The Wealth of Nations Conclusion: An Inquiry into the Nature and Causes of the Wealth of Nations
I’ll wrap up our engagement with Smith’s work where we started. Thinking chiefly of the native tribes in North America prior to the American founding, he writes that “every individual who is able to work is more or less employed in useful labour, and endeavours to provide, as well as he can, the necessaries and conveniencies of life, for himself, and such of his family or tribe as are either too old, or too young, or too infirm, to go hunting and fishing. Such nations, however, are so miserably poor, that, from mere want, they are frequently reduced, or at least think themselves reduced, to the necessity sometimes of directly destroying, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts.”
In other words, everybody works hard all day, and yet they often barely have enough to survive.
Smith contrasts this with more economically developed countries: “Among civilized and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times, more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great, that all are often abundantly supplied; and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniencies of life than it is possible for any savage to acquire.”
In other words, many don’t work at all but still consume very much, and yet there is still plenty to go around.
Why are some peoples/nations wealthier? How do we create even greater wealth both for ourselves and others so that nobody needs to go without necessities or other conveniences?
Smith’s answer is: productive economic activity. That means that one person offers a good or service to another person at a price where both walk away “richer” than before. Economic exchanges need not be zero-sum, where wealth simply shifts from one person to the other. Wealth can actually be created where there was none before.
An entire nation can work hard and have next to nothing, and another nation can not work very hard, and have an excess (not because of exploiting others, inheritance, unequal natural resources, etc.) but because the work that is done by the few who do it creates so much wealth that it naturally spreads to the surrounding communities.
For our clients, those living in or preparing for a near retirement, this means a few things.
Deciding to “work” beyond what you need to financially can be a very good thing. It continues to provide purpose, structure, and relationships that are harder to find in retirement. It also allows you to continue to engage in productive economic activity: using your labor, energy, and expertise to offer goods and services at a price where both parties walk away wealthier.
When we invest in stocks and bonds, we are participating in the productive economic activity of others. No business long survives that does not profitably offer goods and services that people want. By owning these companies in stocks, or funding their activities to bonds, you are aiding the desirable and productive work they make possible.
When you take distributions and spend your hard earned savings, you are selling your securities to someone else who wants them and will benefit from them in the future, and you are supporting the economic activity of those goods and services you are purchasing. Going on that large, expensive family vacation is a wonderful benefit to all those who help make it possible (airport staff, flight crews, travel agents, car rental agencies, resort employees, restaurant owners, and on and on and on).
Even if you want to retire, watch TV all day, and never talk to another person again (we all have those days), the only way you could afford that is if you’ve spent your life profitably providing goods and services to others, and then saving and investing those funds whereby others are able to continue on that good work. It might be less than ideal for your own health (physical and emotional), but is nevertheless a sign of the wealth of nations that you directly increased for yourself and others.
Thank you for engaging in this slightly older text, where we often can find as much if not greater insight than more recent ones. We’ll be back next week with our next book announcement.
Let us know
Do you personally know the people you bought all your stocks and bonds from? (No). Do you personally know the people you’ve sold your stocks and bonds to? (Again, No). Do you fully appreciate that you’re making a positive impact in someone else’s life when you do either of those? (I’ll let you answer this one 😉)
Even in retirement, what “productive economic activity” can you engage in where wealth is actually created rather than just exchanged?
Until next time, happy reading!
