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Sharing ‘The Wealth’

Reviewed by Ziv Hellman

The Wealth of Nations
by Adam Smith
Open University and Bialik Institute, 1997. Translated by Yariv Eitam and Shimshon Inbal; Introduction by Haim Barkai. 384 pages, Hebrew.



After more than seventy-five years of experiments in seemingly all manner of economic regimes, the nations of the world have apparently arrived at a new-old consensus—that the principles first elucidated by Adam Smith two hundred years ago are indeed the best way to attain the wealth of nations. Today, nearly every economic expert, from world-class economist to junior lecturer, repeats the mantras of classical liberalism: Deregulation of the economy, free trade, low taxes and stable currencies. It is therefore an ideal time to provide Hebrew readers the opportunity to read Smith’s The Wealth of Nations, the original manifesto underlying the theories of this new consensus, in their own language—especially since in Israel, as around the world, a critical debate is currently taking place regarding the future of the welfare state. Given that, it is more than a little perplexing that the publishers saw fit to translate only three of The Wealth of Nations’ five books—comprising less than half the work and omitting precisely those sections most important to the current debate.
 
The work’s original publication was a milestone in the history of human thought, and it is hard to overestimate the book’s influence on global economic development and the role of government in democratic states. When the book first appeared in 1776, England was about to become the first nation in history to undergo an industrial revolution. But from the point of view of economic theory, the kingdom’s policymakers were still trapped in the conceptual framework of an age whose time had passed—the age of mercantilism.
Mercantilism centered on the belief that a nation’s wealth depended primarily upon the amount of gold at its disposal. The greatest tragedy which could befall a country, in the eyes of mercantilists, was to lose gold to the hands of foreigners by way of free trade. In order to prevent the loss of gold, mercantilists advocated the rampant regulation of the economy. In England, the government fixed wages for labor, established a “wall of tariffs” to protect its industry from foreign competition, and of course forbade its citizens to export gold from the kingdom. A vast network of monopolies existed under government encouragement and protection. Tax rates were high, while successive governments suffered from a chronic national debt. The degree of regulation often reached absurd proportions: In order to protect local industry, not only was it a crime to export wool from England in any form other than finished fabric, but shearing a sheep within five miles of the coast was prohibited as well, lest an individual be tempted to place the wool on a nearby ship about to set sail.
Within this political atmosphere, Smith’s book was no less than revolutionary. In a thorough analysis starting from elementary principles, Smith proceeded to refute the fundamentals of mercantilism one by one, creating, for the first time in history, a serious defense of the notion that economies should be set free of the fetters of government regulation. The now-famous idea of the “invisible hand”—that economic growth can best be fostered by allowing each individual to work selfishly towards his or her own interests, without any need for government planning or intervention—made its first appearance within the pages of The Wealth of Nations. So too did the idea, which today seems axiomatic, that prices are the most efficient means of determining the rate at which goods should be produced, since allowing changes in demand to translate into changing prices sends an automatic signal to manufacturers to alter their levels of production accordingly.
Nor did Smith rely solely on the explication of abstract economic theories. He also devoted large segments of The Wealth of Nations to historical and common-sense illustrations of his claims. His writing demonstrated a superb command of the history known in his day, drawing upon examples from ancient times to his own century, in refuting the claims of those who advocated a regulated economy.
In short order, Smith’s work became a basic guide to economics for many young men who would one day forge the country’s policies.
 
At the beginning of the nineteenth century, after the Napoleonic wars had come to an end, the first generation of statesmen won over by Smith’s ideas came to power in England. The result was the dismantling of the old economic restrictions and the establishment of the first truly liberal economic regime in the modern world. The Wealth of Nations’ recasting of profits as incentives and initiative as the engine of the economy, and Smith’s analysis of the fine line between beneficial and harmful government involvement in economic matters, became a staple of the social and political philosophy in England, and later in other nations—especially in the English-speaking world—as well. Britain’s economic strength rose dramatically, and by Queen Victoria’s time England had become the foremost economic power in the world.
History, of course, did not stop there. Gradually, economic ideas at odds with Smith’s began to gain currency again. Political leaders and the general public were frightened by cyclical economic crises, and it appeared to them that the invisible hand’s propensity to flail wildly now and again might be more trouble than it was worth. Entire schools of economic thought developed and were presented as alternatives to Adam Smith—schools which advocated government intervention, regulation and central planning as the “common-sense” way to ensure the welfare of the people, and therefore the only moral policies. And this resurgence of interventionist thought set the stage for the “great economic experiment” of the twentieth century.
Economics as a discipline is often criticized by natural-science aficionados as suffering from an inability to conduct decisive experiments that can determine the superiority of competing theories. While there is a measure of truth to this criticism, one can nonetheless point to certain economic “experiments” taking place over long time periods, in the sense that one can compare the economic performance over time of states which have implemented different economic policies. It is possible, in this sense, to view the seventy-five years between the start of World War I in 1914 and the collapse of Eastern European Communism in 1989 as a period of economic experimentation on a global scale. Virtually every permutation of the economic theories developed during the late nineteenth and early twentieth centuries was put into practice in one form or another in various countries during the twentieth century—fascism, communism, democratic socialism, capitalism, “welfare state” economics, “nationalist” economics and “oligarchic” economics (in which a small group of individuals controls the resources of an entire state).
Anyone looking for a tested recipe for stable economic growth, the general welfare and the reduction of poverty—in other words, the wealth of nations—can today, after fifty years of relative stability since World War II, simply compare the results of those experiments: The correlation between the adoption of policies approaching those recommended by Smith—establishing a stable currency, holding down taxes, reducing government intervention in the market—and a sharp gain in a nation’s economic power has driven much of the world to the unambiguous conclusion that Adam Smith’s principles are the correct prescription for economic ills. The extent of this new consensus is astounding, especially to those who recall that as little as twenty or thirty years ago the belief was diametrically opposed. Today, from Chile to Uganda, from Malaysia to the Czech Republic, and even in Israel, Adam Smith’s legacy is alive and relevant again. There is no more appropriate time for the publication of a Hebrew translation of The Wealth of Nations.
 
And yet, one may wonder just what point there is in translating a 220-year-old economics book today. The discipline of economics has progressed unrecognizably in the years since The Wealth of Nations was first published: Many have modified and sharpened Smith’s analyses, and the society he was writing about was still in the infancy of industrialization; agriculture was the main industry and employed most of the population. Can Adam Smith’s writings still be relevant in an age of virtual reality and the paperless office?


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