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Spreading the Wealth

Strange as it may seem, I found a comment in the current issue of The New Yorker ("The Talk of the Town", p. 31) that referenced Adam Smith in defence of Barack Obama's recent statement, "And I think that when you spread the wealth around, it's good for everybody."  While it is true that Adam Smith, in his seminal work The Wealth of Nations (1776), did argue in defence of a certain amount of taxation;  it is also true that he argued for the labor theory of value, which has long since been discarded by mainstream economists.  My point is that Adam Smith was not perfect in his economic arguments.  His support for free trade and the benefits of the specialization in the division of labor was more important to economic theory.  More fundamental was his shattering of the flawed notion that if one party were to gain in an market transaction the other party would necessarily lose.  In Adam Smith's "condition of natural liberty," market exchange relationships would be entered into freely and voluntarily (my emphasis) by both parties;  the outcome of a trade must therefore be mutually acceptable.  No one individual would freely enter into such a relationship knowing that he would come out of it worse off than he started.  For Adam Smith this is a fundamental foundation of trade and, ultimately, wealth creation.  Wealth does not exist in some static pile waiting for politicians to come along and take it by force from some and spread it around to those they deem more worthy.  This is also a reminder both that  Adam Smith was not a perfect economist and that one should avoid looking in the pages of The New Yorker for economic advice.

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January 2019


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