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Wealth of Nations

911KookDetector

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911KookDetector
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Sep 16, 2013
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So I just found a copy of Wealth of Nations by Adam Smith in a box in my attic. It must be my dad's or something because I have no idea where it came from. I mean, I understand it's 230 years old and possibly dated but I know it's one of the fundamental works in classical economics. I really don't know that much about economics to begin with but hell, I was thinking of giving it a go. I'm always down to read something new and intriguing. Any thoughts on it or it's relevancy to 2013?

I'm new to the forums by the way (as you can tell). Still getting used to navigating around here. Look forward to talking to you guys in the future :D
 
It's a great book. Adam Smith said that employers would have power over employees and that some balancing factor would be needed to prevent employee abuse. He said capitalism would naturally lead to monopolies, which are bad for consumers, so some controls on the system would be needed. Very, very smart guy.
 
Read it, I think you'll enjoy it. Many people only know him as the "invisible hand" guy, which they take to mean every man for himself and caveat emptor. Smith was far more nuanced. By the standards of today's free market capitalists, Dude was verging on Marx. :D
 
It's a great read for several reasons. You get a sense of life in late 1700s Scotland, England and beyond, you get to see a brilliant minds of the Scottish Enlightenment putting ideas together from many sources and creating an intellectual edifice for the abstraction of 'economics'.

If your goal is to understand modern economics, you'd be better off reading one of Greg Mankiw's textbooks.
 
You need to recognize that words have changed their meaning.

Free Market
Today a "free market" refers, in the kindest terms, to a market free of government intervention.
Classical Economists, such as Adam Smith, being reformers, sought to free markets from unearned income – the “free lunch” of land rent by Europe’s hereditary aristocracies, and from monopoly rents administered by the royal trading corporations created by European governments to pay off their war debts.

Economic Rent
Rent, as in Land Rent, Monopoly Rent or Economic Rent, should not be confused with the common term "rent" - a payment for the temporary use of a good or property.
Economic Rent is an analytic term for the portion of income paid to a factor of production in excess of its opportunity cost.
It is unearned income (income derived not from work but from privilege), the excess of market price over intrinsic cost.
The terms "Land Rent" & "Monopoly Rent" categorize Economic Rent by the type of rent yielding asset.

It was Smith who first rigorously analyzed the effects of a land value tax, pointing out how it would not distort economic activity, and how it would not raise land rents.
He endorsed the idea that the least burdensome tax was one that fell on land rent.

A more equal land-tax, a more equal tax upon the rent of houses, and such alterations in the present system of customs and excise as those which have been mentioned in the foregoing chapter might, perhaps, without increasing the burden of the greater part of the people, but only distributing the weight of it more equally upon the whole, produce a considerable augmentation of revenue. - (Wealth of Nations, Book V.3.68)
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The same can be said regarding the taxation of Economic Rent in general.
It is the most efficient form of taxation that doesn't distort economic activity & unlike all other taxes does NOT add to price but acts to keep prices down & inline with the cost of production.
Being that an Economic Rent Tax falls on privilege instead of work, it is not just economically sound but most important it is morally sound.

I realize I've gone off topic but I just could not help myself.
 
stevea said:
If your goal is to understand modern economics, you'd be better off reading one of Greg Mankiw's textbooks.
Click to expand...

If you want to understand neoclassical economic theory per se, read Mankiw. For economic reality, you'll have to turn to other resources. It's a broad field so I can only recommend more empirically oriented economic thought if OP tells me what he or she is specifically interested in.

Why am I picking on poor Mankiw? Here's one reason, from Principles of Microeconomics, 6th Edition, which I have here:

FbGMYDW.png


This is the sort of diagram the reader will often see in Mankiw, Varian and other texts of the sort. They so often look intuitively plausible but, then, intuitive plausibility does not necessarily equate to truth. Notably, experimental evidence from plant managers tells us that these curves are foreign to them:

http://web.usal.es/~bustillo/Curvadecoste1.pdf

Then there's the issue of linear programming, which is one of the most important methods in all of operations research. It assumes that marginal costs of all input factors are constant, often over very wide intervals. That's why it's called linear programming. LP is highly successful in real world applications. The cost curves in that figure I included are successful in ... textbooks.

A more overarching problem with the text is its reliance on unique and attainable economic equilibria. Results particular to economics like the Sonnenschein-Mantel-Debreu theorem and exponential complexity or outright incomputability of interesting Nash equilibria are out there. More generally, it is expected from our knowledge of complex systems that these systems are often characterized not by equilibrium, but by disequilibrium. That is what we should expect in general given that the economy is a complex system and of course neoclassical economics gets it backwards.

Of course the final chapter talks about "Frontiers of Microeconomics", about things like behavioral economics. You know, actual behavior of economic agents. This is hardly "frontier" material anymore but I won't give Mankiw too much crap for it. It's almost a saving grace.

I will also note that unlike most modern textbooks of the sort publishers like Cengage poop out, Mankiw's micro text is relatively uncluttered in its formatting, which, IMO, makes it a more efficient read. If you want to spend 150 bucks getting misinformed for the most part, you can scarcely do better.
 
I don't object to stylized facts. I only ask that they capture the essence of the phenomenon in question. The problem is that most stylized facts in economics fail to do this.
 
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