When Wealth Isn't Wealth

Andy Absher writes in the Herald Bulletin online HERE

“Businesses compete because they must Discouraging risk-taking is a red herring”

“When you read Nancy Turner’s viewpoint, you would think the name of Adam Smith’s book was, “The Wealth of the Wealthy”. Though Smith makes many points, the point of competition isn’t so that the rich can get richer but so the common consumer can have the best price via market competition.”

Comment
Andy Absher makes this comment in the course of a local debate on Health Insurance, which is outside my remit on Lost Legacy (I only comment on political topics in the country where I vote – Scotland).

However, it is worth noting that Andy appears to confuse a different meaning of the word “wealth” with Adam Smith’s. Smith wrote Wealth Of Nations to clarify the real meaning of wealth from its confused meaning. That confusion remains active today.

The prevailing meaning of “wealth” in 18th-century Britain was that it manifested itself in gold and silver bullion (paper money in the form of promissory notes were of recent vintage – most people preferred their money in bullion form). A consequence of this version of money is that Sovereigns were supportive of policies that seemed to assure them of the greatest amount of gold and silver bullion accumulating in their treasuries year by year,

From this obsession they approved all kinds of policies that ensured they exported products abroad to earn more gold and silver than they had to send out of the country to pay foreigners for those products they imported. And they kept a tight reign on exports of gold and silver by means of protection (tariffs, prohibitions, monopolies of shipping and general hostilities towards other countries).

Adam Smith taught that the real wealth of a country was measured in the “annual output of the necessaries, conveniences, and amusements of life”, in short, what a country produced annually. Policies that led to more output were wealth creating; policies that restricted imports caused the purchase of expensive products that could be produced more cheaply at home, thus reducing the “annual output of the necessaries, conveniences, and amusements of life”, and made the country poorer as a result.

“The Wealth of the Wealthy” on this measure is meaningless. It smacks of a radical student’s slogan.

Ayn Rand and Adam Smith Were Opposites

Rod Dreber hosts Crunchy Con (‘conservative politics and religion’) HERE: to which two correspondents offer contrasting views:

Adam M. offers this comment:

“From Alan Greenspan to Ayn Rand and way back to Adam Smith, there exists a type of social and economic Darwinism. "Don't give to charity, because the weak need to die out for the preservation and betterment of society" (feel free to accuse me of oversimplification, I am guilty). From Reagan to Bush I to Clinton to Bush 2, the model of Chicago Economics has had their fingerprints all over economic and foreign policies to the ultimate detriment of global economics and social welfare, working directly against redistribution of wealth, and the separation of social and economic classes.

Ayn Rand claimed that unmitigated greed was ultimately good for a society. It was needed in order that common wealth may be shared among those with the common greed. Alan Greenspan, a direct ideological descendant of Rand, claimed later there seems to be a serious flaw in his economic model. Unchecked greed has brought us all to the point where we are today. Irresponsible lending, borrowing, spending, and a lack of concern over our neighbor (whomever it may be) has flushed away life savings of those in search of the prototypical American dream.”

To which Jon responds:

“Re: From Alan Greenspan to Ayn Rand and way back to Adam Smith, there exists a type of social and economic Darwinism. "Don't give to charity, because the weak need to die out for the preservation and betterment of society"

Putting Adam Smith in the same class as Ayn Rand is like putting Mother Teresa in the same class as Torquemada. Smith was not any kind of Social Darwinist (And not just because Darwin was still some years in the future). He was in fact deeply suspicious of the machinations of the rich and powerful (very much on rank display in George III's England) and he was in favor of the public amelioration of the sufferings of the poor.”

Comment
It is pleasing to see others correcting the usual parade of unchallenged attributions to Adam Smith which are not erroneous, but also the exact opposite of his ideas, sentiments, and writings.

Smith throughout his writings showed an abiding passion for steps towards opulence as the only sure and certain means by which the families of the labouring poor – the overwhelming majority of society’s populations – would participate in the benefits of commercial society from the increased annual output of the ‘necessities, conveniences, and amusements of life’.

It is too fashionable in the opulent economies of the world to decry the importance of economic growth (ironically, and noticeably, in Blogs emanating from California) on some confused ideas of morality, as if being poor was a blessing, when in fact it is a curse, as any acquaintance with poverty – the absence of wealth – in large parts of the rest of the world would quickly be appreciated by those who, comparatively are rich beyond avarice, write those sanctimonious Blogs.

Good on ‘Jon’ for pointing out to ‘Adam M’ his grasp of the history of ideas leaves much to be desired.

Walk On By Those Offfering to Make You Rich

Ron Ferguson, 'an entrepreneur who has many years of experience online', writes in the Money, Finance and Free Stuff Search Blog, HERE:

“Online business Makes You Wealthy And Prosperous”

“Wealth is the most common a very familiar word throughout the world. Initially the phrase was derived from the old English word weal. Wealth carries many definitions and few of them are given by some distinguished people in the society, Adam Smith refers wealth as “the annual produce of the land and labor of the society” ‘Wealth’ refers to some accumulation of income, whether abundant or not. ‘Richness’ refers to an abundance of such income. A wealthy individual, community, or nation thus has more resources than a poor one. The opposite of wealth is destitution. The opposite of richness is poverty. Wealth can be categorized in a minor and major ways wherein wealth of a person or nation is the value of assets owned net of liabilities owed (to foreigners in the case of a nation) at a point in time.”

Comment
If an expert offers to show you how to make as much as he has made in business, common sense suggests you ask: ‘Why?’

One obvious answer is that the ‘expert’ intends to make money from showing those gullible enough to send him money for his alleged ‘know how’. But why is this more profitable for him than, presumably, continuing to make money on his own account from his online business?

In short, in the words of the song, when hearing ‘experts’ of this nature: “Walk on By”.

There’s a hint in Ron’s advertisement that almost gives the game away:

“Ron Ferguson, an entrepreneur who has many years of experience online”

But he does not say the nature of his experience – he may have had ‘many years of experience’ that showed him that it was too difficult to make money on-line - except by selling dreams to those who do not have his experience (yet) and are willing to part with money to continue dreaming.

Apart from all this, Ron slips in reference to Adam Smith defining wealth as: “the annual produce of the land and labor of the society”. Partly true, but as regular readers will know Adam Smith considered wealth as the annual produce or output 'of the necessaries, conveniences, and amusements of society’, and he did not confine wealth to the inputs of land and labour.

In short, output, not money, which in itself is a means to obtaining wealth, is not wealth.

The belief that gold and silver bullion were wealth was the major error of mercantile political economy from the 16th century onwards, which led to the non-creation of the real wealth that a county could produce by provoking wars and causing an absence of wealth for the very poor.

Finally, the above quotation from Ron is reproduced verbatim. But readers inspired to contact Ron may not notice the missing full stops, commas, and semi-colons, contained in the punctuation errors in its third 'sentence', suggesting it was written by a semi-illiterate author or an illiterate sub-editor (or both).

Real Wealth

From Airllelon’s Investing and Trading Blog, complete with video links to U-tube-style pieces by the author (HERE) I find this piece:

"Week in Review: The Death of Keynes Mercantilism?"

"It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country" - Adam Smith

For decades now, Keynes has been held as the pinnacle of "capitalist" thought, and the latest in the evolution of what started with Adam Smith.

There's only one tiny problem with that little concept.

Keynes was no capitalist. Keynes ideas are a direct descendant of everything that Adam Smith opposed. Keynes ideas are a descendant of Mercantilism. Capitalism isn't dying, because Capitalism hasn't been practised. Keynes Mercantilistic thoughts and theories are what are dying.

Keynes firmly supported concepts found in Mercantlism. Which is that government should work in partnership with private companies.

In a Capitalistic society, there can be no lobbyists.

In a Capitalistic society, governments do not work as partners with private industry.

In a Capitalistic society, private industries do not seek capital from the government when they are doing poorly."

Comment
To quote a phrase, “there’s only one tiny problem with that little concept”. The author of the piece goes on to recommending to readers that they buy silver, not gold, because silver is doing better at present, which is partly exactly what Smith considered was a central fallacy of ‘mercantile political economy’!

Gold, silver, and cash money are not wealth in Smith’s eyes. They are illusionary wealth by being stored claims on the real wealth. They do not create wealth in themselves. Hording gold or silver will not add to the wealth of nations.

Wealth according to Adam Smith was the ‘annual output of the necessities, conveniences, and amusements of life’, or the real goods and services of consumption, and working capital.

Revenues from engaging in productive work can be spent on final consumption or re-invested in future productive employment; the balance between these ends determines whether growth in the next period’s annual output of real wealth occurs.

Too much prodigality in consumption and too little in re-investment is not good for an economy, or the people in it. Hoarding metallic ‘symbols’, such as gold and silver is a psychological comfort to individuals but does nothing for the economy. Printing more money is not a substitute for generating the means to produce real wealth when it is disconnected from the real economy; too much printing leads to inflation, not more real wealth (see Zimbabwe).

Strong boxes, protected vaults, brim full of gold and silver, are sterile unless part of the great wheel of circulation that puts to work real resources, primarily labour, capital, and work in progress.

Adam Smith did not write about ‘capitalistic’ society – that came later in the mid-19th century. Long before the commercial entities in the 19th-20th-21st centuries sought governmental help for whatever mess they were in, powerful entities in ancient times sought relief of various kinds from their states, usually in the form of retribution against former clients and competitors, punitive expeditions, revenge missions, armed interventions and lucrative supply contracts. Emperors, kings and ‘strong’ leaders, also sought help from traders – sometimes as excuses to intervene with neighbours in pursuit of plunder and tribute, and colonies and empires.

What is needed by those who write about the ‘perils’ of modern capitalism and modern states is a little more historical knowledge beyond what they apparently misunderstand to be the unique behaviour of the current age. Unless they are only interested in selling their 'solutions'...