What Adam Smith Knew about Inequality
Near the end of Liar’s Poker, Michael Lewis’s indispensable memoir of his time as a bond salesman at Salomon Brothers in the late 1980s, Lewis describes the emotional merry-go-round of receiving his first year-end bonus. Together with his salary, he’s earned $90,000, more than any 26-year old he knows, more than his father at his age, and as much as any other first-year banker at the firm. Lewis is ecstatic—“Ha! I was rich”—until the carousel clicks into gear. He begins thinking about all the money he’s made for Salomon and how much more others around him are taking home. Before long his bonus seems more like a poke in the eye than a pat on the back. “By the standards of our monopoly money business, ninety grand was like being on welfare,” he says. “I felt cheated, genuinely indignant. How else could I feel?”
Lewis learned one of the central lessons of wealth and wealth creation: being wealthy and feeling rich are often inversely correlated. In a room full of rich men, only one doesn’t feel poor by comparison.
Adam Smith understood this. The author of The Wealth of Nations regarded human beings as creatures of appraisal and ambition. Smith believed that whether we are busy trading gossip or exchanging goods, we are constantly sizing up the world around us in order to guarantee our safety and improve our place. Our measurements, as such, are not made according to some universal set of standards. We are each other’s yardsticks, and we hate it when we don’t come out ahead.
Still curious? If you haven’t read The Wealth of Nations, you’re missing out on a classic. Liar’s Poker is the cult book that made Michael Lewis.