03/08/2022 – Lessons from Adam Smith
Starting with Questions:
In this section, I seek to answer if and why the rules of a productive economy have shifted as the world grows automation capabilities (something which actively removes a worker from the job force) and extends humanity to the stars. Are the rules the same? In a manufacturing center, does anything change when I decide to get rid of my labor force with automation? What if I do that in a developing nation (somewhere that a working class has been characterized as an essential ingredient to building up the economy?) If there is a development timeline, and nations themselves cannot magically jump ahead to the state of “developed”, then will the world as a whole always drag the weight of the impoverished? Is this now a matter of choosing sides? Do I want to help the poor or do I want to push for innovation? Am I robin hood or Elon Musk?
So we can make the argument that countries are poor because the wealthy take or took advantage of them. Those countries still have resources that could lead to a productive economy: they have raw goods, workers, their own currency. Why then, is progress so slow? Is it the corrupt government or is it an inability to properly organize, divide labor, and produce? Is this because they do not know the recipe to the economic engine? Or do they know it, it is just too difficult to implement because the path of development and the flow of money has too much resistance?
From the case of global development, if and why, countries lower on the development totem pole will still struggle, even as the most developed societies take to the stars. Why is it that we can have the capacity to travel to space, but there remains poverty? Is there a poverty cure? Why does the push for innovation surpass the push for development?
What is the proper level of taxes, how should they be levied? Were trading monopolies and colonies a financial boon or a drain on states? Should agricultures make way for industry?
Adam Smith looks to build an economic model based on individual power and liberty
The wealth of a nation depends on the skill and judgement of its workers and on what proportion of the population is employed in such a productive work. What we are really exchanging is the value of our own labour for someone else’s.
An advanced nation from a poorer one is the division of labor, and highly developed cities and towns are strong because of a strong division of tasks and roles. A person concentrates on making one thing only, and does it so efficiently that the return from selling the thing is more than enough to buy commodities which they otherwise would have had to make themselves.
In a well-governed society, the division of labor leads to universal oppulence.
The bigger and more developed the economy, the more specialized the workforce. Big cities are wealthy precisely because of hteir increased division of physical and mental labor. By choosing work that best suits us and gives us a greater chance of gain, society wins by having access to our refined and unique skills or creations. Human beings did not differ much from eacho other, it was in what they produced that set them apart. Yet it can also be said that by giving a monetary value to invention, uniqueness and originality, smith’s ideas helped increase the quantity of each.
He was perhaps forced to admit that self-interest (rather than regard for others) was the essential engine of prosperity.
By seeking our greatest gain, we in fact assure the best allocation of capital for society. Today’s aircraft makers for instance, depend on the extremely specialized skills and machinery of thousands of component makers to produce a single aircraft, which leads to very long lead times between taking the order and final delivery.
A few things to observe regarding a society’s combined stock or capital; 1) that which is immediately consumed 2) Fixed capital (things that produce revenue 3) Circulating capital (money) or any other forms of capital that people can easily get their hands on.
ALL FIXED CAPITAL IS ORIGINALLY DERIVED FROM CIRCULATING CAPITAL AND FIXED CAPITAL CONTINUALLY NEEDS THE INJECTION OF MORE CIRCULATING CAPITAL TO MAINTAIN IT.
Everybody wins from a more productive use of capital. Note that most people (even in a rich country) do not dream of thinking of themselves as the laboring poor, but they still earn a salary based on going to a place of work and doing certain tasks in a certain time period. If they just stopped working, they would have nothing to live off of. Individuals through their frugality might be able to become capitalists themselves by living off of the profits of a business or rent from property or interest on money invested, instead of daily wages from the sweat of their brow.
Wherever capital predominates, industry prevails