Saturday 29 May 2021

Relevance of Adam Smith's "The Wealth of Nations" (1776) in these post Covid days

In these post-Covid days, lockdowns are applied all over the world to contain the dreaded disease. However, these are being balanced so that the economic health of the countries are not irreparably damaged. In this context, it is instructive to recall what Smith wrote about productive & unproductive labour, so that damage to economic productivity is minimised.

He thought that only labour which results in a tangible "thing" can be called truly productive. Even though his work appeared at the cusp of "The Industrial Revolution", Smith had no doubts about the primacy of agriculture as food is the primary need of man. The labour of a manufacturing worker is "wrapped up" in the thing he has made, therefore his labour is a commodity of real value. In contrast, the labour of a domestic servant will "perish in the very instant of their performance", leaving no trace of value. A man grows rich by employing a number of manufacturers; he grows poor by maintaining a number of servants."

Also the labour of religious people, lawyers, people in fine arts & armed forces are economically unproductive, because what they produce also vanishes the moment it is made (including the security provided by the defence forces!). But the compensation paid to these must come from the capital invested either in manufacturing or rents from land. In other words, if there were no farms or factories, a society could not afford these "unproductive" labours. (This aversion about armed forces arose from Adam Smith's intense abhorrence of war, which he considered a "shocking" waste of resources.)

The relevance of Smith is proved by the fact that agriculture & essential manufacturing activities are being continued with necessary precautions. As education is not directly "productive", it is being postponed.

In an interesting sidelight, he thought the seats of government were economically unproductive (& corrupt) as compared to places of agriculture & business, where people were gainfully engaged!

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