Adam Smith – the Invisible Hand

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Introduction
Adam Smith lived from 1723 to 1790 and is widely regarded as the father of economics.  He was a Scottish moral philosopher and taught at the University of Glasgow.  His masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776.  This book is considered a seminal work in the field of Economics.

The Invisible Hand
No discussion about Adam Smith would be complete without a reference to his famous phrase, “the invisible hand”.   I was surprised that the term did not figure more prominently in the book.  I only found it once:

 As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value: every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security: and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. (Smith, 1776, p. 572)

To me, this concept makes sense, but there is plenty of evidence to the contrary in recent history.    I would like to think that, despite the seemingly irrational behavior of people, their general tendency to look out for their own best interest will work for the best in society at large.  Then I see an event like the sub-prime loan disaster that almost takes down the country’s economy.  The people who took out those loans knew that they could not pay the bills.  The lenders who made the loans knew that the default rate would be sky high.  Somehow, actions taken in self-interest did not benefit the society at large.  Perhaps it is a case of the old adage, “If something sounds too good to be true, it probably isn’t.”  Adam Smith was a professor of moral philosophy and a Scotsman.  As such, he was likely accustomed to ordinary folk with the sense to know what was in their best interest.

I did most of my reading in The Wealth of Nations using a free audio book from LearnOutLoud.com. The free audio edition by Michael Edwards is very well done and made the book much more approachable.

Smith, A. (1776). The wealth of nations. New York, NY. Random House

Adam Smith on the Demographic Throttle

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Introduction
Adam Smith lived from 1723 to 1790 and is widely regarded as the father of economics.  He was a Scottish moral philosopher and taught at the University of Glasgow.  His masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776.  This book is considered a seminal work in the field of Economics.

Talking About My Generation
Smith notes that where national economic growth is slow, the wages of labor are not high.   This is certainly evident in the current economic downturn.  Most companies froze wages during 2008 and 2009 – and many forced employees to take wage cuts.  Smith believes that the wages paid to workmen act as a natural throttle on population growth.  Where wages are increasing, families can afford to properly rear children and the children have a chance for prosperity.  Where the purchasing power of wages is decreasing, children become more difficult to care for and families are less likely to produce them.  One problem with this idea is that the throttling has such a delayed effect: 15-25 years.  As the workforce expands (because of increased population) there’s more competition for jobs causing wages to drop.  Where there is strong demand for labor and a steady or shrinking supply, the competition for labor will keep wages growing.  Smith maintains that

The demand for those who live by wages, therefore, necessarily increases with the increase of the revenue and stock of every country, and cannot possibly increase without it. The increase of revenue and stock is the increase of national wealth. The demand for those who live by wages, therefore, naturally increases with the increase of national wealth and cannot possibly increase without it.

  I suppose that if productivity were increasing faster than GDP, this would be seen as an increase in GDP without an increase in average wages.  A disruptive new technology could have this effect.

I do not think that it makes sense to use economic conditions to try to predict major demographic shifts like an increase or decline in birth rate.  The US has experienced several recessions since the beginning of the 20th century and these cannot be tied to bad times.  Drucker notes that the two largest Baby Busts (1925-1935 and 1961-1975 began during boom times (Drucker, 2008, p. 49).

 I did most of my reading in The Wealth of Nations using a free audio book from LearnOutLoud.com. The free audio edition by Michael Edwards is very well done and made the book much more approachable.

Drucker, P.F. (2008). Management, revised edition. New York, NY. HarperCollins Publishers

Smith, A. (1776). The wealth of nations. New York, NY. Random House

Adam Smith on Labor

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Introduction
Adam Smith lived from 1723 to 1790 and is widely regarded as the father of economics.  He was a Scottish moral philosopher and taught at the University of Glasgow.  His masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776.  This book is considered a seminal work in the field of Economics.

Whose Life is it, Anyway
Smith asserts that “labor is the real measure of exchangeable value.”  I honestly have problems with this principle.  For me, the fundamental problem is that labor is an abstract notion.  Everyone knows what work is, but assigning value to particular acts of labor is difficult.  Our company invests substantial effort to insure that our wages are on par with comparable jobs in the area.  It can be confusing to see that when the labor required to purchase a particular good goes up (or down) it is the value of the good that is varying, not the value of the labor.  In a time of famine or siege, food becomes very scarce – the food becomes expensive in terms of the labor required to purchase it.

 All labor is not created equal.  Some is harder or more dangerous than others.  Also, some labor is performed based on expertise acquired at great expense (in time or money).  It is important to determine the unit of labor.  Is labor measured by the act or by the hour? I think that the fundamental measurement is the hour.   Over all, though we measure labor by the act, we would always come back to some relation of the act to time (e.g., pieces per hour.)  Also, as far as the individual is concerned, hours are identifiable elements of a life and there are a finite (though indeterminate) number of them which can be devoted to labor in any human life.

I did most of my reading in The Wealth of Nations using a free audio book from LearnOutLoud.com.  The free audio edition by Michael Edwards is very well done and made the book much more approachable.

Adam Smith: Isn’t that Special!

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Introduction
Adam Smith lived from 1723 to 1790 and is widely regarded as the father of economics.  He was a Scottish moral philosopher and taught at the University of Glasgow.  His masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776.  This book is considered a seminal work in the field of Economics.

Markets and Specialization
The ability to specialize is seriously constrained by the availability of market.  A woman who sets up a law firm in a tiny Kentucky town would not to be able to support herself by specializing in a particular form of law for which the town provided little demand.  She would have to be a generalist who could find sufficient customers among the available market to make a living.  In the last 30 years, substantial markets have opened up around the world, offering great opportunity for many kinds of goods.  Many Americans advocate a protectionist posture with a hope of protecting American jobs.  This posture ignores the benefit of wider markets.   A bigger market always means more opportunity for companies that have something unique to sell.  Protectionism limits the ability of US businesses to serve these global customers because of barriers erected against foreign-made commodities.

My company makes a highly engineered component needed in modern industrial equipment.  It replaces a much cheaper but less functional component which has become a commodity.   Some people complain that global markets hurt local businesses because of cheaper labor.  Adam Smith observes that varying labor costs and resources have always played a part in where products are made.  The fact that we have a highly differentiated product and can sell into a global market makes it possible for us to build our products in the United States.  If we were trying to compete for the commodity business, our factory would be nothing but an empty building.

I did most of my reading in The Wealth of Nations using a free audio book from LearnOutLoud.com.  The free audio edition by Michael Edwards is very well done and made the book much more approachable.

Adam Smith on Multiplication and Division

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Introduction
Adam Smith lived from 1723 to 1790 and is widely regarded as the father of economics.  He was a Scottish moral philosopher and taught at the University of Glasgow.  His masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations was first published in 1776.  This book is considered a seminal work in the field of Economics.

Multiplication through Division
One of the most important concepts introduced by Smith is that of the Division of Labor.  This term means that greater productivity can be attained by dividing and specializing labor among a variety of trades.  Smith observes that various forms of animal breeds (mastiff, greyhound, and spaniel) vary largely in their innate abilities.  In contrast, different kinds of laborers (common laborer, truck driver, or engineer) differ substantially in the activities they do.  The differences in people are due primarily to opportunity, habit, and education.  Smith theorizes that this difference in men contributes to the wealth of a nation.  The great benefit of this differentiation lies in the fact that each person can employ the specialties of another to get more stuff done.  Animals cannot employ one another’s specialties, despite Walt Disney’s claims to the contrary.  Each animal must support itself.  In contrast, human society is enriched by the variety of contributions of its members.  As Smith says,

 Among men, on the contrary, the most dissimilar geniuses are of use to one another: the different produces of their respective talents, by the general disposition to truck, barter, and exchange, being brought, as it were, into a common stock, where every man may purchase whatever part of the produce of other men’s talents he has occasion for.

Before coming to work in Toledo, I worked in a manufacturing plant in New Haven, IN.  Our work was highly seasonal, so our labor force had a large temporary component.  One summer, our HR manager told me we had over 20 different nationalities working in the production area.  Of course there were Hispanic workers from several Latin American countries, but we also had employees from India, Pakistan, and several Southeast Asian nations.  It wasn’t uncommon to have engineers and professional people among the production workers, simply because they were eager to get work of any kind.  This made for a very vibrant workforce.

I did most of my reading in The Wealth of Nations using a free audio book from LearnOutLoud.com.  The free audio edition by Michael Edwards is very well done and made the book much more approachable.

Short End of the Stick Syndrome

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My friend, Cal,  spent the whole holiday season selling Christmas trees on a windy corner in Queens, NY.   The weeks dragged by as he dickered with stern, Eastern Europeans over the price of Fraser Firs and Blue Spruces.  The days were brutal and long with no prospects of Thanksgiving or Christmas roadtrips to see siblings and nephews.  At the low spot of the season – five days before Christmas, he complained, “The problem with the short end of the stick is there’s so damned much of it to go around.”  He was ready to quit and walk away from the whole mess – but he managed to see it through till the end.

Here’s a solution for short end of the stick syndrome:

Done is the Engine of More.

After the crappy year we’ve all had, this seems like a great anthem for the new decade.   It comes from a fascinating blog post by Bre Pettis in collaboration with Kio Stark.  The post, entitled “the Cult of Done Manifesto“, is filled with 13 arguments for action.   Here are three of my favorites:

#4 – Pretending you know what you’re doing is almost the same as knowing what you are doing, so just accept that you know what you’re doing even if you don’t and do it.

Every project I do has things in it that baffle me.  Sometimes I pay so much attention to the things I don’t know that it keeps me from doing the things I know how to do!  Steady daily progress is the best strategy for getting through the sticking points of a project.

#9 – People without dirty hands are wrong. Doing something makes you right.

My cubicle mate at work has an interesting observation about meetings. “People come with empty yellow pads and leave with empty yellow pads.  In the middle, they fill the air with reasons why the project can’t be done.”  Dirty hands means you believe.  Dirty hands shows which side you’re on.

Downstairs Duplex 2 - Dave 0

Downstairs Duplex: 2 - Dave: 0

#13 – Done is the engine of more.

This is obviously my favorite. It’s like

  • Damn the Torpedos
  • Praise the Lord and Pass the Ammunition
  • I now pronounce you man and wife

all rolled into one.  Six little words that have already gotten me through a couple tough spots – and it’s only the first week of the year!   In the words of my old drill sergeant, “C’mon ladies, time to make it happen.”  Cult of Done – here I come.

Help, I’m Drowning in Revision Ambiguity!

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Our team had a tight deadline and tons of work to get done.  There were dozens of research topics, hours of analysis, and a final presentation due in just a couple of weeks.  Each person was responsible for multiple sections along with the supporting documentation.  Just a few days into the project, it was obvious our technology was working against us.  With several “current” versions of working documents circulating through eight email In-Boxes, the team was paralyzed by revision ambiguity.

This is not a new problem.  Every organization that gets things done has some formal way to organize information, collaborate on projects, and move project deliverables toward completion.  Or maybe not.  Maybe your organization or class is just as disorganized and frustrated as we were. 

We found a solution in Huddle.net, a web-based collaboration service from Great Britain.  Huddle offers an online space that is powerful and flexible.  I originally signed up for a free space, but quickly saw the value for collaborating with other partners on different projects.  The free service only allows a single workspace, but all the tools are fully functional.  The basic service costs $15/month and is well worth the money.  I can manage up to five separate workspaces and invite as many collaborators as needed.  There’s a 2.5GB storage limit, but I have two concurrent projects running with hundreds of documents and have never come close to needing more space.

Huddle Document Manager

Huddle Document Manager


Features that were helpful for my team:

  • Online file editing for Microsoft Office files (Office 2003 or earlier)
  • Automatic versioning for files uploaded to a workspace
  • Online viewer for any graphic file uploaded to a workspace
  • RSS or Email notification when files were changed
  • Workspace calendar and ToDo list
  • Online whiteboard for brainstorming and project links

Once the team started using Huddle, it was much easier to keep track of work needed and milestones accomplished.   Project meetings revolved around the files on Huddle, so there was never any fumbling around looking for the most recent versions in email boxes and flash drives.  By the time the final presentation was made, even the skeptics were converted.

If you need an agile collaboration tool, consider Huddle.net.  If you have a LinkedIn account, you can add a free Huddle workspace from the LinkedIn Applications menu.  It was a great solution for my group, and got us moving again!

What if all this work is worthless!

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My friend is smart and successful.  He recently completed an MBA from a small Midwestern university on US News’ Best Colleges 2010 list.  He’s also honestly skeptical about whether the time and money was worth it.  Does he know something I don’t know?

Don’t get me wrong – I’m not thinking of quitting.  There are five classes between me and graduation day, and I’m determined to stick to it.  But what if my friend’s fears have foundation?  The craziest delusion is to continue on with a fool’s errand when the folly becomes apparent.

I put these questions to some classmates recently.  Here’s what they told me.

“I’ve been moved three times by my company – always against my will.   I see the MBA program putting me in control of my future.”

A fellow IT worker recounted how his company downsized his department repeatedly – each time retaining him by moving him further from friends and family.  “If  I’d had my MBA, things would have been different,” he reasoned.  “I’d have had more options.”

“My studies have given me the tools to distinguish opportunity from fantasy.”

One of the younger members of the class told about helping her mother avoid a potentially disastrous business venture.  “My mother was all fired up about opening a health food store near her beauty shop,” she explained.  “But she couldn’t explain to me how the store would compete against the others in the area.”

“I’m working on projects now that would have completely baffled me a year ago.”

Recently promoted to a better job with his employer, another classmate talked about the difference that his classes had made in his approach to complex problems.  “I just think about the cases we’ve studied and use the lessons learned to tackle these difficult assignments.”  He’s convinced that his new job is a direct result of the work he’s been doing on his MBA.

“In the CPA world, an MBA is nothing.  In my real world, it has enriched my life.”

An instructor talked about the changes she’d seen in her own life since graduating a few years ago.  “The MBA program opened up opportunities I could never have foreseen,” she explained.

“The lessons my classes and classmates have taught me will save me a lot of painful mistakes.”

This classmate’s response was heartwarming for me.  Sometimes I feel like the “old man in the room” – probably because I am.  Everyone agrees that I talk too much, but this comment reminded me me that we can help each other by sharing what we’ve seen and heard.

This was a good conversation.  It was more than mutually assured sheepwalking.  Everyone had concrete examples of how this education was making a difference.  What are you doing to get ready for the future?

New Tools

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I just started using a couple of new tools from JGSoftware as programming utilities:

AceText is  like Windows clipboard on steroids.  It enables the user to make libraries of snippets and other notes.  You can create a library for each project.  This saves repetitive referring to lists of attributes, database references, stored procedures, etc  during development.

Worlds Greatest Clipboard Manager

You organize the snippets or notes in collections.  Within a collection, you can add notes (clips) as well as folders.  Of course, you can nest notes in the folders to keep these clips organized.

One really cool feature is that AceText can be run from a flash drive.  This means snippet collections and project notes are close at hand whether at work or home.  For me – I don’t need to install AceText on my work computer – hooray – boycott workplace software nazis!  (full disclosure – I’m a workplace software nazi.)

EditPad is my new text editor.  I used to use TextPad for my text editor, but EditPro has more sophisticated search and replace functionality.   It  can also search folders and process multiple text files in the folder at the same time.  EditPro works with AceText, so my project collections are available in EditPro.  For me this is helpful since I’m constantly accessing my snippet library – very helpful for vbscript, VBA, and CSS programming.   Both products are available as a package for $80, but I spent a little more because  of buying them separately.

For massive note taking, my favorite tool is OneNote.  It’s part of certain distributions of Microsoft Office 2007.  OneNote is great for keeping disparate data  to keep data organized – usually with the objective of creating documentation.  AceText has taken the place of OneNote for my snippet library, but OneNote is great for organizing research, graphics, and lists, links, etc.   It won’t run from a flash drive, although you can store OneNote files on a flash drive to carry back and forth from work.

I would certainly encourage you to check out the products at JG Software.  I use nearly all of them, and they save me tons of time.

A Lot to Live For

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The drive down US24 from Fort Wayne, IN to Toledo, OH is filled with surprises.  This afternoon, the sun was perfect – slanting through autumn leaves eastward down the Maumee River.  I had to stop and take in the view at Roche de Bout near Waterville.

As I lamely tried to capture the moment on my phone, a fellow joined me to shoot the river view in the soft October light.  We talked a little about cameras, his well worn G7 camera dangling from  a leather neck strap.  He talked about the G7′s adventures in London, Rome, Greece, and around his native Toledo.  He mentioned using folders full of his snapshots as slideshows on his TV.  “It’s a lot better than watching cable news or soap operas”, he explained.

The old Interurban bridge near Waterville, OH.

The old Interurban bridge near Waterville, OH.

I mentioned my mom, and asked if he thought a senior citizen could learn how to use email and facebook if they’d never ever touched a computer.  This fellow started using computers and digital cameras in the 90′s – after he retired from the railroad.  He’s nearly 80 now and still scrabbling down the path at Roche de Bout to get a perfect October river shot.

“Get your mom one of those $400 Acer laptops”, he advised.  “You may need to sit with her a little bit to get her started, but she’ll catch on in no time.”  His parting comment to me: “Don’t write someone off because they’re old – your mom still has a lot to live for!”

A lot to live for!  What a great Sunday afternoon thought.