Adam Smith and True "Old Fashioned Pimping"

by Dual Income No Kids on April 11, 2008 · 0 comments

Hi All,

As some of you know, we DINKs are originally from Oregon. To make a long story short we are home for our friends Todd and Celeste’s wedding. In Oregon, weddings usually involve bachelor parties. More often than not, bachelor parties involve drinking and visits to multiple bars. This trip was not an exception. Somewhere during the second stop of the night, I cornered one of the groomsmen and started waxing poetic about my love of Adam Smith and democratic capitalism.

Since Oregon microbrews are great, things started getting a bit hazy after the third beer. But now that the haze has worn off, I’m clarifying Adam Smith‘s ideas for our readers.

Just briefly Adam Smith was a 18th century Scottish enlightenment political economist who wrote a classic book called The Wealth of Nations. The book was tremendously influential. Smith and the ideas he outlined are generally acknowledged as having a tremendous impact on the field of economics. The Wealth of Nations has thousands of pages, but the ideas briefly summarized are as follows:

1) Self Interest: Smith argued that individuals acting in their own self interest end up benefiting the whole of society. Smith said that the “invisible hand” of the free market would allow each individuals honest labor to improve the good of all – e.g. the collective effects of self interest end up benefiting everybody. He has a great quote that it bears repeating here:

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 self 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. Nobody but a beggar chooses to depend chiefly on the benevolence of his fellow citizens“.

2) Value: Smith said that value is determined by the amount of labor it takes to produce something. For example, our blog takes a couple of hours per day to maintain. In Smith’s analysis he would say that our blog has value because the labor we put into it saves time and trouble for our readers in researching these topics themselves.

You are reading our blog every day, right? Smith says it had a great value.

3) How Nations Get Rich: In a nutshell, Smith says countries get rich two ways. First, when their citizens save and invest and 2) when countries engage in free trade. A great example of these principles ias modern Switzerland. For most of Switzerland’s history the country has encouraged domestic investment on the part of its citizens and has engaged in expansive international trade. As a result, the Swiss are one of the most wealthy nations on earth.

4) Liberty: This is the best part of Smith’s analysis. In order for countries to get rich they have to cut red tape. Smith said that taxes were necessary for public safety, infrastructure and national defense, but that over-taxation and over-regulation were infringements on the natural freedom of each individual to follow their economic interests. If you’ve ever tried to start a business and been flummoxed by local bureaucracy you’ll immediately see what Smith ment.

Not everyone agrees with Smith’s principles – In fact a lot of people really don’t like free market capitalism. But, Smith was writing in the 1750s and you’ve got to admit that any book which has survived 250 years has got to provide some sort of enduring value.

And as my little brother likes to say, that’s the “old fashioned pimping”.

Best,

James

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