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 philosopher Adam Smith. Published on 9 March 1776, it offers one of the first accounts of what builds nations' wealth. It has become a fundamental work in classical economics, and been described as "the first formulation of a comprehensive system of political economy". Reflecting upon economics at the beginning of the Industrial Revolution, Smith introduced key concepts such as the division of labour, productivity, free markets and the role prices play in resource allocation.
The book fundamentally shaped the field of economics and provided a theoretical foundation for free market capitalism and economic policies that prevailed in the 19th century. A product of the Scottish Enlightenment and the dawn of the Industrial Revolution, the treatise offered a critical examination of the mercantilist policies of the day and advocated the implementation of free trade and effective tax policies to drive economic progress. It represented a clear paradigm shift from previous economic thought by proposing that self-interest and the forces of supply and demand, rather than regulation, should determine economic activity.
Smith laid out a system of political economy with the famous metaphor of the "invisible hand" regulating the marketplace through individual self-interest. He provided a comprehensive analysis of different economic aspects – the accumulation of stock, price determination, and the flow of labor, capital, and rent. The book contained Smith's critique of mercantilism, high taxes on luxury goods, the slave trade, and monopolies, advocating for free competition and open markets. Over revised editions during his lifetime, the work evolved and gained widespread recognition, shaping economic philosophies, government policies, and the intellectual discourse on trade, taxation, and economic growth in the coming centuries.
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. 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. 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.
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. 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. 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, comparable to what Immanuel Kant's Critique of Pure Reason was for philosophy.
thumb|160px|Bust of Smith in the Adam Smith Theatre, Kirkcaldy
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 sixth edition in 1904. 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. 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. 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.
Smith was highly concerned about the problems of poverty. He writes: