Picture of coins.
Thursday, October 7, 2010

Wealth of Nations

One of my hobbies is collecting coins. The photo above shows some of the coins that I have, but haven’t categorized or put on display. The photo, as should be pretty obvious, has been but through Photoshop to duplicate the coin images.

The book under consideration here is Adam Smith’s The Wealth of Nations. I’m going to try and hit what I consider the highlights of that book. Those won’t necessarily be the parts that deal strictly with economics, but may be something else.

Smith wrote on rhetoric, the art of persuasion, and his rhetorical practice becomes evident in a sentence like the following, from Book 1, Chapter 1:

“Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears next his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen-grate at which he prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniencies; if we examine, I say, all these things, and consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to what we very falsely imagine, the easy and simple manner in which he is commonly accommodated.”

Here Smith lays out a picture of a laborer. He stresses that the laborer wears and uses things that are themselves the products of other laborers and other manufacturers. Note the particularity with which he describes these things. We have not just a shirt, but a “coarse linen shirt,” which tells us both the quality and the material of the shirt. Later on we have “earthen or pewter plates,” materials belonging to the working classes. These all contribute to the picture of interconnectedness that is brought about by division of labor that Smith describes. As such all the phrases and clauses preceding “if we examine” can be considered as evidence that has been piled up and points to the conclusion that Smith gives.

In Book 1, Chapter 2, Smith gives us self-interest as the principle that generates the division of labor:

“Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

The portion beginning “It is not from the benevolence of the butcher,” is quoted fairly often. Smith sees each man as having certain needs that are met through the exchange of goods. I want a bookcase built, so I offer to tutor the carpenter’s daughter. Such is a pure exchange of goods. Later this will be expanded into an exchange through a medium, money. I may want the carpenter to build a bookcase, but I loathe his daughter because she is a spoiled brat. So I offer him something that he can use to hire another tutor. This will be expanded upon in Chapter 4.

Chapter 3 deals with limitations on the division of labor.

Chapter 4 deals with money. We’ve already commented on how money originated from exchanges of one item for another. Smith’s examples are largely agricultural, exchanging say an ox for a table. You can’t make change for an ox very easily, so if the carpenter wants only a part of the ox, say for barbecued ribs, then some means has to be arrived at so that the partial value of the ox can be conveyed to the carpenter. This is money, which can be easily reduced, whereas the ox can’t. Since metal can be divided into smaller and smaller portions this means that money is far preferable to barter.

Smith also deals with inflation. This is in terms of a debased currency, one in which the amount of metal in a pound or a franc is lessened so that the crown issues a coin that has the same face value while having less of the gold or silver that it denotes. Smith does not address the issue of printing money as a tool of inflation, though it’s obviously implied. (Banknotes, though they originated in China did not become popular in Europe till the reign of Louis XIV.)

Chapter 5 deals with price as a function of labor and of price in terms of money.

“The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people. What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our own body.”

This is a long chapter and merits a longer discussion than I want to give to it.

Chapter 6 deals with the components of price. These are wages, the profits of stock (raw materials), and the rent of land. Wages constitute the charge paid for labor, while the profit of stock is the charge for the handling and processing of the raw materials. The rent of land is the price paid for the use of the land. In agricultural societies this would be a charge for the produce gathered from the land. In industrial societies it would be a charge for the factory, or the buildings, or other facilities that are on the land. These three things make up the price of any commodity.

Chapter 7 deals with the natural and market price of commodities. Smith includes a discussion of monopolies here.

Chapter 8 deals with the wages of labour. Smith also has a discussion, beginning with paragraph 15, “A man must always live by his work…” of the fertility of the laborer. He points out that the poor laborer is generally more fertile than her higher class counter part:

“Poverty, though it no doubt discourages, does not always prevent marriage. It seems even to be favourable to generation. A half-starved Highland woman frequently bears more than twenty children, while a pampered fine lady is often incapable of bearing any, and is generally exhausted by two or three. Barrenness, so frequent among women of fashion, is very rare among those of inferior station. Luxury in the fair sex, while it enflames perhaps the passion for enjoyment, seems always to weaken and frequently to destroy altogether, the powers of generation” (paragraph 36).

As countries become more industrialized and more prosperous the tendency has been for birth rates to decline to replacement levels or below. Europe is now in demographic decline and the indigenous population is outpaced by recent immigrants. As the immigrants’ countries of origin become more prosperous, it can be expected that their birth rates will undergo a similar decline.

While the high-bred lady may have fewer children, those she does have are more likely to survive past infancy. Smith notes that the poor have high childhood mortality rates:

“But poverty, though it does not prevent the generation, is extremely unfavourable to the rearing of children. The tender plant is produced, but in so cold a soil, and so severe a climate, soon withers and dies. It is not uncommon, I have been frequently told, in the Highlands of Scotland for a mother who has borne twenty children not to have two alive.”

I’ve posted before that infant mortality rates seem to correspond not to national income, but to national literacy. As mothers become more literate, they become better mothers. A decrease in mortality means that in order for replacement to be achieved fewer children need to be born. This accounts, at least partially, for a decline in family size.

It should also be noted that while the upper class lady may have fewer children, and that the children she does have may reach maturity more certainly, it does not guarantee that the family line will not become extinct. Two famous families that have disappeared are the Medicis (extinct Feb 19, 1743), and the Stuarts (July 13, 1807). Higher birth rates may be instrumental in ensuring that the familial line continues.

Chapter 9 is about the profits of stock. Stock, in this case, means not stock as in shares of a company, but supplies of raw materials.

Chapter 10 is about wages and profits. Smith makes an observation that may interest anyone who has complained about the outrageous salaries paid to Hollywood stars:

“There are some very agreeable and beautiful talents of which the possession commands a certain sort of admiration; but of which the exercise for the sake of gain is considered, whether from reason or prejudice, as a sort of public prostitution. The pecuniary recompence, therefore, of those who exercise them in this manner, must be sufficient, not only to pay for the time, labour, and expence of acquiring the talents, but for the discredit which attends the employment of them as the means of subsistence. The exorbitant rewards of players, opera-singers, opera-dancers, &c. are founded upon those two principles; the rarity and beauty of the talents, and the discredit of employing them in this manner. It seems absurd at first sight that we should despise their persons, and yet reward their talents with the most profuse liberality. While we do the one, however, we must of necessity do the other. Should the public opinion or prejudice ever alter with regard to such occupations, their pecuniary recompence would quickly diminish. More people would apply to them, and the competition would quickly reduce the price of their labour. Such talents, though far from being common, are by no means so rare as is imagined. Many people possess them in great perfection, who disdain to make this use of them; and many more are capable of acquiring them, if any thing could be made honourably by them” (paragraph 28).

Smith wrote this at time when acting and performing was generally disreputable. There’s a long tradition of regarding performers as little better than thieves or prostitutes. So the lavish rewards bestowed upon the popular favorites is compensation for our disregard for them. Oddly, this disregard is not so prevalent today, and the less esteemed performers are not better compensated, as one might expect from Smith’s comment, than the ordinary performer.

Smith’s comment would lead one to expect that there would be stratification in the entertainment industry, with the members of SAG and the Motion Picture Academy receiving more prestige and less financial rewards than their more provocative, and less esteemed, counterparts in the adult industry. As far as I know, the regular denizens of Hollywood receive both greater prestige and better money than their less reputable counterparts.

That having been said, I think it is fair to say that while some may esteem performers, very few people would actually look to them for moral or philosophical guidance.

Smith contends that our original property is not land, but our labor:

“The property which every man has in his own labour, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of a poor man lies in the strength and dexterity of his hands; and to hinder him from employing this strength and dexterity in what manner he thinks proper without injury to his neighbour, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty both of the workman, and of those who might be disposed to employ him. As it hinders the one from working at what he thinks proper, so it hinders the others from employing whom they think proper. To judge whether he is fit to be employed, may surely be trusted to the discretion of the employers whose interest it so much concerns. The affected anxiety of the law-giver lest they should employ an improper person, is evidently as impertinent as it is oppressive.”

This puts Smith in opposition to Rousseau who saw the possession of private property, meaning property in land or in the fruits of the land, as the origin of society. Note also that Smith advocates the freedom of the laborer to offer his labor in any form whatsoever. The judge of the competency of the laborer is not some third party who has no interest, outside of the extraction of a fee, but the consumer of the laborer’s work. Consider, for example, the requirements for the licensing of beauticians. These are not for the benefit of the consumer of those services but are a means of hindering the entrance of new beauticians into the field. The requirements to join unions, or to take certain classes in a profession are likewise not for the benefit of the consumer, but a means of hindering entrance into a position. In Smith’s scheme of things it would be up to the overseers of a school, for example, to determine a prospective teacher’s competence rather than to a group of state legislators.

Smith goes on to condemn long apprenticeships. His point here is that most trades do not in fact require lengthy periods to attain some skill in. This, I think, holds true even in the intellectual skills. If I recall correctly A. S. Neill tells a story of a youth who skipped classes on a regular basis, but when it came time to move on taught himself the necessary material. Something similar happened in the case of my older son. He attended public schools, and spent the better part of 12 years goofing off. The school claimed that he had a learning disability, and I thought his problem was a will disability. When he decided to go to college, he borrowed one of my grammar textbooks, and taught himself grammar. He also taught himself sufficient math to get through college. Now both of these cases may be exceptions, but they do illustrate that it is not necessarily the length of time spent in an activity that makes for skill, but the intensity of that activity. It is the intensity of the drive to acquire a skill, whether it is weaving or programming in C++ that generates adeptness in the skill.

I’ve seen it said that Smith was hostile to corporations, but I think, and I may be wrong here, that he uses corporation to mean any body of men, including what we would call a union, cooperating and acting in concert. This passage would seem to indicate that:

“The inhabitants of a town, being collected into one place, can easily combine together. The most insignificant trades carried on in towns have accordingly, in some place or other, been incorporated; and even where they have never been incorporated, yet the corporation spirit, the jealousy of strangers, the aversion to take apprentices, or to communicate the secret of their trade, generally prevail in them, and often teach them, by voluntary associations and agreements, to prevent that free competition which they cannot prohibit by bye-laws. The trades which employ but a small number of hands, run most easily into such combinations. Half a dozen wool-combers, perhaps, are necessary to keep a thousand spinners and weavers at work. By combining not to take apprentices they can not only engross the employment, but reduce the whole manufacture into a sort of slavery to themselves, and raise the price of their labour much above what is due to the nature of their work” (paragraph 77).

Here he seems to be talking about what we would recognize as the reluctance of a trade union to take on additional members. By combining and taking in new members only upon the retirement or death of an existing member the union effective acts against the free trade of labor, and artificially keeps wages in the craft high. A modern instance of this can be found in cases such as the UAW, which limits membership, and artificially raises wages above competitive levels. When it became possible to have some labor performed outside of regions under the UAW’s control the jobs migrated there.

Smith’s famous quotation about a conspiracy against the public is applicable not to the employer alone, but also to the workers:

“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. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary” (paragraph 82).

It should be obvious that Smith here makes no distinction between evil capital and good labor. His contention appears to be that we all belong to one or more groups that have an interest that runs counter to the general interest of the public. We are all natural conspirators when it comes to furthering our own ends.

Chapter 11 deals with the rent of land. Rent is the fee paid for the use of land. Smith gives this definition and comment at the beginning of this chapter:

“Rent, considered as the price paid for the use of land, is naturally the highest which the tenant can afford to pay in the actual circumstances of the land. In adjusting the terms of the lease, the landlord endeavours to leave him no greater share of the produce than what is sufficient to keep up the stock from which he furnishes the seed, pays the labour, and purchases and maintains the cattle and other instruments of husbandry, together with the ordinary profits of farming stock in the neighbourhood. This is evidently the smallest share with which the tenant can content himself without being a loser, and the landlord seldom means to leave him any more. Whatever part of the produce, or, what is the same thing, whatever part of its price, is over and above this share, he naturally endeavours to reserve to himself as the rent of his land, which is evidently the highest the tenant can afford to pay in the actual circumstances of the land. Sometimes, indeed, the liberality, more frequently the ignorance, of the landlord, makes him accept of somewhat less than this portion; and sometimes too, though more rarely, the ignorance of the tenant makes him undertake to pay somewhat more, or to content himself with somewhat less, than the ordinary profits of farming stock in the neighbourhood. This portion, however, may still be considered as the natural rent of land, or the rent for which it is naturally meant that land should for the most part be let” (paragraph 1).

Book 2, Chapter 1 is a discussion of the division of stock. Smith divides it into three parts, that reserved for “immediate consumption,” fixed capital, which is characterized by providing “revenue or profit without circulating or changing masters.” The third type of stock is circulating capital, which is characterized by allowing a profit “only by circulating or changing masters.”

In Chapter 3 he discusses productive and unproductive labor:

“There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labour of a menial servant, on the contrary, adds to the value of nothing.”

In the following paragraph he makes the point that the king and his ministers count as unproductive labor. He will elaborate upon this point in various places, but the essential point is that while the government provides necessary services, it does not provide anything that contributes to the production of the wealth.

Smith gives an example of the produce of land. Part of this is destined to replace the farmer’s capital, and constitutes the “profits of his stock,” and the other portion is rent for the land. In manufacturing part of the produce replaces capital, and the other part is revenue “to the owner of this capital.”

He deals not only with the cause of the wealth of nations, but also with the cause of their poverty:

“Great nations are never impoverished by private, though they sometimes are by public prodigality and misconduct. The whole, or almost the whole public revenue, is in most countries employed in maintaining unproductive hands. Such are the people who compose a numerous and splendid court, a great ecclesiastical establishment, great fleets and armies, who in time of peace produce nothing, and in time of war acquire nothing which can compensate the expence of maintaining them, even while the war lasts. Such people, as they themselves produce nothing, are all maintained by the produce of other men's labour. When multiplied, therefore, to an unnecessary number, they may in a particular year consume so great a share of this produce, as not to leave a sufficiency for maintaining the productive labourers, who should reproduce it next year. The next year's produce, therefore, will be less than that of the foregoing, and if the same disorder should continue, that of the third year will be still less than that of the second. Those unproductive hands, who should be maintained by a part only of the spare revenue of the people, may consume so great a share of their whole revenue, and thereby oblige so great a number to encroach upon their capitals, upon the funds destined for the maintenance of productive labour, that all the frugality and good conduct of individuals may not be able to compensate the waste and degradation of produce occasioned by this violent and forced encroachment” (paragraph 30).

This may seem, to anyone who did not follow up their attendance at Columbia with a stint at Harvard Law, as strangely prescient of current circumstances.

In Book 3, Chapter 1 Smith discusses what he calls “The natural progress of opulence.” Readers who have read some history of the Russian Revolution and its aftermath may recall that there was an antipathy between the kulaks, the peasant farmers, and the city dwellers. Smith does not see the relationship as one of antipathy but as a symbiotic one. “The inhabitants of the town and those of the country are mutually the servants of one another. The town is a continual fair or market, to which the inhabitants of the country resort in order to exchange their rude for manufactured produce.” If we switch from the Russian Revolution to the American West, and the myth contained in all of the Westerns that we watched as children, we’ll recall that in just about every Western ever made there is a scene in which the farmer or rancher takes his produce into town and buys flour, gingham dresses, and all of the other necessities of life at the general store. This encapsulates that symbiotic relationship that Smith saw in England and Europe in the previous century.

In Book 4, Chapter 2 he discusses restraints upon trade, specifically foreign trade:

“The general industry of the society never can exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion. No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord” (paragraph 3).

He doesn’t say so in this paragraph, but reflection should show that by taking a person out of worthwhile employment and making them into a bureaucratic regulator you decrease the human capital that can be profitably employed, and to the extent that they are successful in imposing regulations upon economic activity they direct it in the wrong direction.

It’s in paragraph 9 of this chapter that Smith refers to “the invisible hand.”

“But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”

The individual, whether in his capacity as a private person, or in his capacity as a member of a firm, has his own ends more clearly in mind, and can pursue those goods more capably than someone in a distant office. By acting so as to maximize his own happiness, we achieve greater happiness for all.

There is a contrary view, and it is one that I think is predominant in some schools of thought. This sees all profit, and all exchanges as involving loss, and sees all competition as being a case of “dinging the other fellow down.” You can look at competition as being like poker. Poker is what’s called a zero-sum game. One player wins all the money in the pot, so his winnings exactly equal the losses of all the other players. Football is another zero-sum game. The advance of one team comes from the retreat of the other. Some competitions, racing, ice skating, target shooting, are non-zero sum games. The ice skater does not triumph by doing anything to her opponent, but by doing a triple flip better than the other girl. If you see an exchange as involving a theft in which someone has been taken, then you will not see that in an exchange there is in some sense a degree of profit. Either Ludwig von Mises or Murray Rothbard makes the point that even in when a person suffers a loss there is a psychic profit in having minimized their loss so that they will not suffer further loss.

Because the individual in his office or his home is able to keep track of the few pieces of data relevant to his concerns in a way that the distant bureaucrat cannot. Smith recognizes this in the following passage:

“What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it” (paragraph 10).

This statement quite nicely sums up the underlying intellectual basis of the current Tea Party movement. There is no divinely omniscient being, no supremely versatile computer, capable of directing the myriads upon myriads upon myriads transactions of a city, a country, or a planet. The one who can do this is not The One.

Smith continues in this way through much of the rest of the chapter.

In Chapter 9 he addresses agricultural systems, and he takes notice of the problem of the command economy causing misallocation of resources:

“It is thus that every system which endeavours, either by extraordinary encouragements to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it, or, by extraordinary restraints, force from a particular species of industry some share of the capital which would otherwise be employed in it, is in reality subversive of the great purpose which it means to promote. It retards, instead of accelerating, the progress of the society towards real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour” (paragraph 50).

The following paragraph lays out the basis for a libertarian or minimalist state:

“All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.”

Smith isn’t talking about racial discrimination here, but the principle applies to that as well. Giving preference to a person, or an occupation, even a college major, is a form of misallocation of resources. During the days of the Vietnam war it’s my recollection that the draft boards gave deferments to people majoring in hard science over liberal arts major. Preferring one candidate over another, as in Bakke, misdirects educational resources. Green energy schemes misdirect resources and investment away from current, ongoing projects to projects that may be years away from being fully functioning. Saying that you’re going to raise the cost of bringing a coal plant so high that companies will go bankrupt misdirects investment away from a cheap, functioning technology to an expensive, non-functioning technology, and hurts the people that you’re supposed to help. Book 5 deals with the problems of governmental expenses and revenues. Smith sees a standing army as having numerous advantages over a militia. One of these is particularly interesting in light of the American experience in Japan, Iraq, and other countries:

“As it is only by means of a well-regulated standing army that a civilized country can be defended, so it is only by means of it that a barbarous country can be suddenly and tolerably civilized. A standing army establishes, with an irresistible force, the law of the sovereign through the remotest provinces of the empire, and maintains some degree of regular government in countries which could not otherwise admit of any” (Book 5, Chapter 1, paragraph 39).

The standing army can be used for what we would now call “nation building.”

Smith, unlike pure libertarians, does see a role for government in certain areas:

“The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expence to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain. The performance of this duty requires, too, very different degrees of expence in the different periods of society” (V, 1, 69).

He gives examples of roads and canals. However, he seems to envision the roads and canals as being essentially toll roads, and fee based canals. He does not appear to advocate taking money from the revenue produced by tolls and using it for other purposes.

The problem of misappropriation of the highway fund is addressed by Smith who contends that “A large revenue might thus be levied upon the people without any part of it being applied to the only purpose to which a revenue levied in this manner ought ever to be applied” (V, 1, 84).

Another area of public expenditure is education. Smith is not a fan of public education:

“Have those public endowments contributed in general to promote the end of their institution? Have they contributed to encourage the diligence and to improve the abilities of the teachers? Have they directed the course of education towards objects more useful, both to the individual and to the public, than those to which it would naturally have gone of its own accord? It should not seem very difficult to give at least a probable answer to each of those questions” (V, 1, 132).

Smith seems to favor private education over public education, and he appears also to not like the medieval curriculum. His remarks on lectures may have been based on his own educational experiences.

“No better method, it seems, could be fallen upon of spending, with any advantage, the long interval between infancy and that period of life at which men begin to apply in good earnest to the real business of the world, the business which is to employ them during the remainder of their days. The greater part of what is taught in schools and universities, however, does not seem to be the most proper preparation for that business” (V, 1, 163).

Smith seems more concerned with a business, or craft oriented education than one based on the humanistic curriculum. It should be noted though that his harshest critique centers around philosophy and metaphysics. Metaphysics, and its companion theology, he regards as essentially useless.

Smith on the grand tour is rather amusing:

“Our young people, it is said, generally return home much improved by their travels. A young man who goes abroad at seventeen or eighteen, and returns home at one and twenty, returns three or four years older than he was when he went abroad; and at that age it is very difficult not to improve a good deal in three or four years”


“By sending his son abroad, a father delivers himself at least for some time, from so disagreeable an object as that of a son unemployed, neglected, and going to ruin before his eyes” (V, 1, 164).

He is also amusing on the education of women:

“There are no public institutions for the education of women, and there is accordingly nothing useless, absurd, or fantastical in the common course of their education. They are taught what their parents or guardians judge it necessary or useful for them to learn, and they are taught nothing else. Every part of their education tends evidently to some useful purpose; either to improve the natural attractions of their person, or to form their mind to reserve, to modesty, to chastity, and to œconomy; to render them both likely to become the mistresses of a family, and to behave properly when they have become such. In every part of her life a woman feels some conveniency or advantage from every part of her education. It seldom happens that a man, in any part of his life, derives any conveniency or advantage from some of the most laborious and troublesome parts of his education” (V, 1, 175).

Public education, according to Smith, can be imposed on the people:

“But though the common people cannot, in any civilized society, be so well instructed as people of some rank and fortune, the most essential parts of education, however, to read, write, and account, can be acquired at so early a period of life that the greater part even of those who are to be bred to the lowest occupations have time to acquire them before they can be employed in those occupations. For a very small expence the public can facilitate, can encourage, and can even impose upon almost the whole body of the people the necessity of acquiring those most essential parts of education” (V, 1, 182).

This expense, because it benefits the whole of society can be borne by the whole of society:

“The expence of the institutions for education and religious instruction is likewise, no doubt, beneficial to the whole society, and may, therefore, without injustice, be defrayed by the general contribution of the whole society. This expence, however, might perhaps with equal propriety, and even with some advantage, be defrayed altogether by those who receive the immediate benefit of such education and instruction, or by the voluntary contribution of those who think they have occasion for either the one or the other.

“When the institutions or public works which are beneficial to the whole society either cannot be maintained altogether, or are not maintained altogether by the contribution of such particular members of the society as are most immediately benefited by them, the deficiency must in most cases be made up by the general contribution of the whole society. The general revenue of the society, over and above defraying the expence of defending the society, and of supporting the dignity of the chief magistrate, must make up for the deficiency of many particular branches of revenue” (V, 1, 239-40).

Smith treats of revenue as well as expenses, but we won’t deal with that at present.

Next up is War and Peace. I’ll also be talking about Ben Jonson’s plays.