Last week (see here and here), I mentioned how Adam Smith had published a 79-page pamphlet in 1784 containing 13 separate “additions and corrections” to the first two editions of The Wealth of Nations (1776, 1778). Of these 13 additions/inserts, the first two correspond to Volume 1 of his magnum opus. (The first two editions of The Wealth of Nations were originally printed as a two-volume set.) First off (Addition #1 to Vol. 1 of WN), Smith explores the relationship between wealth and power:
“Wealth as Mr. Hobbes says, is power. But the person who either acquires, or succeeds to a great fortune, does not necessarily acquire or succeed to any political power, either civil or military. His fortune may, perhaps, afford him the means of acquiring both; but the mere possession of that fortune does not necessarily convey to him either. The power which that possession immediately and directly conveys to him, is the power of purchasing; a certain command over all the labour, or over all the produce of labour, which is then in the market. His fortune is greater or less, precisely in proportion to the extent of this power; or to the quantity either of other men’s labour, or, what is the same thing, of the produce of other men’s labour, which it enables him to purchase or command. The exchangeable value of every thing must always be precisely equal to the extent of this power which it conveys to its owner.” (Smith 1784, p. 1)
In other words, wealth is neither a necessary nor a sufficient condition for the acquisition of power. Smith’s startling conclusion is not just contra Hobbes; it is also contra today’s conventional wisdom (see here, for example). My own view, however, is that Smith is totally correct, even today, to distinguish between wealth and power. Why? Because the political preferences of the wealthy are not uniform, so their attempts to buy elections and influence public policy probably end up cancelling each other out in the long run. Or more simply put, for every pro-MAGA Elon Musk, there is an anti-MAGA George Soros.
Next (Part #2 of Smith’s 1784 pamphlet), Smith describes the relationship between the annual importation of precious metals and the annual consumption of those metals:
“It must be observed, however, that whatever may be the supposed annual importation of gold and silver, there must be a certain period, at which the annual consumption of those metals will be equal to that annual importation. Their consumption must increase as their mass increases, or rather in a much greater proportion. As their mass increases, their value diminishes. They are more used, and less cared for, and their consumption consequently increases in a greater proportion than their mass. After a certain period, therefore, the annual consumption of those metals must, in this manner, become equal to their annual importation, provided that importation is not continually increasing; which, in the present times, is not supposed to be the case.
“If, when the annual consumption has become equal to the annual importation, the annual importation should gradually diminish, the annual consumption may, for some time, exceed the annual importation. The mass of those metals may gradually and insensibly diminish, and their value gradually and insensibly rise, till the annual importation becoming again stationary, the annual consumption will gradually and insensibly accommodate itself to what that annual. importation can maintain.” (Smith 1784, at p. 2)
This passage provides a textbook example of why markets are self-correcting, even the market for precious metals! On the one hand, if the demand for X exceeds its supply, this relative decrease in the supply of X will cause the value of X to increase. (Where X consists of precious metals, it is the purchasing power of those metals that will fall.) But at the same time, as soon as X becomes more valuable, people will find ways of buying or importing new supplies of X from abroad, which will in turn reduce the value of X until it reaches an equilibrium.
