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32 of 38 people found the following review helpful:
4.0 out of 5 stars
A Classic Misinterpreted by Those Who Revere it Most, July 24, 2002
This Book is a classic. I would not go so far as to add it to the western Canon, but it contains the foundations of modern Economics. Its explaination for how economies work is still unsurpassed. Division of Labour, the invisible hand of consumer demand and the uses and mis-uses of taxation are all here. It should be stressed however, that this edition does not include books IV and V which concern the proper role of govt. It is also the section most ideologues forget to read and contains all the rudiments for a minimal welfare state and and active role for govt. in planning FOR competition, NOT the planning OF competition --- a very important distinction and one lost on those who see no positive role for the state in the economy. It is unfortunately most used as a classic for those seeking a rationale for exploitation. Smith did not intend it as such and to see it as that is indeed to read it very selectively. The invisible hand is a useful interpretation for demand economics, but it is, like all other things only a description of market forces as they operate. It is not always the best way to organise everything as modern day ideologues would presuppose. It is of course the basis of business --- and it should be --- but Smith also has lots to say about how other economic factors operate in society. One thing to make clear is this: Smith is not anti-State, as some ideologues in the US would like to think. He is balanced in his view of the state --- it is best left out of economic planning --- but it does clearly have an important role to play. The role of the State is to 1) create the conditions for the smooth flow of capital and its allocation into its most efficient uses and not to erect barriers in the process. 2) It also must necessarily collect taxes since the smooth and efficient operation of the state and the benefits its provide is in the interest of the accumulation of Capital. 3) The State also directly participates in the economy when projects which are obvious to the public benefit, but "which to no one would accrue an economic profit" --- he offers such examples as lighthouses and some roads and defence --- areas where there is an obvious public good, but to which no one would make a profit. Lighthouses are good examples, but like everything else in today's economy an interpretation for this could be made for universal health care and, of course, education; the mere fact that people do not have to worry about providing for education or health allows them to carry on in amassing capital in other endevours. Of course there is a slippery logic here but such is the rationale for the limited, but much greater role, the state provides in most developed economies outside of the United States. 4) Taxation policy is here as well. In the last book, Book V (not included in this edition), Smith describes the foundation of taxation and where it works best. He starts with the idea that "those who benefit the most from the smooth functioning of the state, should also be the ones who pay more." While not a prescription for progressive taxation policies it is the right way to think about tax and certainly would never excuse preferential taxation policies for the rich (such as in the US) but could be used as a foundation for a universal flat tax. Such a tax is perhaps the best, but as Smith points out, where and how to collect it is always the difficulty. He comes out more or less in favour of a consumption tax policy since it would approximate the wealth the people earn in the first place and would not, for example overburden companies or people with high income taxes when they may not have high earnings. There is however little in here about social policy, but Smith does see it as the right of the State to, in his time, provide welfare in the guise of work houses (19th Century hell holes). But that was as good as public welfare got in those days so we can posit that Smith would have carried his logic somewhat forward and provided for some social programmes --- though the extent of them would be a subject of no doubt fierce debate. Overall a book that every thinking person should have on their shelf. Like most things it has some warts over time, but it is still the logical Tome on which capitalism rests its bones. Not until Marx did someone really challenge its dictates --- Smith basically won the argument on most points. But willingness for those with an inability to think critically, to use this book as justification for the domination of the weak by the strong, has little to do with Smith --- it has everything to do with those who are looking for justification of Greed --- and Gordon Gecko and Adam Smith have little in common.
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by Karl Marx
by John Maynard Keynes
by Milton Friedman
by Adam Smith
