AdamSmith`s- The Wealth of Nations
TheWealth of Nationsby Adam Smith’s is an inquest into the causes and nature of theNations’ wealth. The book is a classical economics publication.Though written in archaic language with 18thcentury examples and many digressions it distills the best conceptsabout trade, commerce, and public policy. It is akin to the ‘Originof species’ by Charles Darwin in Biology. In the book, Smith showsthat: the national product as the measurement of the country’swealth, productivity is increased through specialization, tradebenefits both partners, markets are an automatic mechanism thatallocate resources efficiently, and ensure cooperation betweendifferent producers. These form the pillars of today’s economicscience (Smith,2005).
Smith’swork is organized into five books. Briefly, book one focuses on themechanisms that improve production efficiency. Book two explores theuse of capital or stock in production. Book three summarizes howpublic policy influences the national product. Book four discussesdifferent economic theories that influence all these factors.Finally, book five explores the role of the government in the economy(Smith& Wight, 2007).
Fromthe start, Smith advocates that division of labor or specializationis the key to economic efficiency. It increases skill, reduces timewasted and through the use of dedicated machinery countries can focuson producing goods they make best and import what they need. This isborne out of the need to exchange where both parties mutually gainand requires their cooperation. The extent of the exchange is onlylimited by the market size with larger markets, ensuring bigger gainsfor the parties (Smith& Wight, 2007).The medium of exchange also needs to be considered to make itacceptable to the parties involved. Many components go intoproduction like labor, land, and capital. Most of these determineproduction costs and market prices of commodities, which are alsogoverned by supply and demand. To compensate workers involved inproduction their wages vary in terms of ease of their profession,seasonality, the degree of trust and probability of success(Kucukaksoy,2011).
Secondly,Smith on the accumulation of capital by nations posits that capitalcan be divided into that which is fixed (stays with the owner) andcan be used for future interests and that which is circulating. Hequips that, “A man grows rich by employing a multitude ofmanufacturers he grows poor by maintaining a multitude of menialservants”. This therefore means that labor can be either productiveor unproductive (Smith& Wight, 2007).The national product can therefore grow only through increasing thenumber of productive workers. He also writes that capital can bewasted through bad investment decisions. On the progress of economicgrowth, Smith advocates for priority in agriculture. He sees this asthe medium for the development of towns, which have interdependencewith the country at large. He cites England as an example wheretenancy law and agricultural efficiency through security given totenants has contributed to agricultural success (Kucukaksoy,2011).
Smithexplores two theories the mercantile and agricultural system. Hecriticizes the mercantile system that equates money and thepossession of precious metals like gold and silver to wealth. Hewrites that institution of trade restrictions to prevent a country’sloss money abroad deprives neighbors instead of both parties winning.He champions the agricultural system that suggests that the productof the land is the source of national wealth and income. So, throughincreasing its productivity and making larger markets the country’swealth will be increased (Smith& Wight, 2007).
Lastly,Smith asserts that the government should play the roles of defense,justice, and public works (infrastructure) in the economy. Thesefacilitate commerce and education and can be financed throughtaxation. He advances taxation principles like contributions inproportion to the income and levying of taxes at convenient times. Hefurther admonishes about public debt that it consumes the capitalbuilt up within the country (Kucukaksoy,2011).In summary, Adam Smith’s book is clearly a masterpiece and shouldbe read by students of economics. He recognized at an early age thatdivision of labor and cooperation between countries in trade wereessential in improving economies.
SmithAdam (2005), An Inquiry into the Nature and Causes of the Wealth ofNations, An Electronic Classics Series Publication,http://www.hn.psu.edu/faculty/jmanis/jimspdf.htm
Smith,A., & Wight, J. B. (2007). AnInquiry into the Nature and Causes of the Wealth of Nations.Peters field Harriman House
Kucukaksoy,I. (2011). Adam Smith`s conceptual contributions to internationaleconomics: Based on the Wealth of Nations. Business & EconomicHorizons, 4(1),108-119.