Published on 22 Feb 2015
Adam Smith was one of the first men who explored economic connections in England and made clear, in a time when Mercantilism reigned, that the demands of the market should determine the economy and not the state. In his books Smith was a strong advocator of the free market economy. Today we give you the biography of the man behind the classic economic liberalism and how his ideas would change the world forever.
November 18, 2015
Adam Smith – The Inventor of Market Economy I THE INDUSTRIAL REVOLUTION
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January 17, 2014
Have you read these books or have you lied about having read them?
Ben Domenech discusses the books that “everyone must read”, but very few have actually done more than turn the pages a bit, or perhaps scanned the Wikipedia entry for:
The truth is, there are lots of books no one really expects you to read or finish. War and Peace? The Canterbury Tales? The History of the Decline and Fall of the Roman Empire? Announcing that you’ve finished those books might surprise a lot of people and make them think you’re abnormal or anti-social, unless you’re an English or History major who took their reading very, very seriously. Perhaps the shift to ebook format will diminish this reading by osmosis – and book sales, too – since people can afford to be honest about their preference for 50 Shades over The Red and the Black since their booklists are hidden in their Kindles and iPads.
So here’s my attempt to drill this down to a more realistic list: books that are culturally ubiquitous, reading deemed essential, writing everyone has heard of… that you’d be mildly embarrassed to admit you’ve never read.
10. Atlas Shrugged, Ayn Rand: The libertarian moment has prompted a slew of people to lie about reading Ayn Rand, or to deploy the term “Randian” as a synonym for, say, competitive bidding in Medicare reform without even bothering to understand how nonsensical that is.
9. On the Origin of Species, Charles Darwin: Many pro-evolutionists online display no understanding that the pro-evolution scientific community rejects the bulk of Darwin’s initial findings about evolution.
8. Les Miserables, Victor Hugo and A Tale of Two Cities, Charles Dickens: Virtually every bit of literature about the French Revolution could be tied here, though ignorance of it might inspire fun future headlines, such as “De Blasio Brandishes Knitting Needles, Calls For ‘The People’s Guillotine’ To Be Erected In Times Square.”
7. 1984, George Orwell: A great example of a book people think they have read because they have seen a television ad. On Youtube.
6. Democracy in America, Alexis De Tocqueville: Politicians are the worst about this, quoting and misquoting the writings of the Tocqueville without ever bothering to actually read this essential work. But politicians do this a lot – with The Federalist Papers and The Constitution, too.
5. The Wealth of Nations, Adam Smith: Smith’s invisible hand is all that many people seem to know about his work, but his contributions were more sophisticated than that, rejecting a simplistic view of self-interest and greed as the motivating factors in a healthy economy.
4. Moby Dick, Herman Melville: If you haven’t managed this one yet, consider that William F. Buckley, Jr. did not actually read this until he was 50, remarking then to friends: “To think I might have died without having read it.”
3. The Art of War, Sun Tzu: Misunderstood and misapplied by people who’ve never bothered to read it, Sun Tzu’s advice is as much a guide to war as it is to avoiding combat via deception and guile, and to only fight battles one is certain of winning.
2. The Prince, Niccolo Machiavelli: Viewed by people who don’t understand the context as a guide to mendacious political gamesmanship and the use of hypocrisy and cruelty as political tools, Machiavelli’s work is likely a brilliant work of sarcastic trolling which contradicts everything else he wrote in life – which is one reason it was dedicated, sarcastically, to the Medicis who exiled and tortured him.
1. Ulysses, James Joyce: I own this book but have never read it.
Yeah, there are a few books I’m ashamed to admit I’ve never read or, in the wonderful phrase used on the Bujold mailing list, “bounced off”. I’ve read lots of Rand’s non-fiction, but have only ever finished We, the Living in her fiction works. I have read Nineteen Eighty-Four, and own copies of most of the others, but haven’t finished most of them (and haven’t even begun with the Darwin, Dickens, Hugo, or Melville titles).
November 6, 2012
Adam Smith’s “invisible hand”
From LearnLiberty.org
Why are some countries wealthy while other nations are poor? Prof. James Otteson, using the ideas of Adam Smith, explains how the division of labor is a necessary and crucial element of wealthy nations. Additionally, Otteson explains Smith’s idea of the invisible hand, which explains how human beings acting to satisfy their own self interest often unintentionally benefit others.
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March 7, 2011
QotD: Mercantilism
You actually had a short, but interesting chapter in your book explaining why you think our trade balance with China is mostly irrelevant. Could you give people a short, but sweet synopsis of that argument?
Adam Smith was the first to point this out in the Wealth of Nations. The common wisdom at the time, mercantilism was the name it went by, was that the way a nation got rich was by exporting things. In return for the exports they’d get gold. And Smith’s going, I’m paraphrasing broadly here, “You can’t eat gold, you can’t kiss gold, and gold won’t keep you warm at night. Gold is just gold.”
He said the exports, that’s real stuff, and you’re giving it away in favor of gold. He said imports are the good thing. Imports are when you’re getting something you like. You’re getting French wine. You’re getting American tobacco. You’re getting furs from Russia, getting whatever they were getting back in those days. He said exports are the way you pay for those imports. So imports are Christmas morning. Exports are January’s Visa bill.
People getting so upset because everything seems to be made in China — I understand it on the level of the jobs have moved overseas. I think it’s probably an important thing to remember that if the jobs hadn’t moved overseas, they probably would have just gone away. So, it’s not like the Japanese have all of our car making jobs.
John Hawkins, “The P.J. O’Rourke Interview”, Grendel Report, 2010-10-11
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February 11, 2011
How “those evil speculators” actually provide a very useful public service
Tim Worstall has a very good summary of Adam Smith’s explanation of the very useful public service provided by speculators:
Back to food: this is exactly the argument that Adam Smith put forward to explain the activities of a wheat merchant (Wealth of Nations, Book IV, Chapter V, start at para 40, here, for a decent dose of 18th century prose). When wheat is plentiful (although he calls it corn — the English did not call maize corn until some time later), say after a harvest, the merchant buys it up and stores it. He then waits until prices have risen before he sells it. If his expected shortage in the future doesn’t arrive then he’s shit out of luck and loses money. If it does, then the happy populace now have wheat to eat. For, and here’s the crucial point: what our merchant, our speculator, has done is move prices through time.
If we all ate wheat like it was that bounteous time just after harvest all the time then we would run out of wheat entirely before the next harvest. Prices would, at that point, become really rather high. However, by buying in the time of plenty, he’s raised prices in that time of plenty: thus making everyone consume a little less in that Harvest Festival gluttony. He’s also lowered prices in the Hungry Time (in medieval times, the six weeks before the harvest was indeed known as this, it was the worst time of year for food supplies) because he has at least some grain available rather than none.
So we’ve reduced price volatility, stretched the available supply over more time, possibly even stopped some starvation, by someone being enough of a bastard to speculate on food prices.
Now note, this is physical speculation, actual purchase, taking delivery and storage.
Derivatives speculation, using futures and options, has less effect on prices. It gives us information about what people think prices might be in the future, for sure, but it will only affect today’s prices if high future prices lead to that actual physical storage and hoarding. Which could happen, to be sure, but won’t necessarily.
All of this leads us to what people like M Sarkozy are trying to say and what the WDM are screaming about. The latter, in their report linked above, come right out and say that as more people are playing with food derivatives, this is what has been pushing up food prices. This is nonsensical, in the absence of any physical hoarding. For a start, WDM seems not to realise than a futures market is zero sum: for any profit made by someone then someone else must have made an equal and opposite loss. For everyone going long (betting on a price rise) someone else must have made an equal and opposite bet going short (betting that prices will fall). That’s just how these markets are. It really doesn’t matter to spot (current) prices whether three people are betting £50 or 30,000 are betting $50bn: there will be an equal and opposite number of people long as there are short, by definition.
So it absolutely cannot be that “more people speculating increases food prices”.
WDM’s second point is that more speculation means more volatility in prices: something that almost all economists would regard with a very jaundiced eye. For the general assumption is that futures act upon prices as does Smith’s wheat merchant: they reduce price volatility. Fortunately, the WDM, in its own report, provide us with an example of this. In the 2006/8 price rises, it notes that there’s a deep and liquid speculative market for wheat and corn (maize), while there’s only a very thin one for rice. And yet it was rice that was vastly more volatile in price in this period: despite the fact that it was wheat and maize which people were turning into ethanol for cars (the true cause of the price rises) rather than rice.
The price of a good is also a signal of availability: the more scarce the item is, the higher the price will go. The higher the price goes, the greater the incentive to either limit the use of the item or to search for substitute goods. This is a key feature of free markets: without the price change signalling, consumers cannot accurately guage whether to increase or decrease their use of a particular good. This is why the worst possible reaction to a sudden price increase is price controls: remember the first oil crisis in the 1970s? Price controls meant that people could still buy gasoline at the “old” price . . . until there wasn’t enough to go around. Controlling the price creates artificial shortages and fails to rationally indicate to consumers to conserve or limit their consumption.
