Share this Story : Financial Post Copy Link Email X Reddit Pinterest LinkedIn Tumblr

William Watson: The two best things about Adam Smith’s Wealth of Nations

Praise for the majestic 18th-century sentences and acute insight into how the excesses of human nature can be disciplined by free markets

You can save this article by registering for free here. Or sign-in if you have an account.

When I was an undergraduate studying economics some friends baked me a cake, whether for a birthday or end of term I don’t remember. But instead of saying Happy Birthday! or Enjoy the Summer! the icing spelled out: “The division of labour is limited by the extent of the market.” It seems I’ve been an Adam Smith geek for some time.

Subscribe now to read the latest news in your city and across Canada.

Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.

Daily content from Financial Times, the world's leading global business publication.

Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.

National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.

Daily puzzles, including the New York Times Crossword.

Subscribe now to read the latest news in your city and across Canada.

Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.

Daily content from Financial Times, the world's leading global business publication.

Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.

National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.

Daily puzzles, including the New York Times Crossword.

Create an account or sign in to continue with your reading experience.

Access articles from across Canada with one account.

Share your thoughts and join the conversation in the comments.

Enjoy additional articles per month.

Get email updates from your favourite authors.

Create an account or sign in to continue with your reading experience.

Access articles from across Canada with one account

Share your thoughts and join the conversation in the comments

Enjoy additional articles per month

Get email updates from your favourite authors

Sign In or Create an Account

The Wealth of Nations, which that famous sentence is from, was published 250 years ago next Monday. I still have the copy I read for class: hard cover, $5.95 new, 976 pages in the Modern Library Giant edition. The margins are extensively scribbled in, with many exclamation marks denoting delight. Key passages are enthusiastically underlined. A scarcity of annotation suggests I found less pleasure in Smith’s 90-page digression on “variations in the value of silver during the course of the four last centuries” or his “appendix on the herring bounty.” When, several decades later, I taught the same class, we skipped those sections.

The thing I like most about Smith is his language. AI says the average sentence in The New York Times is 15 words. The first sentence of the Wealth of Nations is 48 words. I selected a chapter at random and found its 8,361 words featured 249 periods, for an average sentence of almost 34 words. There were also 21 semi-colons. When teaching Smith I always began by showing the class Google Maps’ Street View of Kirkcaldy, the Scottish seaside town where Smith was born and raised. I fancied the rhythm of the waves rolling in from the North Sea subliminally set the cadence of his prose.

Get the latest headlines, breaking news and columns.

There was an error, please provide a valid email address.

By signing up you consent to receive the above newsletter from Postmedia Network Inc.

A welcome email is on its way. If you don't see it, please check your junk folder.

The next issue of Top Stories will soon be in your inbox.

We encountered an issue signing you up. Please try again

Interested in more newsletters? Browse here.

Some of Smith’s best sentences contain multiple subordinate clauses that wind in and around and then slam themselves shut with some sardonic put-down of public or philosophical folly. But you have to pay attention. You need to remember where the sentence started and what stops there were along the way. Did Smith work out his intricacy in the long seaside walks he took — sometimes, supposedly, absent-mindedly in his dressing gown — and then write them down? (Not to say that Smith didn’t get around. He was best friends with David Hume, knew Voltaire, Joshua Reynolds, Samuel Johnson — they didn’t get along — and many others.)

Does the elegant complexity mean that 18th-century readers were smarter than we are? Though priced high, the book sold well from the beginning. Does our more staccato but also probably more user-friendly post-Hemingway style dumb down our powers of concentration?

William Watson: Trump or no Trump, the U.S. is our ally

William Watson: Maybe America’s golden age is really a thing

Advertisement 1Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

Apart from Smith’s style the other thing to appreciate is of course his argument. He had an acute appreciation of human nature and understood the struggle between self-interest and altruism. In fact, the supposed tension between the two, reflected in the Wealth of Nations (1776) and his other great book, The Theory of Moral Sentiments (1759), has a name in philosophy: “Das Adam Smith Problem.”

The solution, of course, is markets, which moderate the extremes of self-interest, as none other than Pierre Poilievre explained in his Margaret Thatcher Lecture in London on Tuesday, which made ample reference to the Wealth of Nations. My favourite Smith quote is “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” (Only 30 words.) Smith’s descriptions of how business people cultivate governments and procure favours from them are themselves a street view of exactly how modern lobbying operates.

Bank of Canada governor warns of growing risks to financial stability Economy

Bank of Canada governor warns of growing risks to financial stability

Listings crater 18% in February as sellers beat a hasty retreat: TRREB report Real Estate

Listings crater 18% in February as sellers beat a hasty retreat: TRREB report

Advertisement 2Story continues belowThis advertisement has not loaded yet, but your article continues below.document.addEventListener(`DOMContentLoaded`,function(){let template=document.getElementById(`oop-ad-template`);if(template&&!template.dataset.adInjected){let clone=template.content.cloneNode(!0);template.replaceWith(clone),template.parentElement&&(template.parentElement.dataset.adInjected=`true`)}});

Legal fight over propane terminal clouds Canada's energy export push Energy

Legal fight over propane terminal clouds Canada's energy export push

Posthaste: Canadians are paying more than lip service to Buy Canada — and now the numbers prove it News

Posthaste: Canadians are paying more than lip service to Buy Canada — and now the numbers prove it

Posthaste: This dormant pipeline needs to be restarted for the sake of Canada, economists say News

Posthaste: This dormant pipeline needs to be restarted for the sake of Canada, economists say

But shortly after that passage comes a fix. The “real and effectual discipline” over businesses and tradespeople is exercised by their customers. To paraphrase, it’s the “fear of losing” customers that “restrains their frauds” and “corrects their negligence.” The beauty of free and open markets is that competition requires people to (literally) deliver the goods to their customers’ satisfaction.

You can easily imagine Smith’s reaction to our new policy vogue of buying strictly Canadian, favouring domestic supply chains, insisting on unionized labour and allocating capital via various government agencies rather than open capital markets.

Two and a half centuries on, insider privilege is still the problem. And competition is still the solution.

Thank you, Mr. Smith.

Nota Bene: The wisdom of A. Smith

March 9 marks the 250th anniversary of the publication of Adam Smith’s Wealth of Nations. This week, some of its greatest insights:

The monopoly which our manufacturers have obtained against us (by means of protective tariffs) … has so much increased the number of some particular tribes of them that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of Parliament who supports every proposal for strengthening this monopoly is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.

— Wealth of Nations, Book IV, Chapter 2

Speech excerpt: Pierre Poilievre’s Adam Smith moment

From the Centre for Policy Studies’ Margaret Thatcher Lecture, delivered by Pierre Poilievre in London on Tuesday.

The strangest phenomenon came to my attention when I visited one of your fine coffee shops here in London. I went to pay, I took my beverage, and after I said “Thank you,” the woman said something very bizarre. She didn’t say “you’re welcome,” she said “thank you.”

It occurred to me that this is not the sequence our mothers taught us, which is supposed to be “thank you — you’re welcome.” But instead, it was “thank you — thank you.” Now, reflect on all the transactions you do in an open market. Almost all of them have that same strange sequence: “thank you — thank you.”

Why? Because the money that I gave her is worth more than the coffee she parted with to get it, and the coffee I took from her was worth more than the money … That is the nature of the free market: both parties have to be better off or they wouldn’t choose to participate in it …

Voluntary exchange of work for wages, product for payment and investment for interest benefits all participants in a free market or else they wouldn’t choose to participate. By contrast, everything government does, it does by force of mandatory taxation.

Even the things we agree it must do, like fund a military, it has to be done through the coercion of the state. That’s why no one writes “thank you” on their tax forms. Even though theoretically, it’s supposed to be a transaction, you don’t get the same mutual gratitude that you do in a free exchange.

Even though we are in England, I hope I don’t create a diplomatic incident by quoting a great Scot to kick off my remarks. But this Monday will be the 250th anniversary of Adam Smith’s Wealth of Nations. … Smith is probably the best-known and least-read economist. For that reason, he is often misunderstood. If you Google “Father of Capitalism,” his name and face will pop up. Yet the word “capitalism” or “capitalist” does not appear in either The Wealth of Nations or The Theory of Moral Sentiments. He never used the term.

He did not preach the supremacy of capital over labour, but the free and voluntary exchange of the two. Indeed, he believed that labour was the core of all value; to quote, “the annual labour of every nation” is the true source of wealth, and he warned against profits earned through state protection rather than open competition.

Nor did he glorify greed. When he wrote that we expect our dinner not from the benevolence of the butcher, brewer or baker, but from their own self-interest, he was not glorifying greed but rather describing obvious incentives. In The Theory of Moral Sentiments, he reminds us that human beings are bound together by something he called “sympathy” — by placing ourselves in the other person’s situation and seeing through their eyes, thus our interest becomes their interest.

Indeed, if sympathy means caring truly and actively about the other fellow’s wants and needs, then no one is more sympathetic than the entrepreneurial businessman who gets ahead by supplying the needs and wants of others … That is the nature of free enterprise business. If you want to sell what the customer buys, you have to see through the customer’s eyes. Smith did not invent the free market economy; he discovered it, just at the moment in history when these economies were embracing it over serfdom.

So we can compare the before and after to see which approach worked. Before 1776, there was literally no economic growth. Estimates by Angus Maddison show that between the year 1 and the year 1700, per capita GDP measured in 1990 dollars grew from about $444 to $615, in 1,700 years, meaning barely any growth in living standards in those 17 centuries.

From 1820 to 2000, per capita GDP went from $667 to $5,700. Now, let me put this into context: on average, in the free market period, the economy would grow as much in one year as it would have grown in the average 200 years in the pre-free market period. Life expectancy literally doubled from the year 1800 to 75 from 35.

In little more than a century, we went from horses and sailboats to jet engines and men on the moon. More advancement in a century and a half of free enterprise than in the prior two thousand years combined …

Share this Story : Financial Post Copy Link Email X Reddit Pinterest LinkedIn Tumblr

Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.

© Financial Post