The Cato Institute City Seminar
On the Wealth of Nations
Tuesday, January 16, 2007
Featuring the Author: P.J. O’Rourke,
On the Wealth of Nations, (Atlantic Monthly Press, January 2007)
301 Park Avenue
New York City
P R O C E E D I N G S
WELCOMING REMARKS: EDWARD H. CRANE, PRESIDENT, CATO INSTITUTE
MR. EDWARD CRANE: If I could have your attention for a minute, I am going to introduce our luncheon speaker, the person for whom we are all here to hear, Pajamas O’Rourke. At least I assume that is what “P.J.” stands for. Is that right?
MR. O’ROURKE: Sure.
MR. CRANE: My bad.
MR. CRANE: P.J. O’Rourke is a H.L. Mencken Research Fellow at the Cato Institute. I say “a” because we have others. We have Penn Gillette, and Teller, of the famous Penn and Teller illusionist group, who are doing great out in Las Vegas. They are real libertarians. P.J. is a little more problematic.
MR. CRANE: He is a libertarian when he speaks before Cato groups.
MR. CRANE: But he tends to be conservative when he speaks to other groups. Many of you may have seen this piece on January 6th in the Wall Street Journal, a profile of P.J. And at one point in it P.J. says, “The only basic human right is the right to do as you damn well please and take the consequences,” which makes a lot of sense to me. But then it goes on to say, “He is not, however, a true libertarian. They are too logical,” he says, as though being illogical would be better. “It is a failed but admirable mission. They keep making these suicide attacks on principle, kamikaze raids on the aircraft carrier of government.”
Well, that prompted me to do a little research. According to a U.S. Air Force Web page, “Approximately 2,800 kamikaze attackers sunk 34 Navy ships, damaged 368 others, killed 4,900 sailors, and wounded over 4,800. Despite radar detection, airborne interception and attrition, and massive anti-aircraft barrages, a distressing 14 percent of kamikazes survived to score a hit on a ship. Nearly 8 and a half percent of all ships hit by kamikazes sank.”
To which I say to the aircraft carrier of government: Banzai.
MR. CRANE: In any event, let’s pick up on P.J.’s life when he went to Miami University in Ohio — leave it to P.J. to confuse Florida with Ohio — where he won a Woodrow Wilson Fellowship to get an M.A. in English at Johns Hopkins. He eventually ended up at National Lampoon in 1973, and eventually became editorinchief in 1978. At the National Lampoon, he cowrote this incredible piece with Doug Kenny, “The National Lampoon 1964 Yearbook Parody,” which is one of the funniest and just dead-on parodies ever written.
After leaving the Lampoon in 1981, P.J. became a freelance writer, writing for every magazine you can think of, everything from Car and Driver to the American Spectator, Playboy, Esquire, Vanity Fair, House and Garden, The New Republic, The New York Times Book Review, Parade, Harpers, Rolling Stone. Eventually, he became the Rolling Stone’s Foreign Affairs Desk Chief, which did not mean anything other than P.J. just went around the world and wrote hilarious dispatches from around the world, many of which ended up in his book, Holidays In Hell, which is a great, great book.
He is currently a correspondent for the Atlantic Monthly. His books have been translated into dozens of languages and are bestsellers nationwide. Three have been New York Times Bestsellers at least three and probably more than that Parliament of Whores, Give War A Chance, and All The Trouble in the World. And he has also written, as I mentioned, Holidays In Hell, Republican Party Reptile, Eat The Rich, and most recently, of course, On The Wealth of Nations, which he is going to be signing books after this for the next three hours.
Some of the most insightful individuals in terms of telling us where we are as a society have been political humorists. You can go back to Samuel Clemens, H.L. Mencken, Will Rogers, very important intellectuals, not just humorists, and P.J. O’Rourke clearly qualifies in that group.
I was working out the other day. I know a lot of you think, Ed Crane working out? No way. You should see what would happen if I did not.
MR. CRANE: But I was. I worked out for an hour and a half. And I am watching this program on CSPAN, In Depth. And it is P.J. And it is a three-hour program of P.J. O’Rourke. My God. Anyway, after an hour and a half, I collapsed out of boredom.
MR. CRANE: But one thing I picked up during the program was that P.J. does not recognize the Internet. He has no computer. He types on an IBM Selectric. He has a bunch of them apparently, because everyone who is done with them gives them to P.J., because they know he is Neanderthal. And the reporter who was interviewing him said, don’t you know you could write a lot more if you had a computer? And P.J. said, write more? Why would I write more? I hate writing. And we can just be thankful that he does not hate it enough that he does not write at all.
Please welcome P.J. O’Rourke.
MR. P.J. O’ROURKE: What other nonprofit in this world asks its members to make suicide attacks on the Federal Government?
MR. O’ROURKE: Do you realize how much trouble we are all in? You know what I mean? You think NSA isn’t listening in on this? We are all going to be arrested tonight. Thanks, Ed. I really appreciate that.
I just want to go on record for the FBI wiretap that I am sure is hooked in to this room that I am not making any kamikaze attacks. Well, I might make an exception for Nancy Pelosi. But no, I guess not.
MR. O’ROURKE: And speaking of logic, while I was sitting there listening to Ed, I realized that I had boiled down 900 pages of Adam Smith into about 200 pages of my book so that you would not have to read The Wealth of Nations. And then I realized that I had boiled down the 200 pages of my book into about a 20minute talk so that you will not have to read my book.
MR. O’ROURKE: Which just goes to show. That is typical of the sort of Cato way of screwing yourself, you know.
Anyway, the book that I did, On The Wealth of Nations, is part of a series that Grove Atlantic Press is doing on books that changed the world, commentaries on great books — on the Bible, the Koran, The Origin of Species, Das Kapital. So it is kind of like that “Idiots Guide” series, except it is not for idiots. It is for smart people. It is for you and me. But smart as we are, I am afraid we have to face it that we are just never going to read these great books all the way through, unless somebody pays us to do it the way they paid me.
TV ushered in the age of postliteracy. And we have gone so far beyond that. I mean, what with the Internet and Google and Wickipedia. We have entered the age of post-intelligence. We will live to see the day when a person of learning and cultivation is spoken of as being well-blogged.
Now, books that changed the world. What they are going do is they tell us what we would have read in these great books if we had read them and what we would have thought about what we would have read if we did any thinking. And I have got to wonder what the editors of Grove Atlantic were thinking when they asked me, of all people, to write the one on The Wealth of Nations. I guess they were trying to come up with a way to present important concepts to a 21st century that is obsessed with trivialities. And I guess they thought, well, nobody can make important things more trivial than P.J. can, so we will give it to him.
And I needed the money, so I sat down and I cracked The Wealth of Nations open to the first of 900 pages. This immediately presented a deep, serious, philosophical and intellectual question, which I call the quantity query. Why are great books so god-damn long? Why are they so long?
We have all wrestled with this. We have all wrestled with the quantity query, very often late at night before a college exam. And I have got to think that even a devoted Biblical literalist at a conservative Baptist seminary has got to wonder about this as he wades through the endless begats of First Chronicles.
Well, one nice thing about getting to be almost 60 years old is that I am too damn old to be embarrassed to ask why these things are so damn long. In college I would not have had the nerve. Imagine sitting in a seminar on George Eliot and getting up the guts to say to your professor, why is Middlemarch so goddamn long? I wouldn’t have had the nerve. But I do have the nerve now. And why is The Wealth of Nations so damn long?
Well, the answer, in a book of economics, is aptly economic. The Wealth of Nations sold for one pound, sixteen shillings when it was published in 1776. And that was a lot of money at the time. The average wage was about 10 shillings a week. And your serious minded book buyer demands good weight. Just lift Bill Clinton’s autobiography; that could have been summed up in a few choice words.
MR. O’ROURKE: And as a matter of fact, Cato did that for The Wealth of Nations already. If you look at the Cato Libertarian Reader, all of Smith’s essential economic points, they are made in just seven and a half pages of excerpts from The Wealth of Nations.
And there is a little story about that. The Libertarian Reader was edited by David Boaz. And the selections from Smith were made by Tom Palmer, a scholar at Cato who really actually knows everything about Adam Smith and was a huge help to me on my book. Anyway, they get done with the Reader, and David is writing the introduction. And he is doing one of those things that you do in introductions, where he is saying that each of the original works from which we have chosen excerpts can be enjoyed in their entirety.
And Palmer sees this and he rushes into David’s office. He goes, no, no, not The Wealth of Nations, not The Wealth of Nations. There is a 67page digression concerning the variations in the value of silver during the course of the last four centuries. It is like reading Modern Maturity in Urdu.
So economics made The Wealth of Nations long, but not just the bestseller part of economics. Economics made it long because economics is complicated. If economics were simple, all of us in this room would be a whole lot richer than we are now. It isn’t simple.
What made Adam Smith a genius was that he did simplify economics. He turned economics into a precise scientific discipline that is distinct from the unruly jumble of the mental and the physical world that we encounter in the actual economy. The problem is that once we step back into the actual economy, all that mental and physical jumble comes jumbling back down on our heads.
For instance, when I discovered that my five-year-old has walked out of Wal-Mart with an unpaid for My Little Pony, I mean, all of a sudden I’m dealing not just with the science of economics, I am dealing with the science of psychology, the science of sociology, with political science. For that matter, I am dealing with mechanical engineering, trying to pry her loose from this stupid purple plastic horse.
So the thing about Adam Smith that makes The Wealth of Nations so long was that Smith was every bit as willing as my crying child and I are to stray from strictly economic points. Now, for instance, here is Smith, 231 years ahead of himself, holding forth on why Angelina Jolie makes a discreditable, a discreditable, amount of money.
“There are, said Smith, “some very agreeable and beautiful talents of which the exercise for the sake of gain is considered a sort of public prostitution. The exorbitant rewards of players, opera singers, opera dancers, et cetera, are founded upon the rarity and the beauty of the talents and the discredit of employing them.”
Now, that is the kind of stuff that makes the rest of the 900 pages of The Wealth of Nations worth reading, or at least some of them.
And then there is another thing that makes The Wealth of Nations long. It is that The Wealth of Nations is very much a product of the Enlightenment era. Now, Enlightenment thinkers, they loved to explain things. There was a kind of explainomania going on during the Enlightenment. You see, the Enlightenment takes its name from what, if you think about it, is kind of a cartoon moment in intellectual history. Light bulbs suddenly appear — except they did not have light bulbs — over the heads of people like Adam Smith.
All of these guys suddenly realized that the world is not a divine obscurity that is comprehensible only through prayer and monkish meditation. All of a sudden, the Enlightenment thinkers realized that not looking at things is not the best way of looking at things. That if you illuminate the machinery of nature with a little observation and a little thought, you can see how things work. The universe is explicable. And Enlightenment thinkers were, prime mover, damn it, going to explain. So you can kind of think of this as the beginning of maybe the really boring part of libertarianism, in a way — explaining.
Anyway, all explanations start out brief. But pretty soon Smith gets tangled up in clarifications and gets intellectually kind of caught out, Dagwood style, carrying his shoes up the stairs of exegesis at 3:00 a.m., expounding his head off, while that vexed and crabby spouse, the reader, stands with arms crossed and slippered, tapping on the second floor landing of comprehension.
For example, in Book One of The Wealth of Nations, Smith is trying to explain how we determine value or price. And Smith says, “If, among a nation of hunters, it usually costs twice the labor to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer.”
And I am going, wait a minute. Can killing a beaver really be twice as hard as killing a deer? Deer can run like hell. We know where the beaver lives. It built the beaver dam. We have got the beaver’s home address. And even if it does take twice as long to kill the beaver, you know, wading around in the beaver pond, smacking at Bucky’s head with the flat side of the canoe paddle, who wants a beaver? It is not like this nation of hunters is wearing a lot of top hats. And after a long day of hunting, take your pick — a juicy venison tenderloin or beaver stew.
And yet, there is this core of simple clarity to The Wealth of Nations. Smith argues three basic principles. And by plain reasoning and plentiful examples — very, very plentiful examples — he proves them. I mean, even intellectuals should have no trouble understanding Smith’s ideas.
Economic progress depends upon three individual liberties: the pursuit of selfinterest, the division of labor, and the freedom of trade. Now, Smith’s most brilliant insight was that there is nothing inherently wrong with a person pursuing his or her own self-interest.
Now, this does not sound like news to us. Or rather, in the 21st century, it sounds like everything that is in the news. Because these days, even altruism is shouted at the top of the altruists’ lungs. I mean, Bob Geldof and Bono. It is in one’s own self-interest to remain a celebrity, and these guys have figured out how to stay one, even though nobody listens to their music anymore.
But it did not use to be like that. It did not use to be like that about self-interest. All the priests and philosophers used to tell everybody to suck it up, subjugate your ego, bridle your ambitions, sacrifice yourself to God and the feudal big shots. And we bought it. We bought it. Because we did not have any control over our self-interest anyway. And if we were slaves or serfs, and most of us were, we did not even have a self to have any self-interest that we could be interested in. In the doghouse of ancient and Medieval life, asceticism made us feel less like dogs.
But by the time that Adam Smith was alive in the 18th century, ordinary people were beginning to have some control over their own destinies. And this did not please philosophers and priests and feudal big shots. And the fact that it did not please them pissed Adam Smith off. We think of irony as being this kind of modern tone. But I will tell you, Adam Smith was pretty good at irony himself. He said, “Is this improvement in the circumstances of the lower ranks of people, is it to be regarded as an advantage or as an inconveniency to society?”
You see, in the 18th century prosperity for poor people was not yet considered a selfevidently good thing. Why? Because nobody had bothered to ask the poor people. And in many parts of this world, nobody has bothered to ask them yet. And Smith was pointing out that it is never a question of philosophical folly or religious sacrilege to better your material circumstances. It is never a question of that. The question is how to do it. And the answer is division of labor, what we would call specialization.
Now, that has existed since caveman times. But nobody before Adam Smith seemed to realize how truly important to progress division of labor is. In fact, Smith seems to have invented the term. The little fellow with the big ideas chips the spear points. The courageous oaf spears the mammoth. And the artistic type does a lovely cave painting of it all. Right? And this leads inexorably to trade. Because one person makes a thing, another person makes another thing, and everybody wants everything.
And that was Adam Smith’s third brilliant insight. All trades, all trades, when freely conducted, are mutually beneficial by definition. A person with this got that, which he wanted more from a person who wanted this more than that. Simple.
Now, it may have been a stupid trade. I mean, viewing a cave painting cannot be worth 300 pounds of mammoth ham. It may have been a lopsided trade. A starving cave artist gorges himself for months while a courageous oaf of a new art patron stands scratching his head in the Paleolithic grotto. And what about that wily spear point chipper? He doubtless took his mammoth cut.
But these participants in free trade, they did not ask us. It is none of our business. Unless of course we make it our business by introducing trade regulation. And you see, a regulation cannot be effective unless there is a coercive element to it. So suddenly, instead of free trade you have coercive trade. And let me define coercive trade. A coercive trade is when I get the spear points and the mammoth meat and the cave painting and the cave, and what you get is killed.
You see, coercion, very simply, is the lack of individual liberty. Coercion destroys the mutually beneficial nature of trade, which destroys the trading, which destroys the division of labor, which destroys progress. You can have pursuit of selfinterest, division of labor, and freedom of trade, or you can have North Korea. That is your choice.
In The Wealth of Nations, Smith’s logic did a number of interesting things. By proving how it was that productivity was increased, by proving that, he disproved the idea that bettering the condition of one person necessarily worsens the condition of somebody else an idea that is still dearly held by Marxists and also by everybody’s little brother. Wealth is not a pizza, where, if I have too many slices, you have to eat the Domino’s box. Wealth is not zero-sum.
Now, by showing that there is no set amount of wealth, Smith also disproved the idea that a nation has a certain fixed horde of treasure, a king’s ransom of gold, silver and jewels. Smith proved that the wealth of a nation has to be measured by its volume of trades in goods and services. In other words, it has to be measured by what goes on in the royal castle’s kitchens and stables, not by what is locked up in the royal castle’s vaults.
It was Smith, right then and there, who invented the concept of gross domestic product. And without gross domestic product, economists would have nothing to say. Economists today, they would be standing around mute, in ugly neckties, waiting for MSNBC to ask them to be silent on the air.
So if wealth is all ebb and flow, then so is its measure — money. Money, it turns out, has no intrinsic value. Now, any baby who has eaten a nickel could tell you that. And those of us old enough to have heard about the Weimar Republic or to have lived through the Carter administration, we are not surprised by that information. But in the 18th century, almost all money was still precious metals. And what Smith had to say about money, it bugged his contemporaries. Because he was saying that gold is, well, worth its weight in gold, of course, but not necessarily worth anything else. And people were creeped out by this.
Even though people in the 18th century, they could look right at Spain, which was covered in bling and completely impoverished, and realize that Smith must be right. But still, it bothered them. It was as if Smith, who had just proved that everybody could have more money, it was as if he had then gone on to prove that money did not buy happiness. And it doesn’t it. It rents it.
MR. O’ROURKE: Now, what Smith had to say in The Wealth of Nations, it disturbed people at a visceral level. And it still does. It disturbed me. It disturbed me while I was reading The Wealth of Nations. I am reading The Wealth of Nations, and I am reading about self-interest, and I am thinking, well, I am not self-interested. I am not selfish. I am not greedy. I think about the environment and others less fortunate than me, especially those unfortunates who do not care about the environment. I think about them all the time. And boy, I hope they lose the next election, because then we can get some people in office who are not selfish and greedy and who do care about the environment. Because if we elect environmentalists, then that subdivision full of McMansions that is going to block my view of the ocean, that won’t get built.
Because let’s face it, let’s face it, the lower ranks of the people do have too much money. Look at Britney Spears. Or look at those moneybags buying the chateaus-to-go on my beachfront, I mean, them with their four-barge garage and a Martha-bitching-Stewart kitchen that they cook in about as often as Martha does the dishes. They may think they are not the lower ranks because they have a lot of dough, but their lifestyle is an inconveniency to the society big time, as they will find out when I key their Hummer that is taking up three parking spots.
I mean, these types, all they do is work all day — you know, 80-100 hours a week in some specialized division of labor that nobody understands, on Wall Street or at fancy corporate law offices, or in expensive hospital operating rooms. That is no way to live.
A person has got to balance work and life and family in order to be a balanced person. That is why my wife and I, we are planning to grow all our own food — turnips can be stored for a year — and only use fair trade Internet services with open code programming. And we are going to heat the house my means of clean energy, renewable resources, such as wind power from the drafts under the front door. And we are going to knit our children’s clothes with organic wool from sheep raised under humane farming conditions in our yard. And this will keep the kids warm and cozy, if somewhat itchy. And it will build their character, because they will get teased on the street.
Yes, sure, a total removal of all trade regulation would be good for the economy. But think of the danger and the damage to society. I mean, if it were not for government regulation of big corporations, executives at companies like Enron, WorldCom, Tyco, they could have cheated investors out of millions.
And without restrictions on the sale of hazardous substances, young people might smoke, drink, even use drugs. Without strict licensing of medical practitioners, the way would be open for chiropractors, osteopaths, purveyors of aromatherapy. If we did not have labor unions, 40,000 people would still be wage slaves at Ford Motor Company, their daily lives filled with mindless drudgery.
And if it were not for retail collusion in the petroleum industry, filling stations could charge as little as they liked, and I would have to drive all over town to find the best price. And that would waste gas.
No, we have to regulate. We have to regulate. And consider the harm to the developing world. I mean, cheap pop music, MP3 downloads from the U.S., it is going to put every nose flute band in Peru out of business.
Plus, some jobs require protection to ensure that they are performed locally in their own communities. I mean, my job. My job is to make quips and jests and waggish comments. And somewhere in Mumbai, there is a younger, funnier person willing to work for less. My job could be outsourced to him. But Mumbai me, he would be thousands of miles away. He could make any joke that he wanted, without thought of the consequences. He could let his sense of humor run wild. He could start making Gerry Ford funeral jokes, you know, about how it lasted longer than Ford’s administration did, and had more positive economic outcomes.
MR. O’ROURKE: But then who would my in-laws be offended by? Who would my wife scold? Who would my friends shun?
And then there is the matter of all that Wealth of Nations ebb and flow of goods and services, Smith’s gross domestic product. Now, I am as grossly domestic as anybody and where is the product? How come all these goods and services ebb out of my income instead of flow into it?
Now, of course, I understand that money is not valuable. I mean, love is valuable. And my bank account is full of love or something closely resembling it — sex. Which is to say I have got F-all in my bank account.
You see, 231 years after The Wealth of Nations was published, it is still very hard for us to believe in what Adam Smith had to say, no matter how simple and how logical what he had to say was. It is hard for me to believe in this. And I am, contrary to what Ed said, I am a libertarian — and a rightwing capitalist libertarian at that.
It is important for us to understand The Wealth of Nations. Not so that we can understand economics, but so that we can understand the moral lesson that Adam Smith was trying to convey. And the moral lesson is the necessity of freedom and equality. You see, The Wealth of Nations seems to be about economics. Because freedom and equality are so morally necessary that, without them, we cannot even perform the humble but morally necessary tasks of feeding, clothing and sheltering those whom we love.
The Wealth of Nations espouses free enterprise not because free enterprise will make us rich, although we hope it will, but because free enterprise is based upon property, upon property rights. And the property rights that are important are not the Donald Trump property rights. They are the property rights that we all have the deeds to ourselves, our selfpossession as free individuals.
Adam Smith said, “The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred.” Smith said that no matter how poor, how poor we are, we still have a fortune. We have an estate. We have an investment portfolio in “the strength and dexterity of our hands.” And that it is from this humble grasp of, as it were, a hammer and a sickle that all free enterprise comes.
Smith said that to hinder a person from employing his strength and dexterity in whatever manner that person thinks proper, without injury to his neighbor, is a violation of that most sacred property. That most sacred property which I call me and which you call you.
This property of freedom is meaningless unless we are all equal. Now, there is a wellknown document that happened to have been published in 1776, exactly the same year as The Wealth of Nations. As this well-known document put it, “We hold that truth to be selfevident that all men are created equal.” But why? Why do we hold it to be self-evident? I mean, are we all equal because we all showed up? It does not work that way at weddings and funerals.
Are we all equal because it says so in the U.N. Universal Declaration of Human Rights? The U.N. Declaration of Human Rights also says, “Everyone has the right to rest and leisure, including reasonable limitation of working hours.” I will have my wife inform the baby.
No. It was Adam Smith, writing about mere economics, who explained why we are all equal. It is because man, the most powerful creature ever to bestride the Earth, is also the most pitifully helpless. We are born incapable of caring for ourselves, and we remain so — to judge by today’s youth — until we are about 45.
MR. O’ROURKE: At the age of two, when any other mammal is in its peak earning years, the human toddler cannot find his ass with both hands, or at least not well enough to use the potty. The whole creativity of a Daniel Defoe could not get Robinson Crusoe through the work week without a supply of manufactured goods from the shipwreck and the services of a cannibal executive assistant.
MR. O’ROURKE: We must treat other people with the respect due to equals not because we are inspired with noble principle or because we are filled with fraternal affection but because we are pathetic and useless. I quote Adam Smith: “An individual stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.”
When you think about that, that is a leftwing statement. That is very nearly a heartfelt plea for socialism. And yet that sentence that I just quoted is the prologue, that is, the sentence that comes right before the most quoted passage in all of Wealth of Nations:
“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.”
And that last sentence is always quoted as if it meant greed is good. And that is not the meaning of Wealth of Nations. Adam Smith does not urge us to selfishly pursue wealth in the free enterprise system. He urges us to give thanks that the butcher, the brewer and the baker do. The butcher, the brewer and the baker, they may be wonderful people or they may be greedy pigs. That is not the point. The point that The Wealth of Nations is making is that the butcher, the brewer and the baker are endowed by their Creator with certain unalienable rights. And among these are steak, beer and hoagie rolls.
MR. O’ROURKE: And that is everything I know about Adam Smith. Although, if anybody has got any questions, I will make up some other stuff.
MR. O’ROURKE: Does anybody have any questions? Are we supposed to do questions, Ed?
MR. CRANE: Yes.
MR. O’ROURKE: We are supposed to do questions. You may have a question about what kind of confinement you will get at Guantanamo Bay, after Ed’s introduction.
QUESTION: I have a question. On C-SPAN, you would not identify your favorite work in terms of its humor. Would you be willing to do so now?
MR. O’ROURKE: Well, I have got to say the Iraq study group report.
MR. O’ROURKE: I know what let’s do. Let’s find some countries that really hate us and ask them what they would do.
QUESTION: Your own work.
MR. O’ROURKE: Oh, my own work. I do not know. Probably a couple of the checks I wrote this morning.
Yes, another question here.
QUESTION: Was The Wealth of Nations a bestseller at the time it was published or did it take years for the truth of the principles that it enunciates to be understood and accepted throughout England?
MR. O’ROURKE: Well, the answer to that question is both. It did sell quite well at the time. Although, in those days, bestsellers were I think when you sold a dozen. Because most people could not read. But no, actually, The Wealth of Nations immediately sold out its first edition. Which surprised the heck out of its publisher. And it did quite well.
On the other hand, yes, it took years and years before any of the principles in The Wealth of Nations sunk in. And when the principles in The Wealth of Nations did sink in, it was mostly the wrong ones. Smith made the mistake — if you do read the book, it is very interesting to turn to Book Five. There are five books in The Wealth of Nations. And Book Five is where Smith tries to take his economic principles and turn them into practical policy advice for the British Government of his time. And he is wrong about practically everything.
It is amazing. I mean, here is the smartest guy in the world, and he is wrong. And he is often wrong in several different ways, or he will be right and then argue against himself. And in there, he starts babbling about taxes. And he goes on to give the government all sorts of — not advice really about taxes, but he just starts talking about taxes. And it is living proof, if ever anything were, that politics will turn anyone into an idiot. You can take the brightest person in the world. And if you get them to start speaking politically, they will turn into morons. And it happened to Adam Smith.
And the government looked at this. And no matter what advice you give to government, the result is always the same — more government. It is like telling the dog to stay out of the garbage. All the dog hears is “garbage.”
MR. O’ROURKE: So Smith is talking about taxes, about how some things could be taxed and other things cannot be taxed, and so on. And all the government saw was the word “taxes.” And they went and took all his advice about raising taxes.
Smith had mentioned that you cannot tax certain exchanges because there is no record of them, but other exchanges, like auctions of public property, there is a record of them, so they could be taxed. And the government goes, oh, we will tax them.
On free trade, however, the British Government did eventually realize Smith’s argument about free trade was correct. And so that did have a good effect.
But interestingly, not on the United States. America’s Founding Fathers immediately raised huge trade barriers. And the only reason America got insanely rich with our freedoms of self-interest and division of labor and freedom of trade was because we had a huge internal market that we were able to utilize. But our foreign trade barriers were immensely high.
And all you have to do is pick up the latest column of Paul Krugman to realize that Smith’s principles still have not been absorbed.
QUESTION: A question about silver. Four hundred years of the volatility of silver could be interesting if it was a disguised way of criticizing government screwups in policy without risking getting your head cut off. Do you think that was his reason or why did he go off on silver?
MR. O’ROURKE: No. Actually, Smith was not worried about getting his head cut off. That was one of the interesting things about him. Eighteenth century England truly had an enormous amount of freedom. And one of the things that it really had was freedom of speech. It did not have this under democracy by any means.
So Smith was free to speak his mind. He was not using this discussion of silver. No, what he was trying to do was prove a point. And here is the problem that Smith faced and the reason that this thing is 67 pages long and damn near unreadable. He was trying to do a graphic analysis of a commodity price without the one thing that you pretty much need to have to do graphic analysis, and that is graphs. They had not been invented. Graphs had not been invented. He had some charts and some lists. But real graphs, the way we understand them, would be invented by a guy named William Playfair just towards the end of Smith’s life.
In fact, actually, Smith knew Playfair. He knew Playfair. Playfair was the younger brother of a very close friend of Adam Smith’s. And Playfair was a brilliant, brilliant graphic designer. He was the guy who figured out how to do graphs and how to represent all this information that it took 67 pages of yak, yak, yak. In a page or two of graphs, Smith could have shown how silver went up and down, but he did not know how to do that.
The trouble is, nobody listened to Playfair. Because Playfair, other than being a brilliant graphic designer, also happened to be an idiot. So nobody paid any attention to him until well into the 19th century, and it was a real shame. I say in my book that hundreds of pages of The Wealth of Nations that people skim could have been compressed into five or six pages of The Wealth of Nations that people skipped entirely if only Smith had graphs. But he did not.
The other problem of course was he did not have statistics as we understand them. Every time he was trying to prove a point with statistics he had to go dig up all these different numbers. And then he had to explain to the readers how valid these numbers were, how reliable these numbers were, and in what way and to what extent these numbers could be compared to each other. And so any time he gets into statistical analysis, it is a really painful process. And that is probably the thing, more than anything else, that makes The Wealth of Nations a difficult read.
Take The Wealth of Nations apart, and you just read Book One on his basic principles of economics. Kind of skip through Book Two, because that is his ideas of value and capital formation. And sometimes he is wrong and other times he is confusing and sometimes he has confused himself and so on.
And then the third book is absolutely brilliant. It is the history of how we got to be economically free, from feudal times down to Smith’s own time. That is extremely good. If you just could, take those three.
The fourth book can just be lightly touched on because it is basically an argument against mercantilism. Paul Krugman should read it. Actually, the leaders of China should read it. Everybody in our Senate and our House of Representatives should read it. But we do not have to read it. We can just skip it.
And then the fifth book is mostly for giggles. It is just to show how wrong you can get no matter how good you are when you try and deal with practical politics.
MR. CRANE: Thank you, P.J.
P.J. is going to be available over here. It is very nice of me to have this event because, if you read the introduction to On the Wealth of Nations, P.J. says: I want to thank Ed Crane, President of the Cato Institute, and David Boaz, Cato’s Executive Vice President, who does all the work.
MR. CRANE: All right. Anyway, thank you all for coming. I hope to see you at a future Cato event.
(Whereupon, the Cato City Seminar was concluded.)