Capitalism: An Analysis and Summary of Adam Smith’S Wealth of Nations

By Frank Solomon

Political liberty and the free enterprise system are intimately connected, and this concept was first explored at length in Adam Smiths The Wealth of Nations, which was published March 9, 1776.
In Capitalism, author Frank Solomon provides a detailed introduction of Smiths ideas, and he presents extensive examples of how the principles can be applied to current and future economic issues facing the modern world both nationally and internationally. Solomon shows how Smithoften referred to as the father of modern economicspresented the most efficient and effective program for giving humankind the greatest degree of safety, prosperity, freedom, health, and happiness over the long term.
Debunking the myths surrounding The Wealth of Nations, Solomons Capitalism demonstrates the capacity of Smiths philosophy of enlightened self-interest to encompass a broad variety of contemporary politico-economic problems, including health care, education, the military-industrial complex, welfare, organized crime, international trade, and war.
Praise for Capitalism
Solomon has a deep admiration for Adam Smiths The Wealth of Nations. Having written nine previous volumes of Nations critique, he again embarks on a rapturous tour of the seminal economic treatise He presents several useful points, holding a relatively substantive discussion on the origins of the system of supply and demand, as well as peppering the text with reminders that, despite Smiths call to capitalism and self-interest, [Smith also suggests] ethical business practices can pay moral and financial dividends
Kirkus Discoveries Review

• Language: English
• Publisher: Archway Publishing
• Release date: Aug 13, 2013
• ISBN: 9781480800632

Frank Solomon

Frank Solomon was a high school teacher in the South Bronx for thirty-two years. He retired in 1996. Solomon now lives in a suburb of New York City with his wife. He is also the author of The Manifesto of Capitalism and The Gangster Papalardo.

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Copyright © 2013 by Frank H. Solomon

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ISBN: 978-1-4808-0062-5 (sc)

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Archway Publishing rev. date: 04/22/2014

CONTENTS

GENERAL INTRODUCTORY NOTE

PART ONE

Section I

Section II

NOTE

PART TWO

Section I

Section II

Section III

LAWS OF JUSTICE

THE WEALTH OF NATIONS AND THE CONSTITUTION

EDUCATION

COLONIZATION

MONOPOLY

LAISSEZ-FAIRE ECONOMICS

LABOR AND MANAGEMENT

SLAVERY

GROSS NATIONAL PRODUCT, POWER, TAXES, INTEREST RATES, AND SMITH’S FORMULA FOR ECONOMIC SUCCESS

SCIENCE, THE SCIENCE OF PSYCHOLOGY, AND RELIGION

RUSSIA AND AMERICA

CONCLUSION

AFTERWORD

SONG CHALLENGE

ABOUT THE AUTHOR

The ideology of classical capitalism was expressed in Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations (1776).

Encyclopedia Britannica under capitalism

This outline of the perfectly competitive capitalist economy was first popularized by Adam Smith.

Encyclopedia of Economics

Adam Smith was, in his own day and his own way, something of a revolutionary. His doctrine revolutionized European society as surely as Marx’s in a later epoch. He was, on the economic side, the philosopher of the capitalist revolution, as John Locke was its philosopher on the political side.

Max Lerner, Introduction to the Modern Library edition of The Wealth of Nations

Smith’s championship of the ‘obvious and simple system of natural liberty’ in the economic sphere, … historically has been interpreted as an endorsement of a free enterprise, capitalist system.

Ian Simpson Ross, The Life of Adam Smith

Adam Smith’s The Wealth of Nations, the bible of capitalism, was published in 1776.

Thomas Fleming, Liberty! The American Revolution

…Laissez-faire, [is] a phrase which [Smith] never personally used, and is more appropriately associated with Quesnay and the Physiocrats.

Ian Simpson Ross, The Life of Adam Smith

Avarice and Injustice are always shortsighted…

Adam Smith, The Wealth of Nations

Those mutual restraints have put an end to almost all fair commerce between the two nations, …The principles that I have been examining in the foregoing chapter took their origin from private interest and the spirit of monopoly; those that I am going to examine in this, from national prejudice and animosity. They are, accordingly, as might well be expected, still more unreasonable.

Adam Smith, The Wealth of Nations

An unreasonable restraint of trade occurs when any form of fraud, personal violence or premeditated force brings about an economic situation that destroys or inhibits the ability to fairly compete of real or potential rivals, customers, taxpayers, et al. The antidote for unreasonable restraints of trade must be found in what Smith calls The Laws of Justice.

Observations made during a radio forum

Psychological assault is often the most effective weapon wielded by those who practice unreasonable restraints of trade.

A remark attributed to Vance Packard

To hurt in any degree the interest of any order of citizens, for no other purpose but to promote that of some other, is evidently contrary to that justice and equality of treatment which the sovereign owes to all the different orders of his subjects.

Adam Smith, The Wealth of Nations

But all the appetites which take their origin from a certain state of the body, seem to suggest the means of their own gratification; and, even long before experience, some anticipation or preconception of the pleasure which attends that gratification. In the appetite for sex, which frequently, I am disposed to believe almost always, comes a long time before the age of puberty, this is perfectly and distinctly evident.

Adam Smith, Of the External Senses

It is the same case with the passion by which Nature unites the two sexes, … naturally the most furious of all the passions, …

Adam Smith, The Theory of Moral Sentiments

I see The Wealth of Nations, then Matter and Motion (by Maxwell) —  the books are thick and bound in brown linen.

Sigmund Freud, The Interpretation of Dreams

…Keep in mind what Adam Smith actually does represent: objectivity; balance; reason; stability; and common human decency.

In regards to matters of sex, we can only infer Adam Smith’s attitude from the scant information gleaned from his works and letters. No 18th century work of philosophy meant for public consumption could explicitly back what today we consider liberal sexual views. Works of fiction such as Fielding’s Tom Jones (1749) had to avoid being too graphic in their celebration of human sexuality. And Fielding’s joyful depictions necessarily had to be accompanied by moral condemnations, though tongue-in-cheek these may have been. In addition, Adam Smith was an obsessively proper and discreet fellow by any standards, and he was in the habit of destroying his own papers that he considered less than morally acceptable by the standards of British society in the seventeen-hundreds, so we can rest assured any revealing epistles received from others would have been destroyed.

In The Wealth of Nations he does mention the exceptional beauty of European prostitutes. He seems to have appreciated the sexually open life style of Versailles, where he spent some time. He does not disapprove of the several mistresses of his best friend David Hume or of the sexual activities of any man or woman. One gathers that he probably approved of healthy sexual experimentation, but would strongly urge discretion. He might have felt that sexual adjustment in harmony with nature helped each individual to be as productive as possible in life generally, including the economic areas. And he did recommend that each person who valued his liberty — in whatever way such liberty found articulation — be exquisitely aware of the principles and institutions that had to be vigorously defended in order to maintain one’s freedom of thought, expression, and action.

From a letter of the author to a friend

Can we wonder than, that it [the system of Sir Isaac Newton] should have gained the general and complete approbation of mankind, and it should now be considered, not as an attempt to connect in the imagination the phenomena of the Heavens, but as the greatest discovery of an immense chain of the most important and sublime truths, all closely connected together, by one capital fact [gravity[, of the reality of which we have daily experience.

Adam Smith, The History of Astronomy

The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhere below it. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance, they are constantly tending towards it.

Adam Smith, The Wealth of Nations

…the difference between a wise selfish bastard and a stupid selfish bastard is the difference between Smokey the Bear and a careless smoker. The wise selfish bastard knows he must help maintain the forest which is home to the game he hunts. Otherwise the animals will move out and he will starve. The stupid selfish bastard burns down the forest when he flips a butt into dry brush for the one-hundreth time. As luck would have it, on this occasion he fails to escape the inferno himself, in addition to destroying the entire ecological system.

Frank Solomon, The Manifesto of Capitalism, 9th ed.

…national or public opulence consists of the cheapness of commodities in proportion to the wages of labour.

Adam Smith, "An Early Draft of Part of The Wealth of Nations"

Social Security to some extent brought to fruition what Adam Smith hoped would be one result of higher wages: a worker would have the ‘comfortable hope … of ending his days perhaps in ease and plenty.’

One talking head on a CBS news program

[By compromise and concession, we must strive for a] …pure and rational religion, free from every mixture of absurdity, imposture, or fanaticism, such as wise men have in all ages of the world wished to see established.

Adam Smith, The Wealth of Nations

Judaism and Christianity are two-thousand year old off-spring of the same temple cult. As with many siblings, the things they have in common are far more important than their differences. They ought to emphasize all their positive similarities, discuss their differences affectionately, and remain in constant productive communication with each other.

Rabbi Jonathan Blake, in a course on the relationship between Judaism and Christianity in the modern world

The statutes of limitations should be held more sacred than the laws to which they relate. Murder is the one crime for which no time limit for prosecution ought to exist. There are other felonies for which statutes of limitations should be lengthened for a variety of reasons. But this lengthening should never be made retroactive so as to make an action prosecutable which has now passed beyond the time limit set by an old standard. Under the law, only upon timely indictment, can an alleged action become prosecutable and cannot even be stamped a crime until proper judgment and conviction have been rendered. If the old statute of limitations has run out on an action that according to some accuser’s rendition might indeed have been found illegal at some past date, it cannot even be officially alleged and probed as a crime at some future date. Keep in mind, The Constitution of the United States specifically prohibits the passage of any legislation that is ex post facto in its effect.

The statute of limitations serves two purposes: one obvious; the other hidden. The ostensible and practical function is to guard against accusing someone of an offense when memories have faded, people who may have been involved have died, and evidence has decayed or disappeared entirely. The hidden purpose is moral because it implicitly recognizes that all human beings are fallible and over time all but murder should be forgiven by a temporal authority.

The sexual assault of altar boys, choir boys and children anywhere is both a foul sin and a vicious crime which must be guarded against by society, so that such behavior is rigorously discouraged. Such discouragement perforce will manifest itself at times in an assertion of the civil authority by way of fair trials followed by appropriate and timely punishments where warranted.

Of course weakness is universal and exists in both the accused and the accuser. After — perhaps long after — the formal time period has elapsed for accusations of an alleged crime, the temptation to bear false witness may appear easier and may in fact be easier to get away with in a court of law. Like abuse, bearing false witness is a grave sin and woefully illegal. An accuser may have an ulterior motive for making a false accusation: monetary gain or fame or pathological hatred or some political agenda. If you suspend the statute of limitations, even very briefly, for one sort of crime, potentially you have suspended the statute of limitations for any crime for various periods of time depending on the whims of individual prosecutors or inquisitors. Ergo, you have cultivated very fertile ground for the emergence of a totalitarian state.

A visiting law professor to a group of students at Fordham University

If the general public is forced or duped into aiding and abetting the suspension of due process for one individual or group of people, due process has been suspended for all individuals and all groups.

Justice Brandeis in an interview

Forgiveness is the Monarch of virtues. Its constant exercise demonstrates both wisdom and objectivity. It shows that we know enough about the nature of man generally and ourselves specifically to require its presence in everything we do, especially when we are forced to render judgment. This splendid quality lends itself to the kind of justice which fosters rehabilitation.

Moral weakness can only be ascertained in relationship to the standards of a particular time and place. These standards, we may assume, were erected for the purpose of serving the public good. Excellent leadership is characterized at all times and places by intelligence, ingenuity, flexibility, feistiness, and the ability to take swift and appropriate action. When it comes to average citizens, certain moral failings are regularly corrected and forgiven, and it is thus that we naively expect people selected by God or fate or the electoral college to have regularly practiced a grander and more rigid morality than ourselves. However, great virtues are usually accompanied by exceptional faults. And we would be very disappointed to learn the unvarnished truth about Washington, Franklin, Jefferson, Lincoln, Roosevelt, Churchill, etc. The aforementioned had vices stronger and more numerous than the average citizen, which would correspond to the robustness of their personalities. But they were clever enough to keep their peccadilloes from public view and censure, with the help of followers naturally, who wisely admired their rare gifts.

Without practicing reasonable forgiveness, were we able to fully view the failings of any individual, we would never allow that person to influence us, and were the common man able to have a preview of the faults of any person who could competently lead him, the common man would never have any leadership.

Prince Hal was no longer involved in the guidance of his countrymen; he had been dead for many generations before Shakespeare arrived on the scene. Thus, The Bard is able to make the audience intensely identify with his wonderful depiction because historical time granted Shakespeare the safety and privilege of presenting the Prince as a complete human being, with all his vices and virtues.

The author explaining the presentation of Prince Hal in Henry IV, Parts I and II

DEDICATION

This volume is dedicated to the late Solomon Jaffe, a very wise friend and mentor, who was a steadying figure and guide through much of my teaching career.

Note on Style

The original 18th century spelling, punctuation, and capitalization from Smith’s work have been retained in all direct quotations, except where otherwise indicated.

Key To Abbreviations and References

ED (Early Draft)

Smith, Adam. An Early Draft of Part of The Wealth of Nations in Appendix to Lectures on Jurisprudence, eds. R.L. Meek, D.D. Raphael and I.G. Stein. Indianapolis, 1982. Typical ref. (ED in Lectures, p. 575).

EPS

Smith, Adam. Essays on Philosophical Subjects, ed. W.P.D. Wightman. Indianapolis, 1982.

Essays referred to included in Essays on Philosophical Subjects:

1.  Of the External Senses. Typical ref. (External Senses in EPS,p. 165, ¶ 79).

2.  The History of Ancient Logics and Metaphysics. Typical ref. (History of Ancient Logics and Metaphysics in EPS, p. 120, ¶ 2).

3.  The History of Astronomy. Typical ref. (History of Astronomy in EPS, p. 105, ¶ 76).

4.  Of the Imitative Arts. Typical ref. (Imitative Arts in EPS, p. 196, ¶ 19).

LECTURES

Smith, Adam. Lectures on Jurisprudence, eds. R.L.Meek, D.D.Raphael, and L.G.Stein. Indianapolis, 1982. Typical ref. (Lectures, p. 364).

TMS

Smith, Adam. The Theory of Moral Sentiments, eds. D.D. Raphael and A.P.Macfie. Indianapolis, 1982. Typical ref.

(TMS, Pt. VI, Sect. ii, ch. iii, p. 235).

THE WEALTH OF NATIONS

Smith, Adam. The Wealth of Nations, ed. Edwin Cannan New York, 1937. Typical ref. (WN, Bk. V. ch. ii. Pt. iii., Art. 3d., pp. 815-816). Any references to remarks by scholars in other editions of The Wealth of Nations will be properly indicated.

Key To Abbreviations and References (Continued)

WORKS ABOUT ADAM SMITH AND HIS WORKS

1.  Ross, Ian Simpson. The Life of Adam Smith. New York. 1995. Typical ref. (Ross. p. 112).

2.  Stewart, Dugald. Account of the life and Writings of AdamSmith, LL.D. (1793) in Essays on Philosophical Subjects, ed. I.S. Ross. Indianapolis. 1982. Typical ref. (Stewart in EPS, p.322).

WORKS FROM WHICH ADAM SMITH DERIVED IDEAS FOR THE WEALTH OF NATIONS

1.  Hutcheson, Francis. A Short Introduction to MoralPhilosophy, (1747). Hildesheim, 1969. Typical ref. (Hutcheson, Intro., Bk. II, ch. xii, p. 210).

2.  Hutcheson, Francis. A System of Moral Philosophy, (1755).Hildesheim, 1969. Typical ref. (Hutcheson, System, Vol. II, Bk. II, ch. xii., p. 53).

Nonfiction Books by Frank Solomon

Editions 1 — 9 of The Manifesto of Capitalism

Capitalism, 1st edition

Capitalism, 2nd edition

Fiction

The Gangster Papalardo

All of Solomon’s works of both fiction and nonfiction still in print can be purchased on line from America’s major booksellers or through their stores across the country or through a local bookstore.

When making a purchase, please make use of the following ISBN number in re. The Gangster Papalardo:

The Gangster Papalardo, 2nd edition — ISBN: 978 0-9625163-5-1

General Introductory Note

I value scholars and the products of scholarship. But I have never been enamored of footnotes or endnotes. When my glance wanders to the bottom of a page or I turn to the end of a volume, I often find it difficult — if not positively daunting — to discover precisely what those capital and lower case Roman numerals are all about. Certainly I am not the only one who is thus bewildered. The ungenerous conclusion which some have reached is that footnotes and endnotes are a kind of insider code among scholars, a way of winking at one another. At the same time, of course, they are sneering at all those uninitiated fools who would dare to challenge their unimpeachable conclusions by checking their sources.

I have opted for follownotes, references that are placed immediately after the allusion, paraphrase or quotation and are more clear than footnotes or endnotes. The reader can stop and go to the primary or secondary source with great facility or he can simply skip these attributions and continue perusing the text. In Capitalism, a typical follownote would look like the ensuing: (WN, Bk. IV., ch. vii., Pt. iii, p. 591). WN refers to The Wealth of Nations (1776). Even if my reader did not use the same edition as I, he could easily locate the book, chapter, and part in his own edition as the other abbreviations are clear enough to any student. I presume that my readers are aware that Adam Smith’s main publications during his lifetime were his economic masterpiece and his best seller, The Theory of Moral Sentiments (1759). Therefore I have not prefaced my follownote with the author’s name. I have provided a page of abbreviations and references for the typical follownotes which my readers will encounter. Ibid. still means the same book, same page as the last reference, etcetera.

Where I have felt it necessary for the sake of clarity to render a more elaborate follownote than strictly called for, I have done so. Where I have felt it necessary for the sake of readability to use an abbreviation such as TMS instead of The Theory of Moral Sentiments, I have done so, et al.

The Wealth of Nations I have referenced for all my various treatises is the Modern Library Edwin Cannan edition put out by Random House from 1937 through 1975, containing an interesting introductory essay by Max Lerner. In subsequent years Random House issued the same edition, but without the stimulating Max Lerner essay. Ultimately, the pagination also changed. I warn my readers to be conscious of this alteration, and I urge them to dig out the edition of The Wealth of Nations I used, in a library or used bookstore, so that my follownotes will be of greatest value.

Furthermore, keep in mind that any treatise is an expression of opinion. As such it is speculation. We have to imagine how some modern scientific developments might have affected Smith’s stand on certain issues. For the most part, where there are matters of fact which can back up one of my assertions, I have cited the source. More than anything else, this essay asks you to think and to discuss.

PART ONE

I

The cause of liberty should be the concern of every citizen. Political liberty and the level playing field required by a properly organized marketplace are intimately connected, as most economists agree.* But even many well educated and highly intelligent people in the general population are not aware of the mutually dependent relationship that necessarily exists between the two areas. It is only in the abstract that democracy and a fully competitive commercial complex can be separately discussed. The weakening or strengthening of one, weakens or strengthens the other. They are indeed two sides of the same coin.

The intimate connection between them was first implicitly explored at great length in Adam Smith’s The Wealth of Nations (1776), and the consensus of scholarly opinion informs us that Smith’s seminal work resulted in what is now commonly referred to as the free enterprise system, the classic example of capitalism. It is classic in the sense of being the original design of free enterprise and in the sense of being the model for all serious subsequent analyses of the subject. As Dugald Stewart, Smith’s first biographer, says in his Account of the Life and Writings of Adam Smith, LL.D. (1793): "General assertions with respect to the advantages of a free commerce, may be collected from various writers of an early date. But in questions of so complicated a nature as occur in political economy, the credit of such opinions belongs of right to the author who first established their solidity, and followed them out to their remote consequences; not to him who, by a fortunate accident first stumbled on the truth," (Dugald Stewart, Account of the Life and Writings of Adam Smith, LL.D. (1793) ed. I.S. Ross in Essays on Philosophical Subjects, eds. W.P.D. Wightman and J.C. Bryce — Indianapolis, 1982 — pp. 322-323. Italics mine. Stewart read his work to the R.S.E. in 1793.)

Like any discipline, capitalism demands a certain measure of responsibility from its adherents. If we discover in our nature an inclination to take the capitalist system seriously as a philosophy of life, it becomes our first duty to examine with care its primary source. Adam Smith’s The Wealth of Nations is worth our attention because it probably presents to date the most efficient and effective program for securing to the mass of people over the long haul the greatest degree of safety, prosperity, freedom, health, and happiness. It is so great a work that every word of all its many pages deserves our strictest regard. Upon its initial publication, some of Smith’s ideas and calculations were accurately criticized as being far off the mark and there have been some that since have been found wanting. But these ‘failures’ lend their own meaningful weight to the book. As Max Lerner wrote in his introduction to the first Modern Library edition put out in 1937, "What counts is, of course not whether particular doctrines … have since stood the ravages of time. What counts is the work as a whole — its scope, conception and execution, the spirit that animates it and the place it has had in history."

Of several concepts generally found wanting when implemented, the labor theory of value — original with Smith — was greatly elaborated and transformed by Karl Marx in the 19th century to play a central role in his development of Communist theory. Foolish people and those with an ulterior motive have used this as a basis for rejecting Smith’s work. It should be unnecessary to point out that just because the architect of Communism borrowed concepts from The Wealth of Nations, some ninety years after its publication, does not make Smith a Communist, just as it does not make Marx a capitalist. The ‘logic’ of such confusion would have amused Orwell. The labor theory of value will always remain a part of the capitalist dialectic — albeit in the comparatively minor role established for it by Smith — and its ‘success’ within that context must be evaluated in relationship to the entire work and the effect of the entire work on the history of mankind from 1776 down to the present.

Adam Smith is often referred to as the father of modern economics. Unfortunately, as it is frequently meant, this type of praise is more fitting for a eulogy than a lecture. It is more often than not an encomium promoted by unscrupulous minds to facilitate selfish self-interest by suggesting that it is alright to pick and choose among Smith’s many unique offerings — as though one were in a haberdashery — to concoct a tailor-made ‘free enterprise system’. This is usually done to avoid taking measure of the laws of justice, among which number the ordinary laws of supply and demand. After all, it is argued, not very logically, as Smith is the sire of all modern economics, capitalism was an eventual development, resulting from just some of his ideas synthesized with the theories of other philosophers and economists, many of whom came after Smith. This view leaves the individual free to search among Smith’s concepts for those that catch his fancy. Then one can add to the varied collection any passing reflections from sources the individual personally feels have been instrumental in the evolution of the free enterprise doctrine.

It would be more sensible — for anyone interested in good sense — to argue that every word of Smith’s lengthy and profound tome constitutes the entire corpus of classical capitalism, which provided fertile ground over the course of time for the fabrication of other politico-economic systems. This argument is reinforced by the fact that Smith’s scholarly creation is presented as a single work to the reader — not as a series of independent essays. His treatise is composed of a steady stream of skillfully integrated rills, each idea flowing into the next notion naturally. Of course his thesis is broken up into books, chapters, parts, and articles for convenient study, but all these pieces form a single organic unity. It is a grotesquely ugly misreading of Smith’s masterpiece to misrepresent one or two or a few ideas taken out of context as the entire waterfall of invigorating concepts we would experience were we to allow the refreshing shower from The Wealth of Nations to bathe our minds through immersion in all its five books. A distorted description results from selective reading and is like trying to convey an accurate image of the proverbial elephant by characterizing the beast according to just its tail or ears or trunk or tusks or mouth or legs or coat or torso. All these sections taken together make the entire