The Wealth of Nations

Summary

Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, published in London by Strahan and Cadell on 9 March 1776, asks what makes a nation rich and what policies help or hinder that growth. Smith's answer is that wealth is not a store of gold and silver but the annual produce of a nation's labour, and that it grows chiefly through the division of labour, the accumulation of capital and the freedom to trade. The library text is the Project Gutenberg edition, which follows a later revised edition of the five books. Book I opens in a pin factory, where ten workers who divide the trade into some eighteen operations can make upwards of forty-eight thousand pins a day, while each alone could hardly make twenty. Division of labour arises from a human propensity to truck, barter and exchange, and it is limited by the extent of the market. We expect our dinner not from the benevolence of the butcher, the brewer or the baker but from their regard to their own interest. Smith then explains money, the real and nominal price of goods, the component parts of price (wages, profit and rent), and the difference between natural and market price. He argues that high wages are a sign of a growing society, that no society can flourish while most of its members are poor and miserable, and that merchants and manufacturers of the same trade seldom meet without conspiring against the public. Book II treats stock, or capital: its divisions, banking, saving, and the line between productive and unproductive labour. Book III traces the progress of opulence in Europe after the fall of Rome, showing how towns and commerce gradually brought order and liberty to the countryside, reversing what Smith considered the natural order of agriculture first. Book IV examines the two systems of political economy. The larger part attacks the mercantile system, which confused wealth with money and sought it by import restraints, bounties, drawbacks, treaties of commerce and the monopoly of trade with the colonies. In chapter ii an individual who prefers domestic industry, intending only his own gain, is led by an invisible hand to promote an end which was no part of his intention. The long chapter on colonies proposes for British America either union with representation or separation. The French economists' agricultural system is treated more gently. Consumption, Smith concludes, is the sole end of production. Book V describes the proper duties of the sovereign under a system of natural liberty: defence, the administration of justice, public works and institutions such as roads, canals and education, the support of religious instruction, and the dignity of the sovereign. It examines taxes, setting out four maxims of equality, certainty, convenience and economy, and closes with the growth of public debts. Smith urges the public to support schools for the common people, because the division of labour can leave workers dull and ignorant.

Top Lessons

• Specialization multiplies what labour can produce

  The pin factory shows that dividing a task among many hands multiplies output far beyond what the same people could make alone. Smith traces much of the difference between rich and poor nations to how far this division has gone, and how far markets allow it to go.

• Exchange works through interest, not only benevolence

  Smith observes that most of what we need comes to us through exchange with strangers who serve us because it serves them. This does not deny benevolence, which his Theory of Moral Sentiments treats at length; it explains how cooperation can reach far beyond the circle of friends.

• Watch the interests of the producer

  Smith repeatedly warns that merchants and manufacturers seek monopolies and regulations that raise their profits at the public's expense, and that the mercantile system was built on their advice. The interest of the consumer, he says, should come first, since consumption is the end of all production.

• A system of natural liberty still needs a sovereign

  Smith is not against government. Under natural liberty the sovereign still has duties of defence, impartial justice, and the public works and institutions, including schools, that individuals cannot profitably provide. Taxes should be equal, certain, convenient and cheap to collect.

• The wealth of a people, not of its treasury

  Smith measures national wealth by the necessaries and conveniences of life enjoyed by the people, and holds that the labouring poor who feed, clothe and lodge the nation should themselves be well fed, clothed and lodged. Generous wages are a sign of a growing society.

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Medical Lens

The Wealth of Nations is an economic treatise, but it touches the history of medicine at several points. In Book I, ch. viii Smith notes that workmen paid by the piece overwork themselves into the peculiar infirmities of their trades and cites Bernardino Ramazzini's De morbis artificum (1700), the founding text of occupational medicine. The same chapter reports, from Highland informants and army officers, high child mortality among the poor, an early use of mortality as an index of a population's condition. Book I, ch. x explains the high wages of physicians and lawyers by the trust placed in them and the long cost of their education. In Book V Smith argues that the mental torpor produced by repetitive labour is a kind of mutilation of the mind, and that the state should prevent it as it would prevent a leprosy from spreading, even if the disorder were neither mortal nor dangerous; this is an eighteenth-century public-health analogy, not a clinical claim. Smith himself was close to physicians, including William Cullen, and later economists of public health drew on his analysis of wages and risk.

• Book I, ch. viii

  Overwork by piece-rate workers leads to infirmities peculiar to each trade; Ramazzini's book on the diseases of artificers is cited.

• Book I, ch. viii

  Poverty and child mortality in the Highlands of Scotland; the poor bear many children but rear few.

• Book I, ch. x, Part I

  The reward of physicians explained by the trust society places in them with health, and by the cost of their training.

• Book V, ch. i, Part III, Art. II

  Mental torpor from repetitive work likened to mutilation, and public instruction compared to preventing a leprosy from spreading among the people.