03 August 2012

Smith’s ‘Division of Labour’ Is Source of Society’s Wealth, Mr President, Not the State

In a revealing passage from The Wealth of Nations, Adam Smith wrote: 
Political Ĺ“conomy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects; first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the publick services.  It proposes to enrich both the people and the sovereign (IV.1).
For Smith, it is obvious that wealth is created by civil society — especially through the division of labour — which in turn sets aside a portion to the State, for those public amenities deemed necessary to the common good.  In a recent speech, however, the American president overturns this relationship, suggesting rather that the State is the source of wealth, from which a dependent citizenry seeks its sustenance and survival. 
Empowering the political class with such influence — even if only in its own self-aggrandising imagination — is a recipe for trouble, and much the cause for Smith’s writing Wealth of Nations, as he argued against the protectionist and mercantilist policies which marked the economic landscape of his time.  Indeed, Smith’s classic text has many contemporary lessons for those who once more aim to put the hierarchy of political economy back into proper perspective. 
Click here for my full argument at the Adam Smith Institute.