Wealth of Nations
[Adam Smith, Wealth of Nations]

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Adam Smith
Wealth of Nations

  In 1759 Adam Smith, then a thirty-six year old Professor of Moral Philosophy at Glasgow University, published his Theory of Moral Sentiments. This work attracted the attention of the guardians of the immensely wealthy Duke of Buccleuch towards retaining its author as a tutor to the youthful Duke whilst on a protracted, and hopefully educational, "Grand Tour" of continental Europe.

  Whilst acting as tutor from 1763 Smith found some of the time spent in the French provinces hard to fill and seems to have begun his masterpiece An Inquiry into the Nature and Causes of the Wealth of Nations, as a way of taking up otherwise idle hours in the summer of 1764. Overall however he derived much personal philosophical benefit from these months of journeying on the continent. In Paris he met amongst others, the "Physiocrat" economic theorist (and court Physician) Quesnay and the French Ministers, Turgot and Necker. 

  French economic policy in these times was conducted in accordance with the "Mercantilism" that had held sway in the economic thinking of Europe for some three centuries. Mercantilism expected that governmental control would be exercised over industry and trade in accordance with the theory that national strength (i.e. the Royal states treasury) is increased by a preponderance of exports over imports.

  By nature, then, as now, France was fitted to be a great agricultural country, a great producer and exporter of corn and wine; but her legislators for several generations had endeavoured to counteract the apparently natural bias of French economic life towards agriculture, and had tried to make her an exporter of manufactured goods.

  Like most legislators in those times, they had been prodigiously impressed by the ambitious position which the maritime powers, as they were then called (the comparatively little powers of England and Holland), were able to take in the politics of Europe. They saw that this influence came from wealth, that this wealth was made in trade and manufacture, and therefore they determined that France should not be behindhand, but should have as much trade and manufacture as possible. Accordingly, they imposed prohibitive or deterring duties on the importation of foreign manufacturers; they gave bounties to the corresponding home manufactures.

  Smith found that the French Physiocrats delighted in attempting to prove that the whole Mercantilist structure of the French laws upon industry was utterly wrong; that the prohibitions ought not to be imposed on the import of foreign manufacturers; that bounties ought not to be given to native ones; that the exportation of corn ought to be free; that the whole country ought to be a fiscal unit; that there should be no duty between any province; and so on in other cases. Smith found much that he admired in the Physiocrats outlook but he did not share it completely. Amongst other things the Physiocrats saw land as the primary source of wealth (one seed sown might produce twenty at harvest!) rather than manufacturing.

  On the completion of his duties as tutor Smith then returned, after some further months spent in London, to Scotland where he stayed quietly with his mother at his native town of Kirkcaldy and occupied himself in study and writing. It was to be in 1776, that Adam Smith finally saw his "Wealth of Nations" through the press.

An Inquiry into the Nature and
Causes of the Wealth of Nations 

  Adam Smith's "Wealth of Nations" is regarded as having been the first great work of Political Economy. It is in some ways an enhancement of his "Theory of Moral Sentiments" in that it focuses on the problems of how people express their self-interest and their morality. Adam Smith attempted to trace the immediate expression of human activity and to suggest how this would change society.

  It opens with a most dramatic recommendation of the adoption of practices which saw work being performed as a number of tasks that were each alloted, as specialisations, to individual workers. Smith suggested that a pin factory that had adopted such a "division of labour" might produce tens of thousands of pins a day whereas a pin factory in which each worker attempted to produce pins, from start to finish, by performing all the tasks associated with pin production would produce very few pins.

  In an outline that seems to prefigure Karl Marx' "materialist conception of history" that appears later in his "Wealth of Nations" Smith suggests that society has moved through a number of phases - men once lived by hunting, then developed nomadic systems of agriculture, then settled farming under the sway of local feudal manor houses, and then emerged a system of commercial interdependence. Smith suggested that in each of these phases society had developed institutions appropriate to that phase. This development in society and its institutions being at all times prompted by interplays of self-interest and morality.

  According to Smith the institutions most appropriate to a period of commercial interdependence would provide for the governing authority to pursue a laissez faire (let alone) policy in relation to the economy. Smith justified this by arguing that people, through applying their talents and assets where they contributed to the production of the things potential buyers wanted, sought to earn monies. Under laissez faire systems individuals, acting in their own self-interest as economic agents, would tend to dedicate themselves to those economic activities that brought them the greatest reward in terms of income be it in the form wages, rent, or profit. Smith showed that by giving themselves to such highly rewarding economic activities in their own self interest people would also be maximising the economic well-being of society. 

  Smith saw people as economic agents being as it were guided by an "invisible hand" (a term first used in his Theory of Moral Sentiments). High prices (in terms of a "natural" price related to the costs of production) of any good or service would automatically induce people to engage in its production. Increased production would lead to a greater supply and lower prices. People as buyers would get more of what they wanted more cheaply. People as producers would tend to be earning enhanced wages as a result of producing the formerly high priced good or service. A reversal of the argument would see "low" priced items falling away in terms of their production. 

  Smith saw in the division of labor and the extension of markets almost limitless possibilities for society to expand its wealth through manufacture and trade. Wealth consists of the goods which all the people of society consume; note all - this is a democratic, and hence radical, philosophy of wealth. Gone is the notion of gold, treasures, kingly hoards; gone the prerogatives of merchants or farmers or working guilds. We are in the modern world where the flow of goods and services consumed by everyone constitutes the ultimate aim and end of economic life.

  Although Economics has moved on in many was from the outlook and policies endorsed in the Wealth of Nations that epoch-making publication remains as perhaps the most famous economics book of all time. Governments in search of a strengthening of their states through economic policy, and many individuals in search of personal gain, have all drawn lessons from its pages. Powerful movements that led to the emergence of Modern Capitalism were substantially based on Smith's work and hence he deserves to be regarded as one of the most dramatically influential philosophers or philosophic writers of modern times.

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Adam Smith
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Adam Smith
Wealth of Nations