Adam Smith Wealth Of Nations Pdf Summary

[Ezekiel Tulagan]

The division of labor is economically good, generating immense surplus from the increased innovation, efficiency, and dexterity of its workers. But it is morally detrimental as it makes an individual focused on a very narrow and confined sphere.

Smith is an advocate of free trade because it further encourages the division of labor but also it is the logical solution when you conceive of a countries wealth not according to how many paper bills it has but to the amount of production it has (he introduces this notion which evolves into GDP). Also since all production of goods are for the consumer, he believe free trade is in the interest of the consumer as opposed to the producers (this is the birth of consumerism).

The advent of money is important for both the division of labor as well as free trade since it reduces friction during bartering. He proposes a basic labor theory of value that eventually Marx adopts.

He believes that wealth and happiness are inextricably linked. This is an implicit assumption that he holds that does most of his normative work. He is content on just talking about how to increase the wealth of nations because he believes that more wealth relates to more happiness.

Question: does he ever challenge this assumption? This seems contradictory with his psychological view, how we gain happiness from the more relativistic sympathy rather than the absolutist wealth. It seems to run contradictory to how he thinks sympathy is our greatest source of happiness no? He seems to reject this notion that greatness and wealth is what we should strive towards in the Theory.

Smith believes that the wealth of nations are caused by the division of labor, the broadening of markets, and the establishment of money. All of these however are formed simply by everyone pursuing their narrow self-interests. Private vice leads to public virtue. Not for every action but in the long run. In this way, smith presents a teleology of history and the motor behind his is self-interest. In order to compete with others in the market sphere, we constantly innovate, create better health care systems, treat our workers better. This happens by virtue of the market sphere.

The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed or applied, seem to have been the effects of the division of labour." He believes that it alone accounts " for the superior affluence and abundance commonly possessed even by the lowest and most despised member of civilized society, compared with what the most respected and active savage can attain to in spite of so much oppressive inequality.

The division of labor began because 1. We have our own natural strengths and learned strengths 2. We are an animal that has an instinct for bartering and exchanging. It does not rely on some overarching plan but is a formation of natural evolution:

This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.

He naturally loses, therefore, the habit of such exertion and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life.

His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social and martial virtues. But in every improved and civilized society this is the state into which the laboring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.

But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same.

The public can facilitate this acquisition by establishing in every parish or district a little school, where children may be taught for a reward so moderate that even a common labourer may afford it; the master being partly, but not wholly, paid by the public, because, if he was wholly, or even principally, paid by it, he would soon learn to neglect his business.

Smith hates government regulation because, at his time at least, it prevented competition from producing the best goods in the cheapest manner. (Proponents today who use Smiths argument against environmental regulations are misguided on his argument.)

QUESTION: why would not limiting imports increase production? Smith gives one argument about how all the poorly organized Scottish wine producers would be forced to work somewhere else if there was no ban on the import of French wine, is that what he means?

The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security.

ANSWER: There is an attack-defense asymmetry when it comes to capitalism. Capitalists can simply point to the great empirical results that happened with capitalism and the poor results of other economic modes of production.

QUESTION: There appears to not only be a mechanism of markets but also something manifesting on the individual level as well probably related to sympathy. On the individual level it seems to give us moral boundaries to operate in and on the state level it seems to be able to efficiently direct resources to where it is most needed. What is the nature of this invisible hand?

Smith had a very nuanced view on Government. He believed that there are systems that fall outside the realm of what a free market can achieve such as: police, defense, education (which he called for due to the detrimental effects of the division of labor).He even believed that government should regulate banks because they were in a unique position to cripple the economy.

The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.

Smith articulates a labor theory of value that is latter adopted by Marx in his critique. He sees an anomaly in that there are many goods that are high use value but low exchange value such as air and water.

Smiths solution is that the exchange value is correlated to some function of labor and capital (strong emphasis on labor). In primitive societies, he believes all labor has similar and stable value. Of course, the actual nominal value on the market does not always match the exchange value due to fluctuations.

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

QUESTION: if smith believed that our drive for acquisition was purely for utility, how does he reconcile this with the more relative view in the Theory of Moral Sentiments where he thinks we want to be rich ultimately to garner attention?

With regard to profusion, the principle which prompts to expense is the passion for present enjoyment; which, though sometimes violent and very difficult to be restrained, is in general only momentary and occasional. But the principle which prompts to save is the desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. In the whole interval which separates those two moments, there is scarce perhaps a single instant in which any man is so perfectly and completely satisfied with his situation as to be without any wish of alteration or improvement of any kind.

Smith\u2019s invisible hand and whole claim about laissez-faire economics operates in very specific constraints that aren\u2019t in effect today. These constraints are antagonistic to the incentive of corporations however. The invisible hand both functions on the personal level by providing moral boundaries and on the system level by directing goods.

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