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Encyclopedia > The Wealth of Nations
Adam Smith's first title page

An Inquiry into the Nature and Causes of the Wealth of Nations is the magnum opus of the Scottish economist Adam Smith, published on March 9, 1776, during the Scottish Enlightenment. It is a clearly written account of political economy at the dawn of the Industrial Revolution, and is widely considered to be the first modern work in the field of economics. The work is also the first comprehensive defense of free market policies. It is broken down into five books between two volumes. The Wealth of Nations was written for the average educated individual of the 18th century rather than for specialists and mathematicians. Image File history File links No higher resolution available. ... Image File history File links No higher resolution available. ... Magnum opus (sometimes Opus magnum, plural magna opera), from the Latin meaning great work,[1] refers to the best, most popular, or most renowned achievement of an author, artist, or composer, and most commonly one who has contributed a very large amount of material. ... This article is about the country. ... For other persons named Adam Smith, see Adam Smith (disambiguation). ... is the 68th day of the year (69th in leap years) in the Gregorian calendar. ... For other uses, see 1776 (disambiguation). ... The Scottish Enlightenment was a period of intellectual ferment in Scotland, running from approximately 1740 to 1800. ... The Politics series Politics Portal This box:      Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... A Watt steam engine, the steam engine that propelled the Industrial Revolution in Britain and the world. ... Face-to-face trading interactions on the New York Stock Exchange trading floor. ... A free market is an idealized market, where all economic decisions and actions by individuals regarding transfer of money, goods, and services are voluntary, and are therefore devoid of coercion and theft (some definitions of coercion are inclusive of theft). Colloquially and loosely, a free market economy is an economy... (17th century - 18th century - 19th century - more centuries) As a means of recording the passage of time, the 18th century refers to the century that lasted from 1701 through 1800. ...


There are three main concepts that Adam Smith expands upon in this work that forms the foundation of free market economics: division of labour, pursuit of self interest, and freedom of trade. For other persons named Adam Smith, see Adam Smith (disambiguation). ...

Contents

Themes

The invisible hand

There are two important features of Smith's concept of the "invisible hand". First, Smith was not advocating a social policy (that people should act in their own self interest), but rather was describing an observed economic reality (that people do act in their own interest). Second, Smith was not claiming that all self-interest has beneficial effects on the community. He did not argue that self-interest is always good; he merely argued against the view that self-interest is necessarily bad. It is worth noting that, upon his death, Smith left much of his personal wealth to charity. For other uses, see Invisible hand (disambiguation). ... This article is about charitable organizations. ...


On another level, though, the "invisible hand" refers to the ability of the market to correct for seemingly disastrous situations with no intervention on the part of government or other organizations (although Smith did not, himself, use the term with this meaning in mind). For example, Smith says, if a product shortage were to occur, that product's price in the market would rise, creating incentive for its production and a reduction in its consumption, eventually curing the shortage. The increased competition among manufacturers and increased supply would also lower the price of the product to its production cost plus a small profit, the "natural price." Smith believed that while human motives are often selfish and greedy, the competition in the free market would tend to benefit society as a whole anyway. This was later adopted as a universal principle by the laissez-faire economists of the 19th century. Laissez-faire is short for laissez faire, laissez passer, a French phrase meaning to let things alone, let them pass. First used by the eighteenth century Physiocrats as an injunction against government interference with trade, it is now used as a synonym for strict free market economics. ...


Meritocracy

Meritocracy is an important factor in the work. In his book, Smith emphasizes the advancement that one can take based on their will to better themselves. People would want to do things with a strong mindset without the interference of the outside norms. Smith, also, points out the fact that the outside forces lead to infancy in the division of labor, therefore, slowing the economic growth of an economy. Because of the idea of self-improvement is very strong, meritocracy efficiently moves the outcomes of the division of labor, ultimately leading to more efficiency in the economy.


History and significance

The Wealth of Nations was published in 1776, during the Age of Enlightenment. It influenced not only authors and economists, but governments and organizations. For example, Alexander Hamilton was influenced in part by The Wealth of Nations to write his Report on Manufactures, in which he argued against many of Smith's policies. Interestingly, Hamilton based much of this report on the ideas of Jean-Baptiste Colbert, and it was, in part, to Colbert's ideas that Smith wished to respond with The Wealth of Nations. The Age of Enlightenment (French: ; Italian: ; German: ; Spanish: ; Swedish: ) was an eighteenth-century movement in Western philosophy. ... Alexander Hamilton (January 11, 1755 or 1757 - July 12, 1804) was the first Secretary of the Treasury of the United States, lawyer, Founding Father, American politician, leading statesman, financier, and political theorist. ... A portrait of Alexander Hamilton by John Trumbull, 1792. ... Jean-Baptiste Colbert Jean-Baptiste Colbert (August 29, 1619 — September 6, 1683) served as the French minister of finance from 1665 to 1683 under the rule of King Louis XIV. He was described by Mme de Sévigné as Le Nord as he was cold and unemotional. ...


Many other authors were influenced by the book and used it as a starting point in their own work, including Jean-Baptiste Say, David Ricardo, Thomas Malthus and, later, Karl Marx and Ludwig von Mises. The Russian national poet Aleksandr Pushkin refers to The Wealth of Nations in his 1833 verse-novel Eugene Onegin. Jean-Baptiste Say (January 5, 1767 – November 15, 1832) was a French economist and businessman. ... David Ricardo (18 April 1772–11 September 1823), a political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists, along with Thomas Malthus and Adam Smith. ... Thomas Robert Malthus, FRS (13th February, 1766 – 29th December, 1834), was an English demographer and political economist. ... Karl Heinrich Marx (May 5, 1818 – March 14, 1883) was a 19th century philosopher, political economist, and revolutionary. ... Ludwig Heinrich Edler von Mises (September 29, 1881 – October 10, 1973) (pronounced was a notable economist and a major influence on the modern libertarian movement. ... Aleksandr Pushkin by Vasily Tropinin Aleksandr Sergeyevich Pushkin (Russian: Алекса́ндр Серге́евич Пу́шкин, Aleksandr Sergeevič PuÅ¡kin,  ) (June 6, 1799 [O.S. May 26] – February 10, 1837 [O.S. January 29]) was a Russian Romantic author who is considered to be the greatest Russian poet[1] [2][3] and the founder of modern Russian... Eugene Onegin (Russian: Евгений Онегин, BGN/PCGN: Yevgeniy Onegin) is a novel in verse written by Aleksandr Pushkin. ...


Irrespective of historical influence, however, The Wealth of Nations represented a clear leap forward in the field of economics, similar to Sir Isaac Newton's Principia Mathematica for physics or Antoine Lavoisier's Traité Élémentaire de Chimie for chemistry. The Wealth of Nations is also important in a Scottish linguistic context on account of the fact the book is written in English and not in Scots Language, a somewhat rare occurrence for the time. Sir Isaac Newton FRS (4 January 1643 – 31 March 1727) [ OS: 25 December 1642 – 20 March 1727][1] was an English physicist, mathematician, astronomer, natural philosopher, and alchemist. ... Newtons own copy of his Principia, with handwritten corrections for the second edition. ... A magnet levitating above a high-temperature superconductor demonstrates the Meissner effect. ... Antoine-Laurent de Lavoisier (August 26, 1743 – May 8, 1794; pronounced ), the father of modern chemistry,[1] was a French nobleman prominent in the histories of chemistry, finance, biology, and economics. ... For other uses, see Chemistry (disambiguation). ... This article is about the Anglic language of Scotland. ...


Anachronisms

Some commentary on the work suffers from anachronism. This is the result of reading the work as though it were written today. The book is written in modern English, but there are some points to consider: Look up Anachronism in Wiktionary, the free dictionary. ... Note: This page or section contains IPA phonetic symbols in Unicode. ...

Face-to-face trading interactions on the New York Stock Exchange trading floor. ... For other uses, see Capitalism (disambiguation). ... Roland pledges his fealty to Charlemagne; from a manuscript of a chanson de geste Feudalism, a term first used in the early modern period (17th century), in its most classic sense refers to a Medieval European political system comprised of a set of reciprocal legal and military obligations among the... Statistical regions of Europe as delineated by the United Nations (UN definition of Eastern Europe marked red):  Northern Europe  Western Europe  Eastern Europe  Southern Europe Pre-1989 division between the West (grey) and Eastern Bloc (orange) superimposed on current borders: Russia (dark orange), other countries formerly part of the USSR... In feudal Europe, corporations were aggregations of business interests in compact, usually with an explicit license from city, church, or national leaders. ... For other uses, see Corporation (disambiguation). ...

Publishing history

Five editions of The Wealth of Nations were published during Smith's lifetime: in 1776, 1778, 1784, 1786, and 1789. Numerous editions appeared after Smith's death in 1790. To better understand the evolution of the work under Smith's hand, a team led by Edwin Cannan collated the first five editions. The differences were published along with an edited fifth edition in 1904.[1] They found minor but numerous differences (including the addition of many footnotes) between the first and the second editions, both of which were published in two volumes. The differences between the second and third editions, however, are major: In 1784, Smith annexed these first two editions with the publication of Additions and Corrections to the First and Second Editions of Dr. Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations, and he also had published the now three volume third edition of the Wealth of Nations which incorporated Additions and Corrections and, for the first time, an index. Among other things, the Additions and Corrections included entirely new sections. The fourth edition published in 1786 had only slight differences with the third edition, and Smith himself says in the Advertisement at the beginning of the book, "I have made no alterations of any kind." Finally, Cannan notes only trivial differences between the fourth and fifth editions — a set of misprints being removed from the fourth, and a different set of misprints being introduced into the fifth. For other uses, see 1776 (disambiguation). ... Year 1778 (MDCCLXXVIII) was a common year starting on Thursday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Monday of the 11-day slower Julian calendar). ... 1784 was a leap year starting on Thursday (see link for calendar). ... 1786 was a common year starting on Sunday (see link for calendar). ... Year 1789 (MDCCLXXXIX) was a common year starting on Thursday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Monday of the 11-day slower Julian calendar). ... Year 1790 (MDCCXC) was a common year starting on Friday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Monday of the 11-day slower Julian calendar). ... Edwin Cannan (1861-1935) was a British economist. ... 1904 (MCMIV) was a leap year starting on a Friday (see link for calendar). ... 1784 was a leap year starting on Thursday (see link for calendar). ...


The first work of economics?

Eleven years prior to the publication of The Wealth of Nations, Anders Chydenius, a Swedish priest and economist (living in what is now Finland today), published The National Gain (Den Nationnale Winsten). Chydenius's work lays out several key principles of liberalism, free markets and free trade, many of which are also to be found in The Wealth of Nations. This has led some to argue that The Wealth of Nations was not the founding work of the modern school of economics after all, but was instead a kind of runner-up. Anders Chydenius Anders Chydenius (26 February 1729 – 1 February 1803) was the leading classical liberal of Nordic history. ... The National Gain is the main work of Anders Chydenius published 1765. ...


It is undoubtedly true (as Smith himself admitted) that The Wealth of Nations was composed, in part, of syntheses and analyses of existing political and economic theories. This is especially so with regard to the book's positions on mercantilism and protectionism (Smith owed much of his work on those subjects to the Physiocrats, for example). The Physiocrats were a group of economists who believed that the wealth of nations was derived solely from agriculture. ...


However, it is equally true that The National Gain and works like it, have had nowhere near the international impact that The Wealth of Nations has had. The causes of this state of affairs are outside the scope of this article, but whatever the reasons, Smith's work continues to be canon in the field of economics down to this day, whereas The National Gain was not influential whatsoever outside of Chydenius's homeland.


Thus, while it cannot accurately be said to be the "first" modern work of political economy, The Wealth of Nations must still be termed the "founding" work of economics, as it, and no other work, is the progenitor of almost all modern economic theory. Chydenius and others may have been first in the sense of strict timing, but Smith's work was the first to have a wide influence. It should be noted however that, canonical as Smith's book may be, one is unlikely to find many economists today who have actually read it, given the technical nature of modern economics.


Book I: Of the Causes of Improvement...

Of the Division of Labour

See also: Division of labour

Smith stated that the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour. To illustrate this, he describes the extensive division of labour within the "trifling" industry of pin manufacture, along with the astounding resultant productivity, and labourers' dexterity; then leverages this as an introductory microcosm of the greater, yet less obvious division of labour in the broader economy. The advantages of this division were likely the driving force behind diversification of the trades and industry, and this diversification was greatest for nations with more industry and improvement. Agriculture is differentiated from industry for its comparative lack of division of labour, and the attendant lack of improved productivity; hence, while poor nations could not compete with rich nations in manufactures, they could compete in agriculture. Division of labour is the specialisation of cooperative labour in specific, circumscribed tasks and roles, intended to increase efficiency of output. ...


Smith lists three causes, arising from division, of improved productivity:

  • the labourer's dexterity - due to specializing, year-round, in a specific task
  • time not wasted passing from one task to the next - as in agriculture - as well as the more consistent and focused effort when working in just one area
  • the machines and tools that have evolved in conjunction with increasingly specialised labour.

Of the Principle which gives Occasion to the Division of Labour

Chapter 2 illustrates the growth in division of labour. Division of labour is the specialisation of cooperative labour in specific, circumscribed tasks and roles, intended to increase efficiency of output. ...

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."[2]

That the Division of Labour is Limited by the Extent of the Market

Chapter 3 illustrates the growth in division of labour. It is the size of the market that determines to what degree the division of labour will take place. In a small economy, a person would not see the benefits of specialising in just one employment since he could not reap the benefits through trade for other goods and services with others. Smith goes on to provide real world examples of how the market has determined the level of division of labour in different locations, and the resulting productivity improvements. Division of labour is the specialisation of cooperative labour in specific, circumscribed tasks and roles, intended to increase efficiency of output. ...


Of the Origin and Use of Money

"A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion, indeed, but for any considerable time together. The one is upon every occasion the highest which can be squeezed out of the buyers, or which, it is supposed, they will consent to give: the other is the lowest which the sellers can commonly afford to take, and at the same time continue their business."[3] This article is about the economic term. ...

Of the Real and Nominal Price of Commodities...

See also: Real versus nominal value and Labour theory of value

Chapter 5's long title is "Of the Real and Nominal Price of Commodities or of their Price in Labour, and their Price in Money". Smith begins by setting out the source of a commodity's value. He states, Nominal value is the value of anything expressed in money of the day, versus real value which removes the effect of inflation. ... The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented society: the theory equates the value of an exchangeable good or service (i. ...

"Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities. The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it."[4] Division of labour is the specialisation of cooperative labour in specific, circumscribed tasks and roles, intended to increase efficiency of output. ...

This is known as the labour theory of value, a defining feature of classical political economy. Smith then distinguishes between the nominal value of a commodity (in money denomination) and its real value in the labour required to purchase it. According to Smith, while the nominal value of a commodity is subject to fluctuation, this does not change its real value, because the amount of labour required to produce it and bring it to the market remains constant. The labor theory of value (LTV) is a theory in economics and political economy concerning a market-oriented society: the theory equates the value of an exchangeable good or service (i. ... The Politics series Politics Portal This box:      Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ...


For example, the price of a commodity redeemable in silver may be 1:1, as the amount of labour required to produce that commodity is the same as the amount of labour required to retrieve one piece of silver. However, with the discovery of new silver mines in North America, a surge in the supply of silver in the economy may bring the nominal price of the commodity in silver to 1:2. Yet this does not affect the commodity's real value, because the abundance of silver in the newly discovered mines does not suppose a lesser degree of labour required to retrieve them, but simply a greater availability of silver in the market. It is this greater availability that accounts for the inflation of the price; while the commodity is worth just as much labour now as it was before, it will not command as much power in the economy as before. However, if the price were to rise to 1:2 as a result of technological improvements in the manufacture or transport of the commodity, this would constitute a decline in its real value, because less labour is necessary to produce and market it.


Of the Component Parts of the Price of Commodities

Smith argues that the price of any product reflects the wages of the labourers involved, the rent of the land used to create the product (if applicable), and the "profit of stock," which serves to compensate the capitalist for risking his resources in the commodity's production.


Of the Natural and Market Price of Commodities

See also: Price

"When the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay... cannot be supplied with the quantity which they want... Some of them will be willing to give more. A competition will begin among them, and the market price will rise... When the quantity brought to market exceeds the effectual demand, it cannot be all sold to those who are willing to pay the whole value of the rent, wages and profit, which must be paid in order to bring it thither... The market price will sink..."[5] In economics and business, the price is the assigned numerical monetary value of a good, service or asset. ... Competition is the act of striving against others for the purpose of achieving gain, such as income, pride, amusement, or dominance. ... The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ... Rent can refer to: Renting, a system of payment for the temporary use of something owned by someone else. ... A wage is the amount of money paid for some specified quantity of labour. ... This article or section does not cite any references or sources. ...

"A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate. The price of monopoly is upon every occasion the highest which can be got. The natural price, or the price of free competition, on the contrary, is the lowest which can be taken, not upon every occasion, indeed, but for any considerable time together. The one is upon every occasion the highest which can be squeezed out of the buyers, or which, it is supposed, they will consent to give: the other is the lowest which the sellers can commonly afford to take, and at the same time continue their business."[6] This article is about the economic term. ...

Of the Wages of Labour

In this section, Smith describes how the wages of labour are dictated primarily by the competition among labourers and masters. When labourers bid against one another for limited opportunities for employment, the wages of labour collectively fall, whereas when employers compete against one another for limited supplies of labour, the wages of labour collectively rise. However, this process of competition is often circumvented by combinations among labourers and among masters. When labourers combine and no longer bid against one another, their wages rise, whereas when masters combine, wages fall. In Smith's day, it should be noted, organized labour was dealt with very harshly by the law. The labor movement (or labour movement) is a broad term for the development of a collective organization of working people, to campaign in their own interest for better treatment from their employers and political governments. ...


In societies where the amount of labour is in abundance to the amount of revenue which may be used to pay for waged labour, the competition among workers is greater than the competition among masters, and wages fall; inversely, where excess revenue is in abundance, the wages of labour rise. Smith argues that, therefore, the wages of labour only rise as a result of greater revenue disposed to pay for labour. Labour is the same as any other commodity in this respect thought Smith,

"the demand for men, like that for any other commodity, necessarily regulates the production of men; quickens it when it goes on too slowly, and stops it when it advances too fast. It is this demand which regulates and determines the state of propagation in all the different countries of the world, in North America, in Europe, and in China; which renders it rapidly progressive in the first, slow and gradual in the second, and altogether stationary in the last."[7]

However, the amount of revenue must be increasing constantly in proportion to the amount of labour in order for wages to remain high. Smith illustrates this by juxtaposing England with the North American colonies. In England, there is certainly a greater amount of revenue than in the colonies; however, the wages of labour are lower, because more workers would flock to new employment opportunities to which the large amount of revenue gives occasion, eventually competing against each other as much as they did before. By contrast, as capital continues to be introduced to the colonial economies at least at the same rate that population increases to "fill out" this excess capital, the wages of labour there are kept much higher than in England. Smith was highly concerned about the problems of poverty. He writes,

"poverty, though it does not prevent the generation, is extremely unfavourable to the rearing of children... It is not uncommon... in the Highlands of Scotland for a mother who has borne twenty children not to have two alive... In some places one half the children born die before they are four years of age; in many places before they are seven; and in almost all places before they are nine or ten. This great mortality, however, will every where be found chiefly among the children of the common people, who cannot afford to tend them with the same care as those of better station."[8]

Of the Profits of Stock

In this chapter, Smith uses interest rates as an indicator of the profits of stock. This is because interest can only be paid with the profits of stock, and so creditors will be able to raise rates in proportion to the increase or decrease of the profits of their debtors. An interest rate is the rental price of money. ... Not to be confused with capitol. ...


Smith argues that the profits of stock are inversely proportional to the wages of labor, because as more money is spent compensating labor, there is less remaining for personal profit. It follows that, in societies where competition among laborers is greatest relative to competition among employers, profits will be much higher. Smith illustrates this by comparing interest rates in England and Scotland. In England, government laws against usury had kept maximum interest rates very low, but even the maximum rate was believed to be higher than the rate at which money was usually lended. In Scotland, however, interest rates are much higher. This is the result of a greater proportion of capitalists in England, which offsets some competition among laborers and raises wages. Of Usury, from Brants Stultifera Navis (the Ship of Fools); woodcut attributed to Albrecht Dürer Usury (//,comes from the Medieval Latin usuria, interest or excessive interest, from the Latin usura interest) originally meant the charging of interest on loans. ...


However, Smith notes that, curiously, interest rates in the colonies are also remarkably high (recall that, in the previous chapter, Smith described how wages in the colonies are higher than in England). Smith attributes this to the fact that, when an empire takes control of a colony, prices for a huge abundance of land and resources are extremely cheap. This allows capitalists to increase his profit, but simultaneously draws many capitalists to the colonies, increasing the wages of labor. As this is done, however, the profits of stock in the mother country rise (or at least cease to fall), as much of it has already flocked offshore.


Of Wages and Profit in the Different Employments of Labour and Stock

Smith repeatedly attacks groups of politically aligned individuals who attempt to use their collective influence to manipulate the government into doing their bidding. At the time, these were referred to as "factions," but are now more commonly called "special interests," a term which can comprise international bankers, corporate conglomerations, outright oligopolies, trade unions and other groups. Indeed, Smith had a particular distrust of the tradesman class. He felt that the members of this class, especially acting together within the guilds they want to form, could constitute a power block and manipulate the state into regulating for special interests against the general interest: A guild is an association of craftspeople in a particular trade. ... Advocacy is an umbrella term for organized activism related to a particular set of issues. ...

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."[9]

Smith also argues against government subsidies of certain trades, because this will draw many more people to the trade than what would otherwise be normal, collectively lowering their wages. A subsidy is generally a monetary grant given by government in support of an activity regarded as being in the public interest. ...


Chapter 10, part ii, motivates an understanding of the idea of feudalism. Roland pledges his fealty to Charlemagne; from a manuscript of a chanson de geste Feudalism, a term first used in the early modern period (17th century), in its most classic sense refers to a Medieval European political system comprised of a set of reciprocal legal and military obligations among the...


Of the Rent of the Land

Book II: Of the Nature, Accumulation, and Employment of Stock

Of the Division of Stock

Of Money Considered as a particular Branch of the General Stock of the Society...

Of the Accumulation of Capital, or of Productive and Unproductive Labour

See also: Capital accumulation

Most generally, the accumulation of capital refers simply to the gathering or amassment of objects of value; the increase in wealth; or the creation of wealth. ...

Of Stock Lent at Interest

Of the Different Employment of Capitals

Book III: Of the different Progress of Opulence in different Nations

Of the Natural Progress of Opulence

Of the Discouragement of Agriculture...

Chapter 2's long title is "Of the Discouragement of Agriculture in the Ancient State of Europe after the Fall of the Roman Empire".


Of the Rise and Progress of Cities and Towns, after the Fall of the Roman Empire

How the Commerce of the Towns Contributed to the Improvement of the Country

Smith often harshly criticised those who act purely out of self-interest and greed, and warns that, "[a]ll for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind." (Book 3, Chapter 4)


Book IV: Of Systems of political Economy

Of the Principle of the Commercial or Mercantile System

See also: Mercantilism

The book has sometimes been described as a critique of mercantilism and a synthesis of the emerging economic thinking of Smith's time. Specifically, The Wealth of Nations attacks, inter alia, two major tenets of mercantilism: A painting of a French seaport from 1638, at the height of mercantilism. ... A painting of a French seaport from 1638, at the height of mercantilism. ...

  1. The idea that protectionist tariffs serve the economic interests of a nation (or indeed any purpose whatsoever) and
  2. The idea that large reserves of gold bullion or other precious metals are necessary for a country's economic success. This critique of mercantilism was later used by David Ricardo when he laid out his Theory of Comparative Advantage.

Protectionism is the economic policy of restraining trade between nations, through methods such as high tariffs on imported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports, and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        For other uses of this word, see tariff (disambiguation). ... GOLD refers to one of the following: GOLD (IEEE) is an IEEE program designed to garner more student members at the university level (Graduates of the Last Decade). ... David Ricardo (18 April 1772–11 September 1823), a political economist, is often credited with systematizing economics, and was one of the most influential of the classical economists, along with Thomas Malthus and Adam Smith. ... In economics, David Ricardo is credited for the principle of comparative advantage to explain how it can be beneficial for two parties (countries, regions, individuals and so on) to trade if one has a lower relative cost of producing some good. ...

Of Restraints upon the Importation...

See also: Tariff

Chapter 2's full title is "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home". The "Invisible Hand" is a frequently referenced theme from the book, although it is specifically mentioned only once. Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        For other uses of this word, see tariff (disambiguation). ... For other uses, see Invisible hand (disambiguation). ...

"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 labours 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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." (Book 4, Chapter 2)

Of the extraordinary Restraints...

Chapter 3's long title is "Of the extraordinary Restraints upon the Importation of Goods of almost all Kinds, from those Countries with which the Balance is supposed to be Disadvantageous".


Of Drawbacks

Of Bounties

Of Treaties of Commerce

Of Colonies

See also: Colonialism

It has been suggested that Benign colonialism be merged into this article or section. ...

Conclusion of the Mercantile System

Smith's argument about the international political economy opposed the idea of Mercantilism. While the Mercantile System encouraged each country to horde gold, while trying to grasp hegemony, Smith argued that free trade would eventually make all actors better off. This argument is the modern 'Free Trade' argument.


Of the Agricultural Systems...

Chapter 9's long title is "Of the Agricultural Systems, or of those Systems of Political Economy, which Represent the Produce of Land, as either the Sole or the Principal, Source of the Revenue and Wealth of Every Country".


Book V: Of the Revenue of the Sovereign or Commonwealth

Of the Expenses of the Sovereign or Commonwealth

Smith uses this chapter to comment on the concept of taxation and expenditure by the state. On taxation Smith wrote,

"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation."

This points to Smith's more progressive edge, as he was certainly not advocating "flat tax", but something progressively attached to people's "abilities." For the lower echelons, Smith recognised the dehumanising effect that the division of labour can have on workers, what Marx later named "alienation". Moreover he pointed out there was one solution, namely government intervention.

..."the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life... But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it."[10]

Of the Sources of the General or Public Revenue of the Society

See also: Progressive taxation

Smith did not believe that the luxury of the rich was a great benefit to society, when set against the hardships of the poor, and he is often cited[citation needed] as the source of the modern idea of progressive taxation, which he advocated on grounds of fairness. In his discussion of taxes in Book Five, he wrote: A progressive tax, or graduated tax, is a tax that is larger as a percentage of income for those with larger incomes. ...

"The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion." [11]

Of War and Public Debts

"...when war comes [politicians] are both unwilling and unable to increase their [tax] revenue in proportion to the increase of their expense. They are unwilling for fear of offending the people, who, by so great and so sudden an increase of taxes, would soon be disgusted with the war... The facility of borrowing delivers them from the embarrassment... By means of borrowing they are enabled, with a very moderate increase of taxes, to raise, from year to year, money sufficient for carrying on the war, and by the practice of perpetually funding they are enabled, with the smallest possible increase of taxes [to pay the interest on the debt], to raise annually the largest possible sum of money [to fund the war].

...The return of peace, indeed, seldom relieves them from the greater par of the taxes imposed during the war. There are mortgaged for the interest of the debt contracted in order to carry it on.[12]"

Smith then goes on to say that even if money was set aside from future revenues to pay for the debts of war, it seldom actually gets used to pay down the debt. Politicians are inclined to spend the money on some other scheme that will win the favor of their constituents. Hence, interest payments rise and war debts continue to grow larger, well beyond the end of the war.


Summing up, if governments can borrow without check, then they are more likely to wage war without check, and the costs of the war spending will burden future generations, since war debts are almost never repaid by the generations that incurred them.


See also

The American School, also known as National System, represents three different yet related things in politics, policy and philosophy. ... The Austrian School, also known as the “Vienna School” or the “Psychological School”, is a heterodox school of economic thought that advocates adherence to strict methodological individualism. ... Classical economics is widely regarded as the first modern school of economic thought. ... IQ and the Wealth of Nations IQ and the Wealth of Nations is a controversial 2002 book by Dr. Richard Lynn, Professor Emeritus of Psychology at the University of Ulster, Northern Ireland, and Dr. Tatu Vanhanen, Professor Emeritus of Political Science at the University of Tampere, Tampere, Finland. ... Marginalism is the use of marginal concepts within economics. ... Neoclassical economics refers to a general approach (a metatheory) to economics based on supply and demand which depends on individuals (or any economic agent) operating rationally, each seeking to maximize their individual utility or profit by making choices based on available information. ... The Politics series Politics Portal This box:      Political economy was the original term for the study of production, the acts of buying and selling, and their relationships to laws, customs and government. ... Religious socialism Key Issues People and organizations Related subjects Socialism refers to a broad array of ideologies and political movements with the goal of a socio-economic system in which property and the distribution of wealth are subject to control by the community. ... The Theory of Moral Sentiments written by Adam Smith in 1759, was one of the most important works in the theory of capitalism. ... In economics wealth of a person or nation is the value of assets owned minus the value of liabilities owed (to foreigners in the case of a nation) at a point in time. ...

Notes

  1. ^ An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith. London: Methuen and Co., Ltd., ed. Edwin Cannan, 1904. Fifth edition.
  2. ^ Smith (1776) Book I, Chapter 2, para 2
  3. ^ Smith (1776) Book I, Chapter IV
  4. ^ Smith (1776) Book I, Chapter 5, para 1
  5. ^ Smith (1776) Book I, Chapter 7, para 9
  6. ^ Smith (1776) Book I, Chapter 7, para 26
  7. ^ Smith (1776) I, 8, para 39
  8. ^ Smith (1776) I, 8, para 37
  9. ^ Smith (1776) Book I, Chapter 10, para 82
  10. ^ Smith (1776) V, 1, para 178
  11. ^ Adam Smith, An Inquiry into the Nature And Causes of the Wealth of Nations (1776). Book V, Chapter 2, Article I: Taxes upon the Rent of House.[1]
  12. ^ Adam Smith, An Inquiry into the Nature And Causes of the Wealth of Nations (1776). Book V, Chapter 3, Article III: Of Public Debts.[2]

External links

Wikisource has original text related to this article:
The Wealth of Nations

Image File history File links Wikisource-logo. ... The original Wikisource logo. ... Project Gutenberg, abbreviated as PG, is a volunteer effort to digitize, archive and distribute cultural works. ... Murray Newton Rothbard Murray Newton Rothbard (March 2, 1926 - January 7, 1995) was an American economist and political theorist belonging to the Austrian School of Economics who helped define modern libertarianism and anarcho-capitalism. ... An Austrian Perspective on the History of Economic Thought is a book written by Murray N. Rothbard, with a sub-title “Economic Thought Before Adam Smith”. Volume I). ... The Ludwig von Mises Institute is a foundation, based in Auburn, Alabama, dedicated to research on economics and political economy. ... Ludwig Heinrich Edler von Mises (September 29, 1881 – October 10, 1973) (pronounced was a notable economist and a major influence on the modern libertarian movement. ...


 
 

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