The Wealth of Nations

The Wealth of Nations is Adam Smith’s inquiry into how nations become prosperous. Its full title is An Inquiry into the Nature and Causes of the Wealth of Nations, and it was published in two volumes on 9 March 1776. Smith set out to explain how commercial societies produce wealth, how that wealth is shared, and which public policies help or hinder it.

The book opens with the division of labour. In a famous example, Smith describes a small workshop making pins. One worker alone could perhaps make one pin a day, and certainly not twenty. Divided into about eighteen separate operations, ten workers could make upwards of forty-eight thousand. Specialisation, he argues, is the main source of rising productivity, and its extent is limited by the size of the market.

Exchange makes this division possible, and Smith locates its motive in self-interest. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” he writes, “but from their regard to their own interest.” From there Book I explains money, prices, wages, profits and rent, and how competition tends to pull market prices toward their natural level.

Book II examines capital, which Smith calls stock: how it is accumulated, how it is employed, and the difference between labour that produces lasting value and labour that does not. Book III traces how Europe’s towns and countryside developed after the fall of Rome, and why the progress of wealth followed an unnatural order there.

Book IV is Smith’s critique of mercantilism, the prevailing belief that national wealth lies in gold and silver, protected by tariffs, monopolies and trade restrictions. He argues that such policies serve merchants and manufacturers at the public’s expense. It is here, in a discussion of foreign trade, that he writes of a merchant who, seeking only his own gain, is led by an invisible hand to promote an end which was no part of his intention.

Book V turns to the state. Smith does not argue that government should do nothing. He describes its duties as defence, justice, and certain public works and institutions that private enterprise would not provide, including the education of ordinary people. He also discusses taxation and public debt.

Smith’s own lively examples run throughout: the price of corn across centuries, the conduct of trading companies, the wages of labourers in Britain and in the American colonies. Five editions appeared during his lifetime, the last in 1789.