in 1920) is now worth fifteen dollars. If the situation spirals out of control—such as in Venezuela—then the paper money can become pointless. Note how in Caracas, you need a backpack full of money to buy a lunch.

Every Armed Conflict Has an Economic Story

The Wealth of Nations was written in 1776…the year of American independence. Smith goes into great detail about the war. He points to the economic underpinnings of the battle, explaining an angle that’s rarely talked about. Through this lens, the American War of Independence was more than a fight for sovereignty—it’s was an economic battle.

How many wars are fought over money? What’s the real story behind any armed conflict? What about the Syrian battle? The Iraqi invasion? Money plays a huge role in these conflicts. Smith reminds us about the “unspoken cause of war” the conflict that’s always at play—the battle between a creditor and a debtor.

Conclusion

I highly recommend The Wealth of Nations. Regardless of your major, you should read this book. It will bring you up to speed with “the best in what’s been thought and said.” Adam Smith should be on the bookshelf of any self-respecting bibliophile.

Book Review: Basic Economics by Thomas Sowell

Book Review: Basic Economics by Thomas Sowell

Thomas Sowell’s book, Basic Economics: A Citizen’s Guide to the Economy is just what the name implies—a beginner’s guide to economic theory. I found the book to be excellent. I should’ve read it years ago, since it would have peaked my interest in money matters a bit more.

Several quotes stood out:

Speculation is Superior to Gambling

Speculation is often misunderstood as being the same as gambling, when in fact it is the opposite of gambling.  What gambling involves, whether in games of chance or in actions like playing Russian roulette, is creating risk that would otherwise not exist, in order either to profit or to exhibit one’s skill or lack of fear.  What economic speculation involves is coping with an inherent risk in such a way as to minimize it and to leave it to be borne by whoever is best equipped to bear it.

Gambling is like marrying a woman that you’ve known for three months (something the Major has done). Essentially, you’re creating a risk. You’re making a commitment to somebody that’s a virtual stranger. You don’t have the all the information yet; in my case, I found out that my wife was an alcoholic.

We gamble out of stupidity; but also, it’s a “lack of fear” as Sowell points out. We test the natural laws of the universe, believing that our intuition is superior. Occasionally, we get lucky and win. But most of the time we lose.

Conversely, speculation is like marrying a woman that you’ve known for three years. You minimize a risk (AKA, speculate).  Her negative traits have already come to light, but you feel that you can manage them. You’ve seen the worst in her and feel that you can overcome the risk.

Smart people are speculators. They understand that risk is inherent in life, but they learn to manage it. Their good luck appears accidental to those around them: the product of a lucky break or even nepotism. But in reality, they calculated their decisions better. They like to skydive, but they also like parachutes.

The Federal Reserve Has Created More Problems than it Solved

The Federal Reserve system was established in 1914 as a result of fears of such economic consequences as deflation and bank failures.  Yet, the worst bank failures in the country’s history occurred after the Federal Reserve was established (p. 24)

Sowell brings up something that few Americans even question anymore—whether or not the Federal Reserve is a good thing. He believes that it was a bad thing. It’s interesting to note the creation of the Federal Reserve: 1914. This was, of course, at the start of World War 1. Obviously, there were concerns about political stability at the time.

Fifteen years later (1929), the stock market crashed and we had the Great Depression. The Federal Reserve was unable to stop the problem they said they would solve. We’ve had several economic downturns ever since: take 2008, for example, when the housing market collapsed.

It’s a powerful lesson—a time of crisis can lead to bad decision-making. And this bad decision can then become a way of life.

When You Help Someone Economically, You Often Hurt Another Person

Nothing is easier for the media or for politicians than to present “human interest” stories about someone whose family has been farming for generations and who has now been forced out of the kind of life they knew and loved by the impersonal economic forces of the marketplace.  What is forgotten is that these impersonal forces represent benefits to consumers who are just as much persons as the producers who have been arbitrarily selected as the focus of the discussion.  The temptation is always there to try to solve the problem of those whose plight has been singled out for attention, without regard for the effects elsewhere. (p. 27)

That’s the crux of charity: the natural Christian tendency to “help thy neighbor.” Sowell points out how the media will manipulate this altruistic desire, promoting a hard-luck story that’s designed to shift the government coffers in a different direction.

The appeal to pathos is ubiquitous. We saw it before the Affordable Care Act was passed (countless stories about a poor person who  could not afford medical care). Of course, moving money into someone’s pocket is often done by removing it from somebody else’s. This proved to be true with the ACA. The money that was used for people without health insurance was taken from another source – those who actually had insurance. This resulted in higher rates for those who were already covered.

Somebody always has to pay: the question is who.

Summary

Basic Economics is an excellent read. I think should be taught on the high school level; moreover, it would make a good read for Economics 101 courses at the college level. It explains the essential concepts with plain language, simple analogies, and logical organization.

I highly recommend the book.

See Related Article: Adam Smith on the Economic Differences Between Europe and Pre-Colombian America

Economics is Not About Our Hopes and Values

Economics is Not About Our Hopes and Values

A great quote from Thomas Sowell in Basic Economics: A Citizens Guide to the Economy:

Economics is a study of consequences of various ways of allocating scarce resources which have alternative uses. It is not a study of our hopes and values. (p. 3)

You can see why Thomas Sowell is hated by the left (cue the “Uncle Tom” card). For them, economics is all about hopes and values.  Spread sheets don’t matter, budgets don’t matter, and the national debt is irrelevant. It’s all about feelings (cue the violin solo).

Unfortunately, these feelings are based on Cultural Marxism – they hinge on the oppressor/oppressed model. The people that have things are evil; the people that lack things are noble. It’s a children’s fable, akin to Robin Hood – steal from the rich and give to the poor.

Charity is a noble thing – but only to a worthy cause: a child with a cleft palate, a man with no legs, a homeless veteran, etc. The examples are endless. They deserve our sympathy and perhaps (if we can afford it) a monetary handout; but charity to the deserving and only to the deserving.

Life is about the subtle difference. You have to break down the argument, weigh the evidence, and analyze the fact. It’s a time-consuming process. But it’s a critical one, since your personal well-being is at stake.

Can you spot a real victim from a fake one? The charlatan never sleeps…