Adam Smith and the Most Valuable Gift

We can blame Adam Smith, the 18th century economist, for the commercialization of Christmas.

Or, perhaps even better, we can thank him.

Smith outlined the case for the specialization of labor, where farmers farm the land, factory workers make things, carpenters build buildings, and lawyers interpret and apply the law. Each group focuses on what it does best… they create more of their own specialty than they could ever consume, and then trade the excess with others.

By focusing on just one task, each person becomes an expert and is then able to make more of it than others who are generalists. In the late 1700s, performing one specific task repeatedly was a new concept.

This approach to work was helped along by the industrial revolution, which greatly expanded the ability of individuals to add more to the economy than they consumed.

But Smith didn’t stop there…

He went on to explain how the idea could be applied to nations. If one country had a climate that supported growing bananas while another had the timber and the know-how necessary for shipbuilding, then the two countries could specialize and once again trade their excess production.

This concept is part of what drove world production of goods and services to dizzying heights over the past 200 years, creating the greatest anti-poverty movement in the history of mankind. The modest life of an average American is orders of magnitude more comfortable than that of the average Briton in the 1800s.

We live in a time of abundance.

Adding to the specialization of labor and industrialization was the notion of uniform money. Instead of lawyers trading their craft for wheat or vegetables, they could store their excess efforts in the form of money. In this sense, cash represents the time we spend working.

We bank this time and then choose how to spend it according to our needs and wants. But people have very different rates of pay for their labor, as well as different rates of spending down their accumulated time.

Which brings me back to Christmas.

When we buy gifts, we’re using up some of our hours of labor stored in the form of money to purchase items for others. In a sense, we’re giving them some measure of our time, so that they don’t have to either use their own saved-up time or go without the gift.

This expression of friendship, love or general caring is only enhanced by the time we spend searching for the right gifts and even writing out Christmas cards. They all come down to the same thing.

We’re not simply giving away watches, shoes, footballs, gift cards, ski trips or even family holiday visits and meals. We’re giving the gift of time, whether it’s our time spent, the recipient’s time saved, or a combination of the two.

Time is the one commodity that’s precious to everyone.

It can’t be extended or expanded. Nothing in Adam Smith’s work creates more time, which is why giving it to others is one of the greatest expressions of caring a person can make.

May you be fortunate enough to give, and receive, the gift of time from those you love and care about in this Christmas season, no matter what form it takes.

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Rodney

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.