STL #7: Wealth of Nations Book 3: Impressions

My Thoughts On: February 3rd, 2004

Learning about Adam Smith's enormous authority really helps to mold my views on the economy. Here I go back to exploring my basic impressions on Book 3 of Smith's 5-Book Inquiry into the Nature and Causes of the "Wealth of Nations".

Book 3 is the shortest of Smith's 5-book work, the "Wealth of Nations". Following from Book 2, Smith talks about what factors go into affecting the natural growth of a nation. This book, "Of the Different Progress of Opulence in Different Nations", talks about natural vs. unnatural growth of national wealth. He opens discussing the commerce between towns and the countryside. In Smith's time, agriculture was the only core and prevelant industry (now we have other industries, such as energy, that are also important on this scale). Smith insists that the trade between the towns and the countryside is beneficial to both, despite it possibly appearing to benefit only the towns. Because the substinence of the townspeople is provided by the countryside, the cultivation of the countryside must improve before the basic lifestyle of the cities and towns can improve. This is true today in a way, although not as obvious because of the abundance of food and other basic needs. Through the improvement of basic needs (today we could probably include things like electricity and running water in with agriculture), the basic ability of the society to operate increases, allowing it more freedom to expand into other industries.

Smith notes that the cultivation of land provides more independence as an industry, so in places where uncultivated land is widespread (early America) those who are skilled in other trades will typically drop them to procure and cultivate land, as if given the option they'd rather work for themselves than for others. Yet, in nations with cultivated land (pre-modern America) there will be more willing to work for manufacturers since there is not only more money, but enough money to be able to become independent financially that way. Eventually the production for domestic producers will become less important and people will also produce for foreign sources, feeling equally financially secure doing that (modern America) - resulting in a society of healthy agricultural, domestic and foreign commerce. Since the security of wealth begins with the agriculture, it (along with any industry of providing basic necessities) must improve before other industries can.

But this isn't always the case. Sometimes the order is inverted, with foreign trades booming before domestic or agricultural trades do. The subject of Chapter 2 is discussing how this happened just after the fall of the Roman Empire. It began, in part, with inheritance laws that prevented estates from being divided between children (whole estates passing from one person to the other), and continued when rules of lineal succession became part of common law. Smith called these laws, which in his time still partly existed in areas of Europe, absurd. The truth of those who lived on such lands owned by a single land baron was that those beneath his rule had no reason to invest in the land. It was usually a part of their condition of living there to be something of indentured servants. As the occupiers of the lands under the land barons began to negotiate further personal property rights, they slowly gained more and more interest in land improvement, and land did improve because of it. As the peasants were granted leases to their land, with strict conditions, they spent more time improving land that they knew would be theirs for a definite period of time. This eventually gave way to the abolition of the backwards laws of inheritance and land lording which held down individual workers, and saw the rise of coordinated farmlands instead of prince-like fuedal lords ruling over peasants.

Chapter 3 takes a moment to talk about the rise of towns. Towns rose unnaturally fast as a refuge for peasantry, as it was under stricter central authority, and someone who could take their property out of the hands of the fuedal land barons into the city could manage to keep it and invest it as they pleased. Cities guarenteed more financial security, so business grew there faster than out in the countryside, and it helped that city officials often detested the unruly land barons, who often ruled their lot of land outside the local government's reaches. Smith discusses some of the Crusade cities of Italy, and how they grew quickly into opulence, importing foreign trades and developing foreign imitations before many other areas of Europe. In a lot of ways, the growth for many of these nations went backwards (foreign - domestic - agricultural) because of government interference, and Smith notes that throughout, and makes it fairly clear that these things slowed the real progression of the nations of Europe.

The commerce of the towns benefitted the countrysides, despite the whole city/baron fueding, because they provided a ready market for produce and merchants from the city would often buy farmland and improve it (unlike the petty prince land barons, who never practiced such investment). Merchants knew how to take risks, and run farms properly with voluntary paid employees instead of compulsory slaves. In undeveloped areas of the countryside, where the rich landowners had nothing really to invest in or buy to enrich themselves, lords would often spend surplus by supporting many local people. If a rich land baron had enough surplus to support 1,000 men, he'd often just go ahead and support the 1,000 men, often using them as private servants or a small army, as it often meant little to actually invest that extra capital. Lavish feasts were the occassion of the day, making the backwards living seem not as bad. However, it did provide the lords to establish their own mini-governments, which wasn't regulated until fuedal law came into effect. As the land became divided so did the ability of richer men to support many others. Instead of spending surpluses supporting a thousand men, Smith notes, a rich man today might buy lavish gifts which makes such a smaller part of supporting just as many men (if not more). But since each rich person's spending contributes to such a smaller part of each individual's worker's wages, no rich man could single-handedly (like in the days of the despotic Lords) control thousands of men and make them dependent on him. A rich man could hoard his wealth today without abandoning every worker he helps provide for, since there are many more rich men in his place to go out and buy up the products he isn't buying himself. In this way the rich of today support many more independent labourers than the rich of ancient Europe, who supported small hoards of near total slaves. That of course, happens because of division of labour, but that's getting ahead of myself. This also goes on to demonstrate how wealth divides naturally in a free market, not staying concentrated in any one family for more than a generation or two when before with lineal inheritance one family would keep the same property for hundreds of years.

The next book is the longest of the "Wealth of Nations", and thus will probably take me a while to read. But once it's done, I'm sure I'll recap my impressions of the book again, to share the dry dryness of Smith's literature. Hopefully I've made it that much easier for you to digest than it was for me. Now after reading that book, I need to go get a glass of water, so I will see you next time.

- Good ol' PA