Donald Trump officially became the President of the United State of America on January 20. During his election campaign, he promised that under his presidency the U.S. would make a new declaration of independence.
The Declaration of Independence is the pronouncement of independence, and is the origin of American liberalism. Trump is planning to start a new ‘age of freedom’ in American history.
The Declaration was signed in 1776. This very same year in the U.K, a different ‘origin of liberalism’ was published: “The Wealth of Nations” by Adam Smith.
Two historic ‘principles of freedom’ pronounced in different places in the same year: one cannot help but feel God at work.
“The Wealth of Nations” is said to be the beginning of modern economics. But while being 240 years old, it still stands as an irreplaceable text in coming to understand how the economy works.
Let us now look at the main ideas of Adam Smith’s free economy.
Adam Smith Invented GDP
GDP (Gross National Product) is the sum of the costs of goods and services of a country, and it is used as a method of calculate a country’s overall wealth. This idea finds its origin in Adam Smith.
The first reason why “The Wealth of Nations” was revolutionary lies in its fresh perspective on ‘what is wealth’.
Until then, people had thought that ‘wealth’ referred to gold, silver and precious stones. Governments thought that to make their country wealthy, they needed to sell things to other countries and collect the gold and silver payment.
Adam Smith, however, redefined ‘wealth’ in his book:
“The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.”
In other words, wealth did not mean gold, silver and precious stones; it was the goods and services we create through our work. The country’s wealth is also the conveniences of life.
This may be common sense to us, but back then it was a revolutionary way of thinking. If it weren’t for Adam Smith we would be thinking that GDP is the weight of all the gold bullion in the country.
Wealth Means to Give to Each Other
The second reason why “The Wealth of Nations” was revolutionary is the following statement:
“It is the great multiplication of the productions of all the different art, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people.”
Take a toothpick for instance. If only one person tried to make a tooth pick, he would have to fell the tree, cut it into small pieces, make it thin and cylindrical and so on; and he would only be able to make 1 or 2 toothpicks per day.
But if we divide the work amongst 10 people, they could make 100 toothpicks per day, meaning 10 per person: the production rate increased ten-fold.
When this happens in a large variety of industries, peoples’ lives become more convenient and the country’s wealth increases.
It is thanks to this division of labour that we enjoy convenience in our lives. If we had to live our lives completely independent of other people, we would each have to go fishing out at sea and pick cotton for clothes: we’re back in the stone age.
Let us think about where our home, car and food and other conveniences come from. Behind each thing lies the passionate work of innumerable people. And as we live off the sweat and blood of other workers, we too work to contribute to the happiness of others.
Division of labour means, in other words, ‘helping each other’ or ‘giving to each other’. It means that many people with different characters and strengths help each other out through the pursuit of self-excellence. This is what creates wealth in a country.
Pursuing one’s own profits and ending up contributing to the happiness of others: economics really is an outstanding place for soul training.
The Mystery of Economics and Its Relation to “Freedom”
The third reason why “The Wealth of Nations” was revolutionary, was Smith’s theory that ‘freedom brings prosperity’.
This was his answer to what politicians ought to do to produce just the right number of products and services that are needed.
Smith was referring to economic non-intervention by the government.
Freedom allows each industry to function organically and to everyone’s needs.
For instance, let us suppose that the world is short on cars. Thus, the price of cars will rise, and people selling cars will realise that they can make a great profit so they will increase production rates. Or new people will appear in the car industry in want of making a profit. Consequently, the world will no longer be short on cars.
If we reverse this and suppose that there are more cars in the world than needed. They no longer sell and thus profits drop. Naturally, people in the car industry will begin to leave their closed-down factories to look for work in other more profitable places.
This is how when each person pursues his or her own profit: the economy naturally functions to produce just the right number of products and services that are needed.
Society creates its own suitable divisions of labour without a central authority.
In economics, this is called market mechanism. This brilliant mechanism is not the result of political planning or Adam Smith’s genius.
Adam Smith called this mysterious system the “invisible hand”: God’s hand.
To this day people who feel an unknown power at work in this mechanism become liberalists, and those who try to resist the “invisible hand” advocate the rational controlling of the economy and choose to become leftists.
Government administrations that try to intervene in individual income and cell phone prices, like the Japanese Abe administration, have a great need to reread “The Wealth of Nations”.
“The Wealth of Nations”: The Origin of America First
The fourth reason why “The Wealth of Nations” was revolutionary was its unreserved support for American independence. Here, let me remind you that Adam Smith was a British scholar.
Smith thought that his idea was for Britain to stop exploiting America, and to get America to focus on the prosperity of its own country. The idea that other countries will consequently become wealthier is very similar to Trump’s “America First” strategy.
Trump’s road to freedom with his large-scale tax reductions and deregulations, and his America First strategy, shares the same spirit as the American Independence’s twin brother: Adam Smith’s “The Wealth of Nations”.