An Inquiry into the Nature and Causes of the Wealth of Nations, usually referred to by its shortened title The Wealth of Nations, is a book by Scottish economist and moral philosopher Adam Smith. Published on 9 March 1776 as Smith's central intellectual project, the treatise sought to examine and explain the underlying political and economic principles by which commercial and industrial societies generate wealth. It has become a fundamental work in classical economics, and been described as "the first formulation of a comprehensive system of political economy". Smith radically transformed economic thought, laying the foundations for policies that would produce unprecedented increases in productivity and wealth.
By the eighteenth century, much of the emerging world economy was dominated by the feudal and mercantilist institutions of the European powers. In Europe itself, feudalism still shaped economic life through hereditary privilege, guilds, and restrictions on labour and commerce, while internationally, mercantilism sought to increase national wealth through state intervention, colonial trading monopolies, protective tariffs, and restrictions on international trade. A product of the ideas of the stadial conception of history, spontaneous order and the empiricism of the Scottish Enlightenment, the treatise attempted to illustrate the growing contradiction between the inherited institutions and assumptions of Europe's feudal and mercantilist economic order and the changing realities of an increasingly commercial and industrial society. Smith argued that these policies rested upon fundamentally mistaken political and economic conceptions among European political and economic elites, arguing that they inadvertently hindered rather than promoted the creation of wealth. He rejected the prevailing view that wealth was acquired through zero-sum competition between imperial states, instead arguing that the creation of wealth was enabled through free exchange and competition between individuals, and the increasing productivity made possible by the division of labour.
Smith employed the now famous metaphor of an "invisible hand", whereby he imagined that individuals within a free market were moved by the "invisible hand" force of supply and demand, rather than the 'heavy hand' of the state. And that by doing so, these self-interested individuals moved towards unintended positive consequences, namely community welfare in the form of national wealth. Smith wrote: "By pursuing his own interest he frequently promotes that of the society."
In the treatise, Smith not only critiqued the policies attributed to feudalism and mercantilism, but also other political and economic phenomena. He vehemently criticized slavery, rent-seeking by landed interests and landlords (for which he instead suggested a land value tax), primogeniture, entails, public debt, and military expenditure for imperialistic purposes.
Although The Wealth of Nations did not immediately transform policy, the book became one of the most influential books in modern history. The work represented a clear paradigm shift from the previous economic thought. Although Smith did not use the term "capitalism", the book fundamentally shaped the field of economics and provided the theoretical foundation for capitalism and economic policies that later prevailed in the 19th century. Karl Marx would later go on to write "...the Wealth of Nations is the true Bible of the classical political economy of the 18th century." The treatise is widely regarded as a foundational work of economic liberalism, with virtually all liberal economic schools embracing, reinterpretating or synthesizing Smith's concepts. Beyond the liberal tradition, Marxian economics developed as a critique of the tradition of classical political economy established in The Wealth of Nations, while adapting many of Smith's analytical concepts, such as the division of labour, economic classes, the labour theory of value, capital accumulation, the hypothesis of the tendency of the rate of profit to fall, and the distinction between wages, profit, and rent.
History The Wealth of Nations was published in two volumes on 9 March 1776 (with books I–III included in the first volume and books IV and V included in the second), during the Scottish Enlightenment and the Scottish Agricultural Revolution.See , volume 2 via Google Books It influenced several authors and economists, such as Karl Marx, as well as governments and organizations, setting the terms for economic debate and discussion for the next century and a half.I. Ousby ed, The Cambridge Guide to Literature in English (Cambridge 1995) p. 1,000 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. Hamilton based much of this report on the ideas of Jean-Baptiste Colbert, and it was, in part, Colbert's ideas that Smith responded to, and criticised, with The Wealth of Nations.K. Sutherland ed., Wealth of Nations (Oxford 2008) pp. 295, 573
The Wealth of Nations was the product of seventeen years of notes and earlier studies, as well as an observation of conversation among economists of the time (like Nicholas Magens) concerning economic and societal conditions during the beginning of the Industrial Revolution, and it took Smith some ten years to produce.K. Sutherland ed., Wealth of Nations (Oxford 2008) pp. i, xiv The result was a treatise which sought to offer a practical application for reformed economic theory to replace the mercantilist and physiocratic economic theories that were becoming less relevant in the time of industrial progress and innovation.K. Sutherland ed., Wealth of Nations (Oxford 2008) pp. xxix–xxxi It provided the foundation for economists, politicians, mathematicians, and thinkers of all fields to build upon. Irrespective of historical influence, The Wealth of Nations represented a clear paradigm shift in the field of economics,K. Sutherland ed., Wealth of Nations (Oxford 2008) pp. xxi–xxii comparable to what Immanuel Kant's Critique of Pure Reason was for philosophy.
Five editions of The Wealth of Nations were published during Smith's lifetime: in 1776, 1778,See ; via Google Books 1784, 1786 and 1789.See ; ; 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 sixth edition in 1904.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. They found minor but numerous differences (including the addition of many footnotes) between the first and the second editions; the differences between the second and third editions are major.K. Sutherland ed., Wealth of Nations (Oxford 2008) pp. xlvi–xlvii 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 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, particularly to book 4, chapters 4 and 5, and to book 5, chapter 1, as well as an additional chapter (8), "Conclusion of the Mercantile System", in book 4.
The fourth edition, published in 1786, had only slight differences from the third edition, and Smith himself says in the Advertisement at the beginning of the book, "I have made no alterations of any kind."Smith, Adam. "An Inquiry Into the Nature and Causes of the Wealth of Nations ..., Volume 1." Google Books. 18 October 2018. 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.
Synopsis
Book I: Of the Causes of Improvement in the productive Powers of Labour Of the Division of Labour: Division of labour has caused a greater increase in production than any other factor. This diversification is greatest for nations with more industry and improvement, and is responsible for "universal opulence" in those countries. This is in part due to increased quality of production, but more importantly because of increased efficiency of production, leading to a higher nominal output of units produced per time unit. Agriculture is less amenable than manufacturing to division of labour; hence, rich nations are not so far ahead of poor nations in agriculture as in manufacturing.
Of the Principle which gives Occasion to the Division of Labour: Division of labour arises not from innate wisdom, but from humans' propensity to barter.
That the Division of Labour is Limited by the Extent of the Market: Limited opportunity for exchange discourages division of labour. Because "water-carriage" (i.e. transportation) extends the market, division of labour, with its improvements, comes earliest to cities near waterways. Civilization began around the highly navigable Mediterranean Sea.
Of the Origin and Use of Money: With division of labour, the produce of one's own labour can fill only a small part of one's needs. Different commodities have served as a common medium of exchange, but all nations have finally settled on metals, which are durable and divisible, for this purpose. Before coinage, people had to weigh and assay with each exchange, or risk "the grossest frauds and impositions." Thus nations began stamping metal, on one side only, to ascertain purity, or on all sides, to stipulate purity and amount. The quantity of real metal in coins has diminished, due to the "avarice and injustice of princes and sovereign states," enabling them to pay their debts in appearance only, and to the defraudment of creditors.
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 employment opportunities, 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.
Smith himself wrote about the "severity" of such laws against worker actions, and made a point to contrast the "clamour" of the "masters" against workers' associations, while associations and collusions of the masters "are never heard by the people" though such actions are "always" and "everywhere" taking place:
In societies where the amount of labour exceeds the amount of revenue available for waged labour, competition among workers is greater than the competition among employers, and wages fall. Conversely, where revenue is abundant, labour wages rise. Smith argues that, therefore, labour wages only rise as a result of greater revenue disposed to pay for labour. Smith thought of labour as being like any other commodity in this respect:
However, the amount of revenue must increase constantly in proportion to the amount of labour for wages to remain high. Smith illustrates this by juxtaposing England with the North American colonies. In England, there is more revenue than in the colonies, but wages are lower, because more workers flock to new employment opportunities caused by the large amount of revenue – so workers eventually compete against each other as much as they did before. By contrast, as capital continues to flow to the colonial economies at least at the same rate that population increases to "fill out" this excess capital, wages there stay higher than in England.