mattlemmon, Flickr.

After conferring behind closed doors with practitioners of the dismal science, Speaker Pelosi emerged to say that it was the task of Congress to boost the mood of businesspeople. “The word of the day is confidence,” said Pelosi. “Confidence in our markets, confidence in lending, confidence in our financial institutions.”

Here’s a free Latin lesson. The root of the word confidence is fide—faith. And given what history has to say about the effectiveness of government spending to spur economies, crossing Speaker Pelosi’s bridge over these troubled currents requires a big leap of the stuff.

Veronique de Rugy is an economist at George Mason University’s Mercatus Center. She has an article in the April 2009 issue of Reason (unfortunately not yet webbed) that should give people pause about the effectiveness of stimulus packages.

She mentions, for instance, Japan’s trouble in the 1990s with (sound familiar?) housing and stock markets in the tank. The response: “Between 1992 and 1999, Japan passed eight stimulus packages totaling roughly $840 billion in today’s dollars. During that time, the debt-to-GDP ratio skyrocketed, the country was rocked by massive corruption scandals, and the economy never did recover.”

Another related assumption is that federal wartime spending helps sluggish economies. De Rugy marshals evidence by several researchers that not only disprove this assumption but indicate the that the opposite might be true. She cites, for example, the finding by Harvard economist Robert Barro that for every buck in wartime spending, we get back three quarters and a nickel.

What about the Great Depression? Surprisingly, government spending didn’t help there either. De Rugy cites a paper in the 1992 Journal of Economic History:

“A simple calculation indicates that nearly all of the observed recovery in the U.S. economy prior to 1942 was due to monetary expansion,” which is to say, not federal spending.

So what did it? “Huge gold inflows in the mid- and late-1930s swelled the U.S. money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods.”

The paper’s authorship is interesting. It’s by Christina and David Romer. The former currently chairs the president’s Council of Economic Advisers. She’s evidently having a tough go at making the transition.

Speaker Pelosi should stop worrying so much about confidence and start reading some history. She should also take a second to consider these words from Dorothy Sayers’ book Creed or Chaos: “A society in which consumption has to be artificially stimulated in order to keep production going is a society founded on trash and waste, and such a society is a house built upon sand.”

America’s businesspeople will again have confidence when they can see authentic and genuine growth. What we’re seeing right now is just an ignorance of the past and blind hope for the future.

Cover detail from of Rodney Stark's 'The Victory of Reason.'

It turns out that Barzini’s is an avoidable conundrum. Like the great Italian scribe, I’ve long been influenced by the concept of the Protestant Work Ethic — that the rigorous sects of the Reformation (namely the heirs of John Calvin) birthed capitalism. Then I read Rodney Stark’s The Victory of Reason: How Christianity Led to Freedom, Capitalism, and Western Success (Random House, 2005).

If Stark is correct, and he is convincing (which is almost the same thing, right?), the Protestant Ethic and its supposed creation of capitalism is a myth. Barzini should have started by looking in his native country. Stark shows that Italian Catholics were the first true capitalists, the merchants of such cities as Venice, Florence, Genoa, and Milan. In fact, he roots the entire flowering of Western economic, political, technical, and cultural dominance in the pre-Reformation church, showing how key technological and commercial advancements emerged from, of all places, European monasteries.

I was frankly astonished by some of the revelations in Stark’s book. I’ve heard Vishal Mangalwadi make similar points (and I recommend exploring Mangalwadi’s work if you’re interested in the subject), but Stark’s take is riveting and uniquely revelatory.

The Victory of Reason is a theological and historical reevaluation that shows the spirit of capitalism, even Western liberty, is not uniquely Protestant. It is inherent to Christianity more broadly construed, it’s doctrines, practices, and institutions.

Engraving of Adam Smith (Wikimedia Commons)

Not so with Adam Smith, whose tome revealed profundities from which anyone would profit — that is, unless you count the cost of actually digesting The Wealth of Nations. Any edition of this classic, published in 1776, is big and dense enough to double as a doorstop. Between American Idol and the latest Barack Obama coverage, who’s got the time? Taking a cue from that thoroughly modern doctrine, “To each according to his attention span,” in steps P. J. O’Rourke with On the Wealth of Nations (Atlantic Monthly Press, 2007) to explicate the truths of the great Scottish philosopher.

That is no small task. I speak from experience when I say that had Smith submitted his manuscript to a modern publisher at nine in the morning, it would have been summarily rejected by noon. That underpaid proletariat known as editors would have raised pitchfork and laptop at any text so unnecessarily long. Between the meandering sentences and discursive tangents, any reasonable editor would balk.

In handling Smith, O’Rourke has several advantages over the editors. First, his author is dead. Smith cannot complain that O’Rourke has missed some essential point buried 19 paragraphs into a wild goose chase that the distiller has just deleted. Next, O’Rourke is better paid and working on a more luxurious deadline than the typical editor — which means he can be more patient and gracious with his dearly departed author. Finally, O’Rourke is working from home, which means it’s easier to drink on the job when the job requires it (and this one surely must have).

The result is usually pleasant, generally useful, and refreshingly insightful distillation of Smith: from 900 pages down to 242. Not a bad day at the office.

The best example of O’Rourke’s concision also happens to be the most important for the book, boiling the entire thing down to a simple elevator pitch: “The Wealth of Nations,” he writes, “argues three basic principles and, by plain thinking and plentiful examples, proves them. Even intellectuals should have no trouble understanding Smith’s ideas [of] . . . pursuit of self-interest, division of labor, and freedom of trade.”

It’s the Cliffs Notes version or, better, Adam Smith for Dummies (which a quick Amazon search reveals does not yet exist). This “trinity of individual prerogatives” makes a useful guidepost for meandering through the tangle. When Smith is going on about the history of currency, for instance, or handily dismantling the theories of the French physiocrats, readers can know the ultimate relevance is tied to the Big Three.

O’Rourke also does a decent job of intellectual backfill. A common but woefully misinformed criticism of Smith is that he was simply counseling selfishness. But The Wealth of Nations is not a self-help book; it’s a book about how to improve the station of humanity. And it happens to be a sequel. Smith’s first book, A Theory of Moral Sentiments, deals with improvement from a moral perspective, while Wealth comes at the same subject from the material angle. To put it in more biblical terms, Smith’s books are the two tablets of the Law — one deals with more lofty concerns, the other says don’t boost your neighbor’s burro.

The whole of the man’s corpus is important to keep in mind because the people who pretend that they’ve read Das Kapital like to think of Smith as a monomaniacal prophet of greed. The critics have it exactly backwards. Smith attacks merchants and government officials (mercantilists) not out of a bizarre devotion to abstract principles but precisely because they are advancing their own good on the backs of others. Even capitalists think that’s bad.

As for Smith’s politics, O’Rourke writes that his views were “conventional” and “mildly reformist.” But in many respects, Smith was as radical as they come. He attacked the guild system and government planning when these were considered part of the natural order — as British as bad teeth and kidney pie. He defended free trade at a time when His Majesty’s government managed international exchange for the benefit of empire generally and London specifically. Though criticizing the American colonists as freeloaders, Smith nonetheless advised that “Great Britain should voluntarily give up all authority over her colonies, and leave them to elect their own magistrates, to enact their own laws, and to make peace and war as they might think proper.” This act of goodwill might dispose Americans “to favour us in war as well as in trade, and, instead of turbulent and factious subjects, to become our most faithful, affectionate, and generous allies.”

On all of these points, Smith was eventually vindicated. The value-added for O’Rourke readers is that he shows the myriad ways in which Smith is still being vindicated, bringing the arguments and observations of Wealth to bear on such current headache inducements as the debates over globalization, privatization, even pork-barreling. As O’Rourke quotes Smith, “A great bridge cannot be thrown over at a place where nobody passes, or merely to embellish the views from the windows of a neighboring palace.” Sen. Ted Stevens, call your office.

Some of Smith’s arguments now seem so obvious that readers may wonder why our forebears didn’t see things that way (or why Congress still doesn’t in some cases). This book is a recovery effort, to acquaint a new generation with Smith’s work and his world. It’s no light chore. “Adam Smith,” writes O’Rourke, “helped produce a world of individuality, autonomy, and personal fulfillment, but that world did not produce him.”

Like all books, this one is a mixed bag. The insights are excellent, but the style is at times awkward — perhaps an odd thing to say of such an accomplished stylist. O’Rourke is a wag, a wit, a wisenheimer. His job is to be substantive while making readers snigger. He is a master of this delivery, having pulled off this combo brilliantly in the past; All the Trouble in the World and Eat the Rich are both minor triumphs in their scope and depth and snigger stimuli. But with this volume it sometimes seems as if the shtick is stuck.

There are points at which I wanted more lecture and less lark. It could be a simple problem of misaligned expectations. With authors such as Steven Landsburg, Tim Harford, even Steven Levitt, I’ve grown accustomed to popularizers of economics who explain things effectively, lightly, even humorously, without trying to punctuate every other sentence with a rim shot.

Still, if you want to get a sense of what Smith was trying to say and why it so radically changed the world, then O’Rourke provides an ideal point of departure. It’s either that or slogging on your own through Smith’s tangent about the “Variations in the Value of Silv….” What was that about Obama?

(First appeared in the May 2007 issue of The American Spectator.)

Fiddler on the Roof promo art

Some of us feel ashamed if we dream about being wealthy. It’s greedy, after all, isn’t it? Grasping, crass and base. Such a daydream is probably pretty foolish, to boot. In the introduction to his song, Tevye sheepishly admits, “I realize, of course, that it’s no shame to be poor.” Maybe, if there’s no shame in it, we should just content ourselves with being poor.

Tevye doesn’t. He quickly qualifies his statement by adding that being poor is “no great honor, either.” Right after which he questions God in his conversational way, asking, “So what would have been so terrible if I had a small fortune?”

Disregarding weighty and specific questions about God’s providence (as Tevye asks about being rich, “Would it spoil some vast, eternal plan?”), the quick answer for Tevye is, “Nothing.” There’s nothing inherently wrong with having “a small fortune” — or a large one, for that matter. There is no evil basic to being rich. In fact, there’s a lot to be said for being rich.

For starters, if you’re rich you have a better chance at enjoying your circumstances. If you don’t like the circumstances in which you currently find yourself, you can just go and buy some new ones. Money lets you purchase things you like, help friends in need, donate to charities, get a broader education, bribe politicians to name state landmarks after you. Sure money can’t buy you love, but you take a date to a much nicer restaurant if you’ve got more of it in your back pocket.

But even if we separate money from self-gratifying motives, being wealthy is still good. The most obvious way in which this is true is that rich folks benefit poor folks — in many ways. First of all, they employ them. Who ever heard of a hobo hiring 20 computer technicians to run a local Internet company, or a Skid Row ragamuffin writing the paychecks for a staff of retail clerks? Only people with money can hire those without it.

Right now, you’re objecting: But not all rich folks run businesses. While this is true, most members of the “moneyed class” don’t leave their spare millions lying around the living room collecting dust, either.

They invest their money in the capital market — things like stocks, bonds, real estate, and banks — and the more money which is invested in the capital market, the more there is available for loans. People are willing to pay for the use of another man’s bread; we call it interest. Dust-collecting money is worth nothing to a rich man, so he loans it to an enterprising fellow who has more immediate use of it. The lender gets paid interest on his loan, and the borrower gets to use his money — everyone’s happy.

Those loans allow companies to hire more employees, increase the wealth of current employees, expand the size and scope of their business, invent new and better products and improve old ones. Those loans also provide the necessary capital for start-up companies, plus home, car and college loans — all of which are an economic benefit to folks occupying the lower economic rungs (me for instance).

But the rich don’t cease benefiting the poor by forsaking tightwad investment strategies and, instead, simply enjoying their wealth. While the Mr. Moneybags of the world are not busy sensibly investing their stash, they are often out having a good time with it, buying things like expensive art, Rolls Royces, planes, illegal cigars, boats, and miniature robot gizmos to hide in the desk drawer and play with at work.

While the lifestyles of the rich and opulent may disgust us all with their “conspicuous consumption” — as economist Thorsten Veblen dubbed it — consider who else benefits from all those “consumed” mansions, BMWs, Learjets, yachts and luxurious toys: the folks who build them. And they don’t keep the money to themselves, either. All that conspicuous consumption equals money for some Joe to buy groceries and pay the rent.

Cash never sits idly by. One man’s spending is always another man’s income. Thus, even while enjoying his extravagancies, the fat cat is inadvertently benefiting the skinny mouse.

But what about a worst case scenario, one in which a miserly old scrooge with deep pockets and short arms doesn’t hire people, doesn’t invest his money in stocks, store it in banks, or spend more than a nickel? Let’s say the old skinflint just uses his millions to stuff his mattress. What then?

Effectively, our tightfisted Ebenezer pulls dollars out of the money supply, resulting in deflation. In economic terms, deflation results in the proportionate inflation of the unit value of the dollar. In other words, if the money supply decreases, the change in your pocket becomes worth proportionately more, and voila! You’re rich. Or at least marginally better off. So even if the old codger is being a jerk and stashing his loot, his pigheaded decision still benefits those around him.

So, next time you see a rich man driving by in his new Mercedes, don’t pray he gets a flat tire, cuss his good fortune, envy him his bank account; don’t even ask your congressman to take away more of his money. Do the polite thing. Tell him, “Thanks.”