An Inquiry into the Nature and Causes of

The Wealth of Nations

By Adam Smith 1723-1790

“The annual labour of every nation is the fund

which originally supplies it with all the
necessaries and conveniences of life which
it annually consumes…”
 According to The Wealth of Nations

• Wealth is not a fixed quantity - wealth is a

function of productivity and therefore of people,
and of the incentives which encourage them.
• Even today, some people still mistakenly believe
that the world’s wealth is a fixed quantity, and
where one grows richer and another grows poorer.
 The Wealth of Nations - Division of Labor
• Nations have become wealthy because labour has
become more productive.
• Labour is more productive because it is more
specialized; tasks have been divided and
subdivided until anyone can easily learn to do any
job and do it well.
• The division of labor saves time that is lost “in
passing from one species of work to another.”
• The division of labour leads to invention, and it
makes it easier for a worker to learn and become
skilled at the job.
 The Wealth of Nations - Market and Capital
Stock

• The extent of the division of labour is limited by the

extent of the market.
• The more people there are involved in mutual
exchange, the more specialized each can be.
• The accumulation of capital (stock) is also relevant
- “Labour can be more and more subdivided in
proportion only as stock is previously more and
more accumulated”
 The Wealth of Nations - Liberalism
Laissez Faire
• A system of natural liberty: a nation’s wealth is
increased by whatever industry is most profitable,
i.e. whatever industry produces the greatest surplus,
available to support further division of labour.
• “Every man, as long as he does not violate the laws
of justice, is left perfectly free to pursue his own
interest his own way…”
• Therefore, the government should not try to direct
industry into export industry, or into agriculture, or
in any particular direction.
 According to Adam Smith

• Self-interest is an unchangeable part of

human nature, so it is wise to let personal
incentives build a richer economy.
• Strong government was a great necessity,
particularly to create and enforce laws and
to ensure justice.
 Adam Smith

Government and the people should do what it

does best:

businessmen should not control the justice

system;
government should not try to run businesses.
 Adam Smith

“The sovereign has only three duties:

first… protecting the society from violence
and invasion…
secondly… protecting … every member of the
society from the injustice or oppression of
every other member
thirdly… erecting and maintaining certain public
works and certain public institutions which it
can never be for the interest of any individual,
or small number of individuals…”
 According to Adam Smith

財富分配
“No society can surely be flourishing and
happy, of which the far greater part of the
members are poor and miserable.”
 According to Adam Smith

According to Adam Smith (1723-1790) in

an Inquiry into the Nature and Causes of
The Wealth of Nations, wealth is a
function of productivity and therefore of
people, and of the incentives which
encourage them.
 According to Adam Smith

“Adam Smith’s economy grows to its ‘full

complement of riches’ as permitted by its
laws and institutions, and there it rests.”

Arthur W. Lewis, 1984