The idea that The Wealth of Nations puts forth for creating prosperity is more complex. It involves all the baffling intricacies of human liberty. Smith proposed that everyone be free – free of bondage and of political, economic and regulatory oppression (Smith’s principle of "self-interest"), free in choice of employment (Smith’s principle of "division of labour"), and free to own and exchange the products of that labour (Smith’s principle of "free trade"). "Little else is requisite to carry a state to the highest degree of opulence," Smith told a learned society in Edinburgh (with what degree of sarcasm we can imagine), "but peace, easy taxes and a tolerable administration of justice."
P.J. O’Rourke, Adam Smith gets the last laugh, FT.com (12/02/2009)
Recommended reading for today: Adam Smith gets the last laugh by P.J. O’Rourke (free subscription may be required).
Adam Smith knew more about the economy, notwithstanding living about 250 years ago, that many (if not all) mainstream economists, policymakers and politicians of today. We should revisit An Inquiry into the Nature and Causes of the Wealth of Nations (free at Project Gutenberg) and learn that the solution to the current financial mess and economical distress was already written in 1776: let the invisible hand act.
Adam Smith's opinion on the house market's contribution to the country's wealth:
A dwelling-house, as such, contributes nothing to the revenue of its inhabitant. If it is let to a tenant for rent, as the house itself can produce nothing, the tenant must always pay the rent out of some other revenue. [Although a house can make money for its owner if it is rented,] the revenue of the whole body of the people can never be in the smallest degree increased by it.
On the high profits from the speculative excess:
When the profits of trade happen to be greater than ordinary, overtrading becomes a general error. [438] [And the rate of profit,] is always highest in the countries that are going fastest to ruin.
On the artificial increase of money by the government:
To attempt to increase the wealth of any country, either by introducing or by detaining in it an unnecessary quantity of gold and silver, is as absurd as it would be to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils.
On the active government's involvement in replacing the private activities:
The state cannot be very great of which the sovereign has leisure to carry on the trade of a wine merchant or apothecary.
Easy to understand, but difficult to believe. However, Adam Smith was (and is) right as it has been proved in the last 250 years.
Love and freedom.
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