An Inquiry into the Nature and Causes of the Wealth of Nations

An Inquiry into the Nature and Causes of the Wealth of Nations
Adam Smith (Cannan edn. 1976)

Reading Notes--Adam Kissel

Introduction and Plan of the Work (1-4)
In a nation: annual labor per capita yields annual production (let us say GDP) per capita, which is consumed. Higher GDP arises from increased productivity of workers, more workers, and natural circumstances.

Considering the people’s revenue:
     I. why productivity becomes higher in some nations; distribution of produce by population by rank
     II. what capital is; how more capital leads to more workers; how to increase capital
     III. why Europe focuses on towns
     IV. different economic theories and their effects in practice
Considering the nation’s revenue:
     V. national expenses; assessments of who pays the expenses and how to pay them; role of national debt

Bk. 1, Ch. 1 (7-16)
Division of labor (DOL) yields increased worker productivity
  - ex: pinmaking, or the common coat—requires distinct operations, in proper division and combination
  - this is carried furthest in industrious nations; easier in manufactures than agriculture, which is seasonal
     ex: Poland vs. France vs. England
Why DOL succeeds:
  - greater individual dexterity yields greater quantity of work done (beyond expectations): fewer, simpler operations
  - lowers time between tasks: we begin tasks slowly, which promotes sloth; time-saving exceeds expectations
  - invention of facilitating and abridging/quickening machines: easier to discover new methods, incl. automation
     - users invent machines
     - makers improve them (making becomes a specialty)
     - observers/philosophers combine qualities of different machines (this becomes its own specialty)
DOL needs a well-governed society
Results: surplus production per worker, enabling exchange

Bk. 1, Ch. 2 (17-20)
Causes of DOL:
(1) slow, gradual consequence of human nature: propensity to exchange
  - unique to humans, who are not independent or self-sufficient
  - we cannot count on benevolence or easily ingratiate ourselves with others; we must appeal to the self-interest of others (their self-love) for our needs
(2) people learn to cultivate talent and genius toward specific labors
  - less initial variation than supposed (this is more an effect of DOL via custom, habit, and education)
  - human nature is common

Bk. 1, Ch. 3 (21-25)
- need enough purchasers of surplus—therefore need towns, esp. large ones
- market greatly increases with water travel (can carry more weight per cost or time)
ex: Mediterranean Sea nations; Nile/Egypt; Ganges/India; Chinese rivers
- need to control the whole route

Bk. 2, Introduction (291-93)
- DOL requires (1) interdependence; (2) advance stock to maintain workers while they complete and sell the product
   - therefore, increased stock permits increased DOL (so does increased population)
- DOL admits of degrees of quality, supported by increased stock: more work can be done through
   - proper distribution of labor among workers (and using more workers);
   - using better machines
1. kinds of stock
2. money as stock, either used or lent
3. money as used stock—how it operates
4. money as lent stock—how it operates
5. how stock improves productivity (and therefore increases annual produce)

Bk. 2, Ch. 3 (351 up to 367)
- productive labor (vs. unproductive) adds value, permits trade in “stocked” labor
  - menial servants are unproductive (but still have value); ditto for all kinds of services (government, armed forces)
- yet all laborers are maintained at someone’s expense; beware of putting out too much for the unproductive
Ends of produce:
  1. capital to replace stock: supports future productivity
  2. revenue (to owners of stock, via profit or rent): may support either productivity or the opposite; owners tend to prefer the latter
     - rent tends to increase, but proportionally as productivity improves; so does profit, as stock increases
     - revenue can be saved or spent (either way the capital is consumed, but to different people for different work)
          - if saved, owner has interest in keeping it as capital (increases revenue)
          - if not saved, owner has interest in spending it for consumption (decreases capital)
          - bad judgment leads to poor projects, which also decreases capital (but this is rare overall)
  ** the proportion of support for these two ends greatly affects the proportion of productive/unprod. workers; affects the industriousness or laziness in workers’ character—the unprod. probably corrupt the productive (ex: England’s government)
  ** changing supply of money for circulation (incl. gold, silver) is not a cause but an effect of saving and spending practices
  ** why spend? – “passion for present enjoyment” (fleeting)
  ** why save? – “desire of bettering our condition” (permanent) – a stronger feeling; we’re never satisfied with our situation
       - note a gradual increase in capital in a nation overall, despite setbacks (ex: England)
- government is unproductive, and funding it can become a “violent and forced encroachment” on individual revenue

From Bk. 4, Chs. 8-9 (179-81, 207-09)
Lest anyone think Smith is focused on production: “consumption is the sole end and purpose of all production”—restraints on trade support producers at the expense of consumers (ex: mercantilism by England). Government interferes at its peril, often causing unintended opposite consequences, actually hurting the nation and its progress. Rather, government should be limited to specific functions (Smith promises to treat them in Bk. 5): defense, justice, and public works—the latter in the interest of the whole but not in the private interest (in terms of profit).