Capitalist confusion

Economics: Adam Smith's The Wealth Of Nations is a book of world-changing importance

Economics:Adam Smith's The Wealth Of Nations is a book of world-changing importance. The Scottish economist's magnum opus, published in 1776, is seen as the founding tome of modern economics.

It's also a door-stopper that few people read. So, very much in the spirit of Smith's advocacy of a division of labour, humourist and free-marketeer PJ O'Rourke has done the hard work for you by taking the 900-page masterpiece and compressing its ideas into a little over 200 breezy pages.

That was the plan, anyway. Unfortunately, it didn't quite work because, while O'Rourke's wit can be razor sharp, it also causes him to confuse arguments and stray off the point.

What is most striking about Smith's thinking is its practicality. He wants to make the world a richer, happier place, but he emphatically doesn't have some notion of a perfect society. As O'Rourke puts it, "his secret was to be an idealist but not to take that impertinent and annoying next step to being a visionary".

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So it's appropriate that Smith's pragmatic book should open with a celebration of a pin factory. He wanted to explain the radical increase in productivity that the division of labour could facilitate. The factory can churn out thousands of pins a day. But if we wanted to make a pin on our own, it would take all day. In fact, if we had to dig our own iron mines and smelt our own ore, we could "scarce make a pin in a year". ( "And somewhere," adds O'Rourke, "a group of hobbyists contactable via the internet is doing just that, to the irritated mystification of their wives.")

The division of labour is uncontroversial. The same cannot be said for the second of Smith's core principles, the pursuit of self-interest. He argues: "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest." They want our money and we want their produce - everyone's a winner.

So is this a creed of selfishness? Was Smith the Gordon Gekko of the Enlightenment? O'Rourke mocks the shocked, "but I'm not selfish" response: "My wife and I are planning to grow our own food, using only fair-traded internet services with open-code programming, heat the house by means of clean-energy renewable resources such as wind power from drafts under the door."

But amid the wit, he neglects to flesh out what Smith meant by self- interest and to show that it is not synonymous with selfishness. After all, it includes virtuous behaviour such as frugality, saving and caring for one's family.

O'Rourke is sounder on the third of Smith's principles, free trade. Smith's target when writing on this subject was the mercantilists, who advocated restricting imports and maximising exports. Smith responded by arguing that trade between nations should be just like trade between individuals: free and unrestricted. That way, everybody would gain. This remains fertile terrain, as the mercantilist arguments have not gone away. Consider the current Western worry about China's economic growth. O'Rourke speculates on a conflict between the US and China: "The Consumer Electronic Goods Wars, with Chinese gunboats cruising the fountains in our malls."

CURIOUSLY, DESPITE ALL the light touches, O'Rourke can be heavy going. This is partly because he trawls through The Wealth Of Nations chapter by chapter, even though Smith presented some contradictory arguments and occasional theories that are plain wrong. For instance, he shows at some length how Smith tied himself in knots when he tried to come up with a price theory. But do casual readers really need to grapple with such confusions?

Sometimes, the attempt to be topical misleads. For instance, O'Rourke quotes Smith, "230-odd years ahead of himself, on why Angelina Jolie makes a discreditable amount of money". Smith talks about how the talents of certain performers are admired but that exercising such talents "for the sake of gain is considered as a sort of public prostitution". So the exorbitant pay they receive is due to "the rarity and beauty of the talents, and the discredit of employing them". But Smith was describing a pre-capitalist, class-based society where any kind of trade was considered vulgar. This view has long vanished and now celebrities like Jolie are adored and envied.

To his credit, O'Rourke does not seek to claim Smith as an out-and-out free-market ideologue. He acknowledges his scepticism about businessmen, for instance, and his advocacy of public funding for education. O'Rourke's book has its moments but mixing wit and populism with Smith's economic and historical arguments leads more often to confusion than enlightenment.

Alex Moffatt is a freelance journalist

On The Wealth of Nations By PJ O'Rourke Atlantic Books, 242pp. £14.99