العربية
中国
Français
Deutsch
Ελληνική
हिन्दी
Italiano
日本語
Português
Русский
EspañolTHE 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.
There are three main concepts that Adam Smith expands upon in this work that form the foundation of free market economics:
★ The Division of Labor
★ The Pursuit of Self Interest
★ The Freedom of Trade
Book I: Of the Causes of Improvement...
Of the Division of Labour
Smith stated that the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is anywhere directed, or applied, seem to have been the effects of the division of labor.
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.
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.
"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."[1]
That the Division of Labour is Limited by the Extent of the Market
Chapter 3 illustrates the growth in division of labour.
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."[2]
Of the Real and Nominal Price of Commodities...
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,
"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."[3]
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 labor required to produce it and bring it to the market remains constant.
For example, the price of a commodity redeemable in silver may be 1:1, as the amount of labor required to produce that commodity is the same as the amount of labor 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 supposes a lesser degree of labor required to retrieve them (in this case, half as much); this is what accounts for the inflation of the price. Ergo, the commodity is worth just as much labor now as it was before, and will command just 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 labor is necessary to produce and market it.
Of the Component Parts of the Price of Commodities
Of the Natural and Market Price of Commodities
"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..."[4]
"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."[5]
Of the Wages of Labour
Of the Profits of Stock
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:
"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."[6]
Chapter 10, part ii, motivates an understanding of the idea of feudalism.
Of the Rent of 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
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 Œconomy
Of the Principle of the Commercial or Mercantile System
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:
# The idea that protectionist tariffs serve the economic interests of a nation (or indeed any purpose whatsoever) and
# 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.
Of Restraints upon the Importation...
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.
"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
Conclusion of the Mercantile System
Of the Agricultural Systems...
Chapter 9's long title is "Of the Agricultural Systems, or of those Systems of Political Œconomy, 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 Expences of the Sovereign or Commonwealth
Commenting on the concept of taxation and expenditure by the state, 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."
Of the Sources of the General or Public Revenue of the Society
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 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:
"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." [7]
Of Public Debts
Other themes
The invisible hand
There are two important features of Smith's concept of the "invisible hand". Firstly, 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). Secondly, 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.
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.
Meritocracy
Meritocracy is a strong theme in the work. Specifically, Smith stresses the critical importance of allowing individuals to achieve what their "God-given talents" will allow them to, without interference from outside forces seeking to shape larger societal outcomes. Smith posits that these outside forces lead to inefficiency in the division of labor and hamstring progress generally.
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.''
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.
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.
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:
★ The term ''economics'' was not yet in use.
★ The term ''capitalism'' was not yet in use. Smith talks about a "system of perfect liberty" or "system of natural liberty".
★ To a certain extent, some form of Feudalism was still dominant in parts of Europe (primarily Eastern Europe and Russia).
★ The ''feudal corporations'' referenced by Smith were very different from modern corporations.
★ The state played a much smaller role in the economy than it does today. Smith did not live in a world characterised by the welfare state or any significant nationalized industries.
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 (see ''An Inquiry into the Nature and Causes of the Wealth of Nations,'' London: Methuen and Co., Ltd., ed. Edwin Cannan, 1904. Fifth edition.) 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.
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.
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).
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.
Notes
1. Smith (1776) Book I, Chapter 2, para 2
2. Smith (1776) Book I, Chapter IV
3. Smith (1776) Book I, Chapter 5, para 1
4. Smith (1776) Book I, Chapter 7, para 9
5. Smith (1776) Book I, Chapter 7, para 26
6. Smith (1776) Book I, Chapter 10, para 82
7. 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]
See also
★ American School of Economics
★ Political economy
★ Marginalism
★ Classical economics
★ Neoclassical economics
★ Austrian School
★ Socialism
★ The Theory of Moral Sentiments (1759), Adam Smith's other classic
★ Wealth (economics)
★ IQ and the Wealth of Nations
★ Kotler, P. & Armstrong, G. (1996). Principles of marketing (8th ed.). Upper Saddle River, NJ: Prentice Hall.
★ On the Wealth of Nations, a contemporary commentary by satirist P. J. O'Rourke[2]
External links
★ ''An Inquiry into the Nature and Causes of the Wealth of Nations'' at MetaLibri Digital Library (PDF format)
★
★ ''An Inquiry into the Nature and Causes of the Wealth of Nations'', by Adam Smith. Definitive, complete Cannan edition of the 5th edition of the Wealth of Nations.''
★ ''An Inquiry into the Nature and Causes of the Wealth of Nations'' Glasgow Edition in PDF format
★ An Inquiry into the Nature and Causes of the Wealth of Nations, 1776 (accessible by table of contents chapter titles) AdamSmith.org ISBN 1404309985
★ ''Life of Adam Smith,'' by John Rae, at the Library of Economics and Liberty
★ ''The Adam Smith Myth ,'' by Murray N. Rothbard, excerpt from Chapter 16 of An Austrian Perspective on the History of Economic Thought, Vol. I and II, Edward Elgar, 1995; Mises Institute 2006
★ ''An Inquiry into the Nature and Causes of the Wealth of Nations'' Google's scan of the book
★ Introduction by Ludwig von Mises to the 1952 edition of ''The Wealth of Nations''
This article provided by Wikipedia. To edit the contents of this article, click here for original source.
psst.. try this: add to faves
