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What is the main purpose of Adam Smith's The Wealth of Nations?

Smith believed that people promote public interest through economic choices—a
free-market force that became known as the "invisible hand." The invisible hand
is what comes from the collaboration of consumers and producers in commerce.
Government interference in this process results in shortages and surpluses.

What determines the wealth of a nation according to Adam Smith?

The prevailing view was that gold and silver was wealth, and that countries
should boost exports and resist imports in order to maximize this
metal wealth. Smith'sradical insight was that a nation's wealth is really the stream
of goods and services that it creates. Today, we would call it gross national
product.

What are Adam Smith's contribution to economics?

Among economists, it is said Adam Smith is one of the main contributors to
modern free market economics. His thoughts attacked mercantilism which was
the prevalent form of government at the time. His works provided systematic
rationales in the subjects of capitalism, free markets, and limited government
intervention.

What was the main message of the Wealth of Nations by Adam Smith?
The Wealth of Nations by Adam Smith is an inquiry into how countries can
generate their wealth. The book addresses and demonstrates economic
principles that explain the role of the factors of production, among other factors,
in the creation of wealth.

What were Adam Smith's main ideas?

Laissez-faire philosophies, such as minimizing the role of government
intervention and taxation in the free markets, and the idea that an "invisible hand"
guides supply and demand are among the key ideas Smith's writing is
responsible for promoting.

What did Adam Smith think about mercantilism?

Adam Smith coined the term “mercantile system” to describe the system of
political economy that sought to enrich the country by restraining imports and
encouraging exports. Most of the mercantilist policies were the outgrowth of the
relationship between the governments of the nation-states and their mercantile
classes.
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What was the purpose of the Wealth of Nations?

The Wealth of Nations. an important work of economic and social theory by
Adam Smith, published in 1776. Its full title was Inquiry into the Nature and
Causes of theWealth of Nations. In it he analysed the relationship between work
and the production of a nation's wealth.

What term is used to determine the wealth of a nation?

For individuals, net worth is the most common expression of wealth, while
countries measure by gross domestic product (GDP), or GDP per capita.

Plot Summary
Adam Smith was a Scottish economist, philosopher, author, and public
intellectual, born in Kirkcaldy, Fife, Scotland. He studied at University of
Glasgow, Balliol College, and Oxford, and lectured at the Philosophical Society of
Edinburgh and Glasgow University. His principal writings are The Theory of
Moral Sentiments and The Wealth of Nations. The Theory of Moral Sentiments is
a work on moral philosophy, while The Wealth of Nations is a pioneering,
revolutionary work on economics.
The Wealth of Nations—first published in 1776, during the Scottish
Enlightenment and Agricultural Revolution—is Smith’s seminal work, in which he
analyzes what constitutes the wealth of a country and reasons why certain
nations obtain more per capita wealth than others. It is one of the most important
books written because it introduced new economic principles—principles that
continue to govern the world today. In The Wealth of Nations, Smith responds to
societal conditions at the outset of the Industrial Revolution and argues against
the then-prevailing economic philosophy of mercantilism. He instead advocates a
laissez-faire economic system. In making his arguments, he introduces now-
familiar concepts of gross domestic product as a measure of national wealth,
specialization and division of labor, mutual gain from trade, and the efficiency of
markets (also known as the concept of the invisible hand).
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The Wealth of Nations is divided into five books.

In Book 1, Smith establishes his basic theories that become the groundwork for
his later analysis. Smith introduces the concepts of price, stock, and division of
labor. He also introduces his assertion that a nation’s wealth is not comprised of
money, but rather that money is a method of storing and exchanging wealth,
which is actually comprised of commodities and labor. Smith divides price into
three components: wages paid for labor, profits of stock, and rent paid to
landlords. The component of any price not paid to workers or landlords is
deemed profit.

In Book 2, Smith discusses “stock.” He defines stock as the assets used in a

commercial endeavor. Smith bifurcates stock into capital and revenue, and
asserts that it is better for societies to maintain a greater share of stock as capital
investment, as opposed to spending it on economically-unproductive endeavors.
Smith then differentiates between what he calls home trade, foreign trade of
consumption, and the carrying trade. Smith reasons that the home trade, that of
domestic commerce, is the most beneficial to a country’s economy because
money and goods can be exchanged more frequently, creating more wealth than
the carrying trade, which Smith defines as foreign trade.

In Book 3, Smith recounts the economic history of the Roman Empire and all
societies since its fall. He concludes from this history that a natural economic
model, in which agriculture is the predominant economic activity, followed by
manufacturing, then trade, is to be preferred.

In Book 4, Smith argues against mercantilism, the predominant economic

system of Smith’s era. Mercantilism is a sort of economic nationalism in which
the objective is to build a wealthy and powerful state by restraining imports and
encouraging exports. The practical goal of mercantilism was to bring as much
gold and silver into one’s country as possible while maintaining domestic
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employment. Smith concludes that the mercantile system costs the home
country more than it brings back in revenue, and that the system and colonies
should be abandoned in favor of domestic trade, which produces more wealth.

In Book 5, Smith argues that certain costs of governance are necessary and
unavoidable, and therefore should be paid via taxation. However, he also offers a
warning that Britain’s national debt at the time was spiraling out of control. He
proposes either a commodity tax or abandoning Britain’s American colonies,
which had been a continual drain on Britain’s resources.
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Wealth of Nations, by Adam Smith

TABLE OF CONTENTS
Introduction and Plan of the Work

BOOK ONE

Of the Causes of improvement in the productive powers of Labour, and of

the order according to which its produce is naturally distributed among the
different ranks of the people.

1. Of the Division of Labour

2. Of the Principle which gives occasion to the Division of Labour
3. That the Division of Labour is limited by the Extent of the Market
4. Of the Origin and Use of Money
5. Of the Real and Nominal Price of Commodities, or their Price in Labour,
and their Price in Money
6. Of the Component Parts of the Price of Commodities
7. Of the Natural and Market Price of Commodities
8. Of the Wages of Labour
9. Of the Profits of Stock
10. Of Wages and Profit in the different Employments of Labour and Stock
11. Of the Rent of Land

BOOK TWO

Of the Nature, Accumulation, and Employment of Stock

1. Of the Division of Stock

2. Of Money considered as a particular Branch of the general Stock of the
Society, or of the Expense of maintaining the National Capital
3. Of the Accumulation of Capital, or of Productive and Unproductive Labour
4. Of Stock Lent at Interest
5. Of the Different Employment of Capitals

BOOK THREE

Of the Different Progress of Opulence in Different Nations

1. Of the Natural Progress of Opulence

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2. Of the Discouragement of Agriculture in the ancient State of Europe after
the Fall of the Roman Empire
3. Of the Rise and Progress of Cities and Towns after the Fall of the Roman
Empire
4. How the Commerce of the Towns Contributed to the Improvement of the
Country

BOOK FOUR

Of Systems of Political Economy

1. Of the Principle of the Commercial, or Mercantile System

2. Of Restraints upon the Importation from Foreign Countries of such Goods
as can be produced at Home
3. Of the extraordinary Restraints upon the Importation of Goods of almost
all kinds from those Countries with which the Balance is supposed to be
disadvantageous
4. Of Drawbacks
5. Of Bounties
6. Of Treaties of Commerce
7. Of Colonies
8. Conclusion of the Mercantile System
9. Of the Agricultural Systems, or of those Systems of Political Economy
which represent the Produce of Land as either the sole or the principal
Source of the Revenue and Wealth every Country

BOOK FIVE

Of the Revenue of the Sovereign or Commonwealth

1. Of the Expenses of the Sovereign or Commonwealth

2. Of the Sources of the General or Public Revenue of the Society
3. Of Public Debts

What was the most important document published in 1776? Most Americans
would probably say The Declaration of Independence. But many would argue
that Adam Smith's "The Wealth of Nations" had a bigger and more global
impact. 

On March 9, 1776, "An Inquiry into the Nature and Causes of the Wealth of
Nations"—commonly referred to as simply "The Wealth of Nations"—was first
published. Smith, a Scottish philosopher by trade, wrote the book to upend the
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mercantilist system. Mercantilism held that wealth was fixed and finite, and that
the only way to prosper was to hoard gold and tariff products from
abroad. According to this theory, nations should sell their goods to other
countries while buying nothing in return. Predictably, countries fell into rounds of
retaliatory tariffs that choked off international trade.

Adam Smith: The Father of Economics

Smith's Thesis
The core of Smith's thesis was that humans' natural tendency toward self-
interest(or in modern terms, looking out for yourself) results in prosperity. Smith
argued that by giving everyone freedom to produce and exchange goods as they
pleased (free trade) and opening the markets up to domestic and foreign
competition, people's natural self-interest would promote greater prosperity than
with stringent government regulations.

Smith believed humans ultimately promote public interest through their everyday
economic choices. “He (or she) generally, indeed, neither intends to promote the
public interest nor knows how much he is promoting it. By preferring the support
of domestic to that of foreign industry, he intends only his own security and by
directing that industry in such a manner as its produce may be of the greatest
value, he intends only his own gain and he is in this, as in many other cases, led
by an invisible hand to promote an end which was no part of his intention,” he
said in "An Inquiry into the Nature and Causes of the Wealth of Nations"

KEY TAKEAWAYS
 The central thesis of Smith's "The Wealth of Nations" is that our need to
fulfill self-interest results in prosperity.

Smith’s Theories Overthrow Mercantilism

To drive home the damaging nature of tariffs, Smith used the example of making
wine in Scotland. He pointed out that good grapes could be grown in Scotland in
hothouses, but the extra costs of heating would make Scottish wine 30 times
more expensive than French wines. Far better, he reasoned, would be to trade
something Scotland had an abundance of such as wool, in return for French
wine.
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In other words, because France has a competitive advantage in producing wine,
tariffs aimed to create and protect a domestic wine industry would just waste
resources and cost the public money.

What Wasn't in "The Wealth of Nations"?

"The Wealth of Nations" is a seminal book that represents the birth of free-market
economics, but it's not without faults. It lacks proper explanations for pricing or a
theory of value and Smith failed to see the importance of the entrepreneur in
breaking up inefficiencies and creating new markets.

Both the opponents of and believers in Adam Smith's free-market capitalism

have added to the framework set up in "The Wealth of Nations." Like any good
theory, free-market capitalism gets stronger with each reformulation, whether
prompted by an addition from a friend or an attack from a foe.

Marginal utility, comparative advantage, entrepreneurship, the time-preference

theory of interest, monetary theory, and many other pieces have been added to
the whole since 1776. There is still work to be done as the size and
interconnectedness of the world's economies bring up new and unexpected
challenges to free-market capitalism.

The publishing of "The Wealth of Nations" marked the birth of modern

capitalism as well as economics. Oddly enough, Adam Smith, the champion of
the free market, spent the last years of his life as the Commissioner of Customs,
meaning he was responsible for enforcing all the tariffs. He took the work to heart
and burned many of his clothes when he discovered they had been smuggled
into shops from abroad.

Historical irony aside, his invisible hand continues to be a powerful force today.
Smith overturned the miserly view of mercantilism and gave us a vision of plenty
and freedom for all. The free market he envisioned, though not yet fully realized,
may have done more to raise the global standard of living than any single idea in
history.

Adam Smith, The Wealth of Nations, Chapter II

The great Adam Smith, father of modern economics, Scottish moral philosopher
and pioneer of political economy, is one of the key figures of the Scottish
Enlightenment. The Wealth of Nations is considered the first modern work of
economics.
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Smith explained how rational self-interest and competition can lead to economic
prosperity. His ideas were considered controversial at the time, but today Smith is
still among the most influential thinkers of his field. It is said that UK Prime
Minister Margaret Thatcher used to carry a copy of the book in her handbag.

This resource is written to give you a foundation of Adam Smith’s The Wealth of

Nations. It is very comprehensive, but does not answer all questions.

Newton of Economics

The conventional wisdom dictated that wealth consisted in money, particularlly

gold and silver. Adam Smith, however, recognized that wealth was the “annual

produce of land and labor of the society,” which ran counter to the prevailing

wisdom of the time. He recognized, too, that the free market was superior to one

in which trade was protected. And he believed that government can actually make

people worse off.

Economic Theory and Policy

The Mercantile system: Money = Wealth

Wealth consists in money, i.e. gold or silver. A rich person is someone, who has a
lot of money. Under this view hoarding large quantities of gold would be good
policy. Example: Spanish America’s quest for gold and silver

The ‘free trade’ system: Money ≠ Wealth

Most wealth is created and consumed domestically so outflows of gold can rarely
ruin a country. Wealth does not only reside in money, and money is just a medium
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of exchange. Gold is durable and serves as a good holder of value, but it has no
intrinsic value.

The “Invisible” Hand

The number of people who can be employed is directly proportional with the

amount of capital that is available.

Businessmen have a much better idea on where to allocate capital than

regulators. This is what Smith refers to as the “invisible hand.”

Trade Restrictions

In the mercantilist view, restricting trade gives domestic producers monopoly of

the home market. Also if the domestic product is not cheaper than the foreign

product, then regulation is pointless. However, if the foreign product is cheaper,

then restricting trade is harmful.

By means of glasses, hotbeds, and hotwalls, very good grapes can be raised in
Scotland, and very good wine too can be made of them at about thirty times the
expense for which at least equally good can be brought from foreign countries.
Would it be a reasonable law to prohibit the importation of all foreign wines,
merely to encourage the making of claret and burgundy in Scotland? — Adam
Smith, The Wealth of Nations, Book IV, Chapter II, p. 458, par. 15.
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“Wealth of Nation”

Submitted by:
Abrazado, Mary Joy V.
Arciaga, Ma. Darrielyn N.
Submitted to:
Sir Andrew Ustaris
BSA II-A1
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