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Author
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Topic: Adam Smith Reading Group Thread #1
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rasmus
malcontent
Babbler # 621
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posted 05 July 2001 11:38 AM
OK I am going to take action here, otherwise it's like when everyone talks endlessly about where to eat and then you go somewhere that no one likes.So here it is, the start of Babble's first experimental reading group. All and sundry are welcome. (Jared, Trisha and Earthmother: that means you! And absolutely anyone else, of course. ) We'll be reading Adam Smith's The Wealth of Nations. I suggest reading the intro by Monday. It is but a morsel. Then how about the first four chapters, i.e. the ones on the division of labour, by the following Monday? Don't worry if you only have an abridged version, or if it's tough slogging at first. It'll all work out in the end. BTW, the commentators in both the Penguin and Modern Library editions are definitely right-of-centre, but the woman who's done the abridged version for Oxford Paperbacks appears to be a leftist. Online versions: Wealth of Nations -- Marxist Archive Wealth of Nations -- Bibliomania
From: Fortune favours the bold | Registered: May 2001
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rasmus
malcontent
Babbler # 621
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posted 08 July 2001 11:38 PM
Introduction.
OK let's unpack. I'll start here and over the next week we can all
contribute. Full disclosure: I'll be working hard to spin Adam Smith as
a leftist. 
I'm reading the Modern Library edition, which was edited and a
nnotated by Edwin Cannan (in 1912?) but has a contemporary
introduction by a neoliberal professor.
DrC, when you get yours you can see if there's more commentary than in
mine.
I think the first thing to get used to is the language.
First, Smith starts out identifying what he supposes to be the "fund"
which supplies every nation with all the necessaries and conveniences
which it annually consumes -- that is, the annual labour of the nation.
The annual labour of the nation supplies every nation with all the
necessaries and conveniences which it annually consumes. Obviously,
this is a provisional definition which can be refined later. But what
strikes me, first of all, is how boldly Smith identifies labour as the
source of all these necessaries and conveneniences. Contrast that with
the dominant thinking nowadays, which is as likely to identify
capital itself as a source of wealth creation. This view
doesn't make a lot of sense, but you hear it a lot from right wingers
-- "who do you think made these jobs, created this wealth" -- not said
about labourers, but about owners. This latter view is very
convenient if you want to justify inequalities in wealth. But it's
interesting that it's not Smith's view.
In fact, Smith's view departs from an older view of British economists,
much closer to this modern right-wing view, which held that the wealth
of a nation was an accumulated fund. (This is written in the footnotes
in my book. Fund of what, you might wonder?) "Following the
physiocrats (a group of French economists), Smith saw that the important
thing is how much can be produced in a given time."
Next Smith identifies what is consumed with what is produced
domestically or bought from other nations.
As of yet, we haven't taken into account savings, storage of
food, durable stuff, capital investments, appreciation of capital etc.
That will come later, and, I guess, make this first definition more
complex.
Next, Smith identifies the wealth of a nation with the proportion of
this produce to the number of those who are to consume it. This is, I
suppose, a precursor to our idea of gross domestic product. But I'm
going to ask DrConway to define that for us in clear terms. My
edition notes that Smith's view was new in looking at a nation's welfare
in terms of the average welfare of its citizens, not the aggregate
welfare. But there's no detail on the idea that preceded it.
Today, we'd be inclined to think that this measure was too crude,
because it doesn't measure the distribution of wealth -- some might
have more than others. But let's hold on -- Smith might get to that.
Well that's the first two paragraphs. Like I said. Let's start slowly.
Then speed up.
To me, the big point of the first page: Smith identifies labour as the source of a
nation's wealth.
The next few paragraphs are interesting. After that, he basically just
gives an overview of the sections of the book. Someone else want to
comment on the next few paras?[ July 08, 2001: Message edited by: rasmus_raven ]
From: Fortune favours the bold | Registered: May 2001
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Debra
rabble-rouser
Babbler # 117
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posted 09 July 2001 12:42 AM
4th paragragh
The abundance or scantiness of this supply, too, seems to depend more upon the former of those two circumstances than upon the latter. Among the savage nations of hunters and fishers, every individual who is able to work, is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniences of life, for himself, or such of his family or tribe as are either too old, or too young, or too infirm to go a hunting and fishing. Such nations, however, are so miserably poor that, from mere want, they are frequently reduced, or, at least, think themselves reduced, to the necessity sometimes of directly destroying, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts. Among civilised and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great that all are often abundantly supplied, and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniences of life than it is possible for any savage to acquire.I think it is interesting that he equates lack or want with a savage society.Both in his time and ours there are people who are left to die from want. I don't see much difference between leaving a baby on a rock or refusing care because of cost to the system.
Probably not the the critique you're looking for sorry.  )
From: The only difference between graffiti & philosophy is the word fuck... | Registered: Apr 2001
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DrConway
rabble-rouser
Babbler # 490
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posted 09 July 2001 02:12 AM
I'll cite the definition of GDP if I can dig it up from somewhere.I don't really have much to say to the intro except that I concur, rasmus, that at times Smith seems to read like Karl Marx with his focus on labor as being the wellspring of a nation's wealth. Incidentally, I have independently arrived at the conclusion that capital cannot be made useful without labor. Even now, as automation proceeds apace, human beings are still largely needed to help put capital (and therefore, money) into motion.
From: You shall not side with the great against the powerless. | Registered: May 2001
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rasmus
malcontent
Babbler # 621
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posted 09 July 2001 02:44 AM
No red faces here, earthmother. Only smilies I like your comments.
Well it would be interesting to speculate where Smith gets his ideas. I'm sure that's been studied. But just what "primitive society" is he actually thinking of? I don't know. I think it's only in freakish conditions that people commonly kill their infants (well killing baby girls I suppose was historically common). And the reason is usually social pressure of some kind... Surely this happened in Britain in Adam Smith's time? It's a little fishy anyhow.
Another thing to think about. Supposing Smith is right, and that today, for example, the average Canadian worker enjoys a much higher level of consumption than the average African. Well that seems true even if there is also want and poverty and suffering here. And it might have been true of Britain in his day, too... but what's missing, it seems to me, is an international perspective. Western Europe's prosperity in Smith's time was largely based on the plunder of colonies. This was refined into a system whereby the colonies provided cheap raw goods and the colonizers exported manufactured goods (an kept the profits of course), an arrangement insured by law (you couldn't spin cotton in India e.g.). So Smith's picture is a tad incomplete. But I think it will get more complete as the book goes on, as Smith was a great enemy of mercantilism (East India Company e.g.)
Also, I think Smith overestimates the degree of want in "primitive societies". There might be great want in times of famine or war, but I don't think, especially in Smith's time, that it need have been the general rule. And of course there were famines in Europe...[ July 09, 2001: Message edited by: rasmus_raven ]
From: Fortune favours the bold | Registered: May 2001
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DrConway
rabble-rouser
Babbler # 490
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posted 09 July 2001 04:10 PM
quote:
Whatever are the natural advantages of each particular nation, the proportion of the annual produce to the number of people ("the number who are to consume it") varies with the skill, dexterity and judgment with which labour is applied, and with the proportion of those who are "employed in useful labour" and those who are not. I take it here he is just distinguishing between what we would call employed and unemployed period. Translating into modern terms. The annual "produce of a nation" per person depends on the nation's productivity and the number of employed. Does that sound fair?
I would concur that Adam Smith was writing of the differences inherent in the labor force of a nonindustrialized nation versus that of an industrialized nation - of necessity there is full employment in the nonindustrial nation, but that doesn't translate into a continuous improvement in what gets produced. By contrast, the industrialized nation can suffer unemployment and tolerate people who live off the labors of others (ie. capitalists) and still produce at a rate which exceeds the former by a large amount, due to machinery multiplying human muscle, as it were. The "skill, dexterity, and judgement" line seems to indicate, to me anyhow, that Smith is talking of the division of labor and how intelligently it is structured - example: are there bottlenecks in a production process? How quickly are such bottlenecks removed? And so on. However, I would agree that an alternative interpretation may be possible - that the composition of the labor force itself has a bearing on net material output. I think I'll stop here, else I'll be putting words in Adam Smith's mouth.
From: You shall not side with the great against the powerless. | Registered: May 2001
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DrConway
rabble-rouser
Babbler # 490
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posted 10 July 2001 02:53 AM
Hey, y'all.GDP (Gross Domestic Product) is the total market value of all final goods and services produced within a country in a given year. There are two approaches towards reaching this value. The expenditures, or the output, approach is usually used. Equation (Expenditures Approach) :
GDP = C + I + G + X C: Personal Consumption Expenditures
This group includes expenditures by households on durable consumer goods (cars, refrigerators, video recorders), nondurable goods (bread, milk, pencils), and services (lawyers, doctors, barbers). I: Gross Private Domestic Investment This group is comprised of all final purchases of machinery, equipment, and tools by business enterprises, all construction, and changes in inventrories. Changes in inventories means that if a product is produced in 1999 and not sold until 2001, it is still included in the calculation of the GDP in 1999. G: Government Purchases This group includes all government spending, which includes federal, state, and local, on the finished products of businesses and all direct purchases of resources, including labor. X: Net Exports The amount by which foreign spending on a nation's goods and services exceeds that nation's spending on foreign goods and services. (Incidentally, I copied the equation off a website as I wanted to provide that too) [ July 10, 2001: Message edited by: DrConway ]
From: You shall not side with the great against the powerless. | Registered: May 2001
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rasmus
malcontent
Babbler # 621
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posted 10 July 2001 05:17 AM
Thanks DrC for the definition of GDP. I'll have to go over it when my brain is working.
Meanwhile, I've reposted this stuff that I took down when the links were busticated.
Here are some links to background material I've lifted from here and there 
The first is an article from the Encyclopedia of Philosophy that starts with a fairly detailed biography of Smith. The article deals with Smith more as a philosopher than as the founder of modern economics, so it offers a different perspective on him. I've put it in text format on DrC's website.
Adam Smith -- Encyclopedia of Philosophy
Earthmother, you were struck by the paragraph about "primitive societies". There is a note in the paperback Oxford edition, which has very helpful notes, on the origin of Smith's ideas:
Savage nations of hunters and fishers
From the same source, a note on the term "political economy":
Political Oeconomy
Note that Smith, like his Enlightenment contemporaries, accepted a view of the social world as subject to objective "laws" that could be discovered by reason. The great example of such laws for the Enlightenment was of course Newton's physics, a model which thinkers like Smith sought to extend to other fields of knowledge. Another characteristic of Enlightenment thinking is a belief in progress guided by human reason, and this is very much evident in Smith's mention of the "stages" of nations' development.
Some points to think about:
What does Smith seem to leave out as a result of trying to develop a more or less quantifiable theory of economics? What does he assume about the nature of human behaviour and social interaction? Do these assumptions seem reasonable?
Some more piddly points:
Smith seems to take for granted what the necessaries and conveniences of life are. Is this obvious? Smith doesn't mention what comes under these headings.
What does he mean by skill, dexterity, and judgment in the application of labour?
The full title of the work is An Inquiry into the Nature and Causes of the Wealth of Nations. In fact, it is only in the introduction that Smith describes the 'nature' of the wealth of nations. Once at the very beginning, and once at the very end, where he says that 'the real wealth' of a nation is the 'annual produce of the land and labour of the society.' The two definitions don't seem to be exactly the same, and I suppose the latter seems better, because it reflects our intuition that the wealth of a country depends in part on its natural endowments. (Canada, e.g.).
Right, the other paragraphs just summarize the contents of the book. Perhaps we should skip and go on to Chapter 1? Division of labour?
The only other thing I can't resist prematurely remarking on is Smith's belief that the "number of useful and productive [note here that he distinguishes 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." Now that we have much better data than Smith, can we say this is true? DrC?[ July 10, 2001: Message edited by: rasmus_raven ]
From: Fortune favours the bold | Registered: May 2001
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DrConway
rabble-rouser
Babbler # 490
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posted 10 July 2001 05:45 AM
quote:
The only other thing I can't resist prematurely remarking on is Smith's belief that the "number of useful and productive [note here that he distinguishes 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." Now that we have much better data than Smith, can we say this is true? DrC?
In a word, yes. I don't have all the literature in front of me to cite, but I can tell you off the cuff that one of the key properties of enhancing worker productivity is the amount of capital-intensity that is present in a company, or even in an industry. It is for this reason that manufacturing has a higher productivity than services - it is far easier to use machines (which require ongoing infusions of capital, both in the up front purchase and in maintenance) in conjunction with workers to increase material output. It is not so easy to do with services. My answer above at speaks to both the quantity and the quality of the capital stock which is used in putting workers to their work, in that we can readily see that large infusions of capital are not indiscriminately spread throughout the economy, or throughout businesses, but are instead concentrated in manufacturing. However, I would guardedly say that Adam Smith may have underestimated the phenomenon of "technological unemployment". It may have at one time been true that ever-larger infusions of capital into manufacturing required ever-larger waves of workers entering those enterprises, but today I have to wonder if this is still the case. This caveat does not, however, undermine, IMHO, Smith's thesis that the quality and quantity of capital is a key determinant of worker productivity. [ July 10, 2001: Message edited by: DrConway ]
From: You shall not side with the great against the powerless. | Registered: May 2001
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rasmus
malcontent
Babbler # 621
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posted 10 July 2001 02:01 PM
DrC, I think it might be necessary to unpack the GDP definition a bit. People may wonder why the Gross Domestic Product is measured by looking at consumption. I'm assuming that there is an accounting identity between what is produced and what is consumed. The idea of an accounting identity is that, as in a double-entry accounting ledger, credits and debits must always be equal, so in the economy at large, the value of all things purchased must equal the value of all things produced. That's the basic idea, I think. Pls. correct me if I'm wrong.skdadl, it's hard to tell at this early stage. I know from reading elsewhere that Smith believed the workers were the ones who knew best how to improve production. But while this shows Smith understood the value of the workers' knowledge, it's a separate question whether he thought that, as a matter of fact, the skill etc. with which labour is applied depends on the type of investment. I can't glean an answer to that.
From: Fortune favours the bold | Registered: May 2001
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DrConway
rabble-rouser
Babbler # 490
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posted 14 July 2001 12:52 AM
quote:
DrC: It's interesting that you mention that capital investment increases productivity in manufacturing more than services. Now, with all the hype about "information technology" increasing productivity, I have to ask a question: where is it increasing productivity, and how, and how is this measured? Normally, I think, it's assumed that the increase is in the service sector. But if there is an increase in productivity, I don't think it's as stellar as people say. I'm a sceptic. Does a processor twice as fast make you twice as productive? No, but some absurdly similar logic goes into how the US Department of Labor measures productivity gains from new technology.
I'm not sure how much you know about productivity, but the usual measure is in value added per worker. So a rough analog is GDP per worker, and an increase in that is a change in productivity. If you're just looking at a single factory, or even a single industry, you can disaggregate the productivity measure and instead measure productivity changes in terms of changes to net material output. (ie. if you zoom in on, say, a lumber mill, then productivity per worker can be measured in terms of board feet produced per worker, instead of having to use the dollar value of the final product.) I *have* heard vague mumblings about the methodology used to report the recent increases in productivity growth in the USA, but I remember few specifics. It is, however, apparent that a great deal of service-sector productivity gains have to be obtained by "squeezing" the workforce - longer hours, threats of layoff or dismissal if a shift is missed, etc. There is only so much computerization will do in terms of service-sector productivity. Incidentally, if domestic manufacturing is continuing to shrink in the USA, but the *construction* industry has more than expanded to compensate, that IS one area that can boost productivity growth in the aggregate. Why? Because construction can be mechanized just like manufacturing, and construction is sensitive to economic conditions. As we now know, the years from 1996 to 2000 were the "marathon runner's final sprint" in the expansion of the 1990s (from 1990 to 1995, the US economic growth rate was a tepid 1.7% per year; from 1996 to 2000, the growth rate spiked to about 4 to 5 percent per year) - this likely sparked off a construction boom, which would have boosted the output of that sector, which in turn would have boosted the productivity data. Badabing. Over to you, O ravenoid entity.
From: You shall not side with the great against the powerless. | Registered: May 2001
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DrConway
rabble-rouser
Babbler # 490
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posted 14 July 2001 12:55 AM
quote:
DrC, I think it might be necessary to unpack the GDP definition a bit. People may wonder why the Gross Domestic Product is measured by looking at consumption. I'm assuming that there is an accounting identity between what is produced and what is consumed. The idea of an accounting identity is that, as in a double-entry accounting ledger, credits and debits must always be equal, so in the economy at large, the value of all things purchased must equal the value of all things produced. That's the basic idea, I think. Pls. correct me if I'm wrong.
No, you're correct. IIRC, GDP is equivalent to Net National Income. But because it is generally a measure of the output of an economy, the math is done from the output side (that is, from what is consumed). I actually don't know what the formula is for Net National Income. Now I wish I had my Samuelson's. 
From: You shall not side with the great against the powerless. | Registered: May 2001
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Debra
rabble-rouser
Babbler # 117
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posted 15 July 2001 10:12 AM
" The habit of sauntering and of indolent careless application, which is naturally, or rather necessarily acquired by every country workman who is obliged to change his work and his tools every half hour, and to apply his hand in twenty different ways almost every day of his life, renders him almost always slothful and lazy, and incapable of any vigorous application even on the most pressing occasions. Independent, therefore, of his deficiency in point of dexterity, this cause alone must always reduce considerably the quantity of work which he is capable of performing."So he is saying that those in assembly line work are better craftsmen and more dilligent and attentive to their work? In the summation of the chapter he acknowledges the various 'industries' that go into the making of a woolen coat and yet this is not so very different than the efforts of the 'savage' societies where the talents of all are required. Is this the period of time when young women were leaving home to work in the mills and such. If so how did he assume that the terrible conditions which were imposed upon these workers - some of whom were children- made them more adept or better offf than those country workman or the savages?
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