Comments on: Adam Smith, The Wealth of Nations

By: skzb

skzb — Sat, 09 May 2009 08:47:59 +0000

“Nation: n, a politically organized body of people under a single government.”

And no, the Nation-state emerged in the 17th Century, not the 20th.

By: Andy

Andy — Sat, 09 May 2009 06:48:29 +0000

Being functionally illiterate makes it very hard to read any book – you have to know what the words mean. E. g. the common American mistake that ‘nation’ has something to do with a government. It does not. A nation is a people – that is a tribe or ethnic group. The Nation-state is a recent invention that came upon the world at the end of the first world war.

By: JP

JP — Tue, 05 May 2009 23:04:19 +0000

For what this may be worth, On the Moral Sentiment is pretty important to understand where Smith is coming from in TWoN. Interestingly, the concept of the invisible hand comes from the former work, not the latter.

By: Jo'din

Jo'din — Mon, 04 May 2009 17:51:36 +0000

Hey Wade!!!

I actually think you’re right here.

I read it fast and somehow took it out of context. For this part I agree he’s talking about money. I think I was just trying to get the general use of the word capital by Smith in context with the work as a whole.

By: dvcastle

dvcastle — Fri, 01 May 2009 22:25:52 +0000

This is fantastic, thanks for being willing to share your thoughts on this.

By: Tim of Angle

Tim of Angle — Fri, 01 May 2009 17:29:18 +0000

You might find entertaining P. J. O’Rourke’s review of Wealth of Nations: http://www.amazon.com/Wealth-Nations-Books-Changed-World/dp/0802143423/ref=sr_1_8?ie=UTF8&s=books&qid=1241198835&sr=1-8

By: Scott

Scott — Fri, 01 May 2009 16:58:18 +0000

More generally, when paired with “labor”, “capital” in an economic sense is used to describe things the labor operates with or upon, in order to produce. So, if someone wants to dig a hole, the shovels (or steam engines or dynamite or whatever) are the capital. The people who do the shoveling or dynamiting are the labor.

By: Wade

Wade — Fri, 01 May 2009 16:11:28 +0000

Peter,

I agree with you, again, in general, like I did with Jo’din, but again, in this case, we’re not talking about capital in the “big picture” sense. You’re right in the fact that capital can be several things. However, the instance in question is pretty clearly laid out. I also agree with you that it might be careless to strictly call it money, but I’ve also pointed out in post 8 that it could be “some kind of incentive”, so maybe it’s a trade of labor for food, or labor for rent, etc. However, like I said to Jo’din, keep in mind that in this specific situation, my intellectual property or the strength of my arm will not set laborers to work for me, rather I will compensate them to work for me with my capital stock, whether it’s food, a roof over their head or currency. I would agree, however, that the strength of the laborer’s arm or their intellectual property would be THEIR capital.

By: Peter Kendall

Peter Kendall — Fri, 01 May 2009 14:12:35 +0000

Wade, I think you are being a little careless with an assumption here. Yes, in a society where money, whether specie or currency, can be freely converted to goods and those goods can be freely converted back into money, then you can consider capital stock and money to be synonymous. But what if there are impediments to exchange, like excessive regulation, wildly fluctuating values on goods or property or severe, unpredictable shortages? Or, worse, a state that seizes assets without due process?

Money only rises to the level of a reliable form of capital if the entire society cooperates to afford it that status. Without a system of laws, financial regulation and shared values, capital stock might just as well consist only of real or intellectual property or even just the strength of your arm.

By: Wade

Wade — Fri, 01 May 2009 13:02:23 +0000

Jo’din,

First, I don’t know if I need to, but in order to avoid looking like some financially uneducated guy who jumped in on the conversation, I will also mention my qualifications: I have an MBA and work in the finance department of a Fortune 500 company, so I’m also no slouch.

Next, In the big picture, I don’t disagree with what you’re saying, but in the context which is being mentioned here, capital is money. If you start reading at the beginning of Chapter I of Book II, Smith discusses that when a man only has enough stock (wealth or money) to meet his immediate needs he uses it sparingly and doesn’t seek to create revenue from it. However, when a man has sufficient money to meet all his needs and also extra stock, he will seek to generate revenue from this excess portion of his stock. At this point, Smith pretty clearly states the following: “His whole stock, therefore, is distinguished into two parts. That part which, he expects, is to afford him this revenue, is called his capital.”

Also the sentence in question says, “The number of useful and productive labourers, it will hereafter appear, is every where in proportion to the quantity of capital stock which is employed in setting them to work, and to the particular way in which it is so employed.” If we use your definition of capital in this situation, you would be saying that you are using your “ability to manufacture” to set your laborers to work. You do not use your ability to manufacture to set your laborers to work, you use money or some form of incentive to get your laborers to work, which creates your ability to manufacture.