Profile portrait of Adam Smith, sepia-toned. He's wearing a powdered wig, and we're viewing him from his right side.
It was almost three years ago that I invited people to read Adam Smith with me. A couple weeks after I wrote that post, I started a new job (where I still work today), life caught up with me, and nothing came of that reading.

…*until now*.

I’ve been quite happily chugging away through [book: Wealth of Nations]. It is much, much more interesting than I ever would have guessed, because basically all anyone ever talks about in this book are a few quotes: the division of labor (starts on page 8), specifically the pin factory; self-interest (page 18); when businessmen meet, they always conspire to raise prices (page 144); and the invisible hand (page 477). The book is around 1000 pages long. Surely he has other stuff to say.

And indeed he does! I’d like here to single out just a few things:

1. Macro dictates micro:
> Masters of all sorts, therefore, frequently make better bargains with their servants in dear than in cheap years, and find them more humble and dependent in the former than in the latter. They naturally, therefore, commend the former as more favourable to industry.

I was really surprised to see that Smith appreciates the importance of macro conditions (how the economy as a whole works) on micro interactions (e.g., negotiations between boss and employee). That’s an idea that I more commonly associate with Paul Samuelson.

I also read this as an attack on the self-serving words of businessmen, and against the belief that what businessmen want is always what’s best for the society at large.

2. The importance of institutions. I don’t have a quote ready to hand for this, but he says somewhere that it’s obvious why business hasn’t returned to some country: the lack of a functioning government makes it impossible to conduct your affairs. I had thought that this idea was more associated with early-20th-century economists and their early-21st-century descendants.

3. While enumerating the different kinds of capital, we get this on page 297:
> The Second of the three portions into which the general stock of the society divides itself, is the fixed capital; of which the characteristic is, that it affords a revenue or profit without circulating or changing masters. It consists chiefly of …

> Fourthly, of the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents, by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expence, which is a capital fixed and realized, as it were, in his person. Those talents, as thy make a part of his fortune, so do they likewise of that of the society to which he belongs. The improved dexterity of a workman may be considered in the same light as a machine or instrument of trade which facilitates and abridges labor, and which, though it costs a certain expence, repays that expence with a profit.

This is, in essence, what we today call “human capital”. I was shocked to read this idea in a 237-year-old book.

Now I’m eager to see whether other ideas which we consider more modern — like marginalism, say — got their start in Smith.

I’ve been obsessed for some years with the economist Sam Bowles, one of whose projects has been to return economics to its roots in larger philosophical questions. What’s important about economics is not downward-sloping demand curves, or whether people substitute chicken for beef when the latter becomes more expensive; what’s important is understanding how we build a functioning society out of members who have wildly differing conceptions of the good. More mechanical questions, like what the proper level of taxes ought to be if we want to encourage the development of renewable energy, are also important, but (as I understand Bowles) that’s not what animated our intellectual fathers.

In this light, I’m really quite charmed by how widely and deeply Smith casts his net. He’s not spending 1000 pages repeatedly informing us that the free market works best; he’s constructing a conceptual taxonomy of how economies work. It’s really a work of philosophy, studded at all points with empirical bits. If at points he’s repetitive (for instance, in the chapter distinguishing between real and nominal price levels), it’s because he’s clarifying these concepts for maybe the first time in history. (I’ll have to go read, say, the Physiocrats if I want to understand pre-Smith economics.)

It’s hard to write about this book without feeling like the worst kind of college freshman (of which I was one): “No, you guys don’t understand! The market, guys! The market!” I realize that nothing I say about Smith has gone unsaid before now. Please don’t read anything I say here as though it were novel; read it instead as one man’s revelation that Smith is just as good as everyone says he was. Reading him is going to inform my upcoming reading of, for instance, Amartya Sen.

__P.S.__: To understand Sen, I think I’m going to want to tackle the [book: Theory of Moral Sentiments] first. Approximately no one talks about this book, relative to the number who talk about [book: Wealth of Nations], but I gather that Sen thinks it’s vital.