Diapo 1

Hi everyone, I’m Jordan Álvarez and I’m going to talk about Analysis of "The Wealth of
Nations" basic concepts by Adam Smith.

Diapo 2

Well, What does the wealth of a country depend on? That's the question that people have
always asked themselves since ancient times. Philosophers like Aristotle were already
beginning to wonder how a nation like Ancient Greece could maintain economic power over
other neighboring nations, many were the conjectures. For Aristotle, economics is an activity
aimed at satisfying the infinite material needs of people, assóciated with "administration and
the natural form of virtuous coexistence". However, the accumulation of wealth from the
Aristotelian perspective wasn't seen like an example to follow.

Diapo 3

A little later, when classical philosophy no longer viewed accumulation of wealth badly, the
mercantilists said that wealth was linked to the accumulated quantity of gold and silver and for
the Physiocrats, was linked to the farming. Nevertheless, at the end of 18th century, a new
school of economic thought was born, called like classical school around the personality of
Adam Smith and his work: "An ínquiry on the nature and causes of the wealth of nations", who
argued that wealth was linked to the production of consumer goods, so that by increasing the
production of goods, a nation's wealth was increased. The basic concepts of his work are the
following:

Diapo 4

One of its key concepts is that increased productivity depends on the efficient level of
organization within the production process. Smith argued that the more specialized the
workers of a factory were in performing a certain task, the more goods they could produce,
that is, the more productive they became; this is what he called like division of labor. This
concept had three valid reasons: skill acquisition, reduction of production time and technology
that simplified processes. Smith argued that this division of labor would increase productivity
and this, in turn, will resulted in greater savings in capital (K) on benefit of the investor, who,
to make his factory even more productive, he could invest especially in those stages of the
production process, where it could be simplified with the help of technology.

Diapo 5

In short, the division of labor, for Smith, depends ultimately on the accumulation of capital
which leads to better specialization, therefore, higher productivity of the economy. This wealth
depends both on how productive its economic agents are, and on the percentage of
productive work existing in the economy; the productivity of labor is caused by the division of
labor, whose division can be explained by the extension of the market as well as by the
accumulation of capital. Likewise, he said extension of the market is caused by the
accumulation of capital; on the other hand, the percentage of productive work will increase
when the accumulation of capital (K) increases. Therefore, it can be summarized that Smith
considers the accumulation of capital as the main cause of the wealth of a nation.
Diapo 6

For Smith, all goods provided have a use value and an exchange value. The first notion comes
from the fact that a certain good meets a need for the person who owns it. The second notion
is the price paid in the market for this good. According to Smith, the exchange value depends
on the amount of labor used to produce it.

Diapo 7

At this point, Smith explained the existence of three very well identified groups in society in
which each group owns a factor of production:

 Capitalists: owners of the money, equipment, and tools necessary to produce goods.
 Landowners: Owners of the land and who charged a rent for its use.
 and Workers: Owners of the workforce in exchange for a salary.

So, Smith identified two types of prices: the already known market price and the natural price.
The natural price of a good will be determined by the sum of the capitalist's profits, the
landlord's income, and the workers' wages.

Diapo 8

In context, by the time that Smith published these thoughts, mercantilist thinking dominated,
who believed that the wages of workers had to be to subsist, only to satisfy their basic needs.
Smith didn't believe in that so much and based his theory of value on the fact that the wages
of workers, who are also consumers, had to be high in order for them to respond to the supply
of goods and services in the market. In this way prosperity would emerge.

Diapo 9

As analyzed, Smith gives notorious relevance to his theory of the division of labor, whose
existence generates an accumulation of capital, and its combination leads to a higher
productivity of workers. This increase in productivity generates an extension of the markets
due to greater accumulation (capitalist profits, landlord income and wages), as product of this
specialization of tasks. This results in new divisions of labor within the production process and
a marginal increase in capital. Finally, the concept of the "invisible hand" is one of the central
ideas of Adam Smith's work, who orders activities in the market, but among his ethical
postulates he assures that no one can be guided by reasons of pure profitability. Smith is
convinced that, for the proper functioning of a market economy, its equivalences must be
regulated. That is why he defends the ideas of Political Economy that seek to assure the
State sufficient income to provide public services such as free education and poverty
alleviation.