The Wealth of Nations
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An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith. First published in 1776, the book offers one of the world's first collected descriptions of what builds nations' wealth, and is today a fundamental work in classical economics. By reflecting upon the economics at the beginning of the Industrial Revolution, the book touches upon such broad topics as the division of labour, productivity, and free markets.
Summary of Wealth of Nations
An important theme that persists throughout the work is the idea that the economic system is automatic, and, when left with substantial freedom, able to regulate itself. This is often referred to as the “invisible hand.” The ability to self-regulate and to ensure maximum efficiency, however, is limited by externalities, monopolies, tax preferences, lobbying groups, and other “privileges” extended to certain members of the economy at the expense of others.
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The Wealth of Nations was published 9 March 1776, during the Scottish Enlightenment and the Scottish Agricultural Revolution. It influenced a number of authors and economists, as well as governments and organizations. For example, Alexander Hamilton was influenced in part by The Wealth of Nations to write his Report on Manufactures, in which he argued against many of Smith's policies. Interestingly, Hamilton based much of this report on the ideas of Jean-Baptiste Colbert, and it was, in part, Colbert's ideas that Smith responded to with The Wealth of Nations.
The Wealth of Nations was the product of seventeen years of notes, an observation of conversation among economists of the time concerning economic and societal conditions during the beginning of the Industrial Revolution, and took Smith ten years to produce. The result, An Inquiry to the Wealth of Nations, was a treatise which sought to offer a practical application for reformed economic theory to replace the mercantilist and physiocratic economic theories that were becoming less relevant in the time of industrial progress and innovation. It provided the foundation for new economists, politicians, mathematicians, biologists, and thinkers of all fields to build upon. Irrespective of historical influence, The Wealth of Nations represented a clear shift in the field of economics, comparable to Sir Isaac Newton's Principia Mathematica for physics, Antoine Lavoisier's Traité Élémentaire de Chimie for chemistry, or Charles Darwin's On the Origin of Species for biology.
Five editions of The Wealth of Nations were published during Smith's lifetime: in 1776, 1778, 1784, 1786, and 1789. Numerous editions appeared after Smith's death in 1790. To better understand the evolution of the work under Smith's hand, a team led by Edwin Cannan collated the first five editions. The differences were published along with an edited sixth edition in 1904. They found minor but numerous differences (including the addition of many footnotes) between the first and the second editions, both of which were published in two volumes. The differences between the second and third editions, however, are major: In 1784, Smith annexed these first two editions with the publication of Additions and Corrections to the First and Second Editions of Dr. Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations, and he also had published the three-volume third edition of the Wealth of Nations, which incorporated Additions and Corrections and, for the first time, an index. Among other things, the Additions and Corrections included entirely new sections. The fourth edition, published in 1786, had only slight differences from the third edition, and Smith himself says in the Advertisement at the beginning of the book, "I have made no alterations of any kind." Finally, Cannan notes only trivial differences between the fourth and fifth editions – a set of misprints being removed from the fourth and a different set of misprints being introduced.
Reception and impact
The first edition of the book sold out in six months. The printer William Strahan wrote on 12 April 1776 that David Hume had said that The Wealth of Nations required too much thought to be as popular as Edward Gibbon's The History of the Decline and Fall of the Roman Empire. Strahan also wrote: "What you say of Mr. Gibbon's and Dr. Smith's book is exactly just. The former is the most popular work; but the sale of the latter, though not near so rapid, has been more than I could have expected from a work that requires much thought and reflection (qualities that do not abound among modern readers) to peruse to any purpose". Gibbon wrote to Adam Ferguson on 1 April: "What an excellent work is that with which our common friend Mr. Adam Smith has enriched the public! An extensive science in a single book, and the most profound ideas expressed in the most perspicuous language". The review of the book in the Annual Register was probably written by Whig MP Edmund Burke.
Smith's biographer John Rae contends that The Wealth of Nations shaped government policy soon after it was published. In 1777 the Prime Minister, Lord North, in the first budget after the book was published, got the idea for two new taxes from the book: one on man-servants and the other on property sold at auction. The budget of 1778 introduced the inhabited house duty and the malt tax, both recommended by Smith. In 1779 Smith was consulted by politicians Henry Dundas and Lord Carlisle on the subject of giving Ireland free trade.
The Wealth of Nations was first mentioned in Parliament by the Whig leader Charles James Fox on 11 November 1783: "There was a maxim laid down in an excellent book upon the Wealth of Nations which had been ridiculed for its simplicity, but which was indisputable as to its truth. In that book it was stated that the only way to become rich was to manage matters so as to make one's income exceed one's expenses. This maxim applied equally to an individual and to a nation. The proper line of conduct therefore was by a well-directed economy to retrench every current expense, and to make as large a saving during the peace as possible". However Fox once told Charles Butler sometime after 1785 that he had never read the book and that "There is something in all these subjects which passes my comprehension; something so wide that I could never embrace them myself nor find any one who did". In 1796 when Fox was dining with Lord Lauderdale, Lauderdale remarked that they knew nothing of political economy before Adam Smith wrote. "Pooh," replied Fox, "your Adam Smiths are nothing, but" (he added, turning to the company) "that is his love; we must spare him there". Lauderdale replied: "I think he is everything", to which Fox rejoined: "That is a great proof of your affection". Fox also found Adam Smith "tedious" and believed that one half of The Wealth of Nations could be "omitted with much benefit to the subject".
In an editorial of The Times on 3 August 1787, it was stated: "It is astonishing to consider, how few merchants are acquainted with Smith's Wealth of Nations, or Anderson's History of Commerce, which are certainly books that should be perused by every man who makes trade his pursuit".
The Wealth of Nations was next mentioned in Parliament by Robert Thornton MP in 1787 to support the Commercial Treaty with France. In the same year George Dempster MP referenced it in the debate on the proposal to farm the post-horse duties and in 1788 by a Mr. Hussy on the Wool Exportation Bill. In 1791 the English radical Thomas Paine wrote in his Rights of Man that "Had Mr. Burke possessed talents similar to the author ‘On the Wealth of Nations,’ he would have comprehended all the parts which enter into, and, by assemblage, form a constitution". The Prime Minister, William Pitt, praised Smith in the House of Commons on 17 February 1792: "...an author of our own times now unfortunately no more (I mean the author of a celebrated treatise on the Wealth of Nations), whose extensive knowledge of detail, and depth of philosophical research will, I believe, furnish the best solution to every question connected with the history of commerce, or with the systems of political economy". In the same year it was quoted by Samuel Whitbread MP and Fox (on the division of labour) in the debate on the armament against Russia and also by William Wilberforce in introducing his Bill against the slave trade. It was not mentioned in the House of Lords until 1793, by Lord Lansdowne and Lord Loughborough. Lansdowne said: "With respect to French principles, as they had been denominated, those principles had been exported from us to France, and could not be said to have originated among the population of the latter country. The new principles of government founded on the abolition of the old feudal system were originally propagated among us by the Dean of Gloucester, Mr. Tucker, and had since been more generally inculcated by Dr. Smith in his work on the Wealth of Nations, which had been recommended as a book necessary for the information of youth by Mr. Dugald Stewart in his Elements of the Philosophy of the Human Mind". Loughborough replied that "in the works of Dean Tucker, Adam Smith, and Mr. Stewart, to which allusion had been made, no doctrines inimical to the principles of civil government, the morals or religion of mankind, were contained, and therefore to trace the errors of the French to these causes was manifestly fallacious". On 16 May 1797 Pitt said in the debate on the suspension of cash payments by the Bank of England that Smith was "that great author" but his arguments "though always ingenious" were "sometimes injudicious".
Sir John Mitford, the Solicitor-General, said on 22 December 1798 in speaking on cross-bills (a bill of exchange given in consideration of another bill) that Smith "in his Wealth of Nations, explains the nature and pernicious consequences of this practice with his usual perspicuity and philosophical accuracy". On 5 December 1800 Lord Warwick said in a debate on the price of corn that:
There was hardly any kind of property on which the law did not impose some restraints and regulations with regard to the sale of them, except that of provisions. This was probably done on the principles laid down by a celebrated and able writer, Doctor Adam Smith, who had maintained that every thing ought to be left to its own level. He knew something of that Gentleman, whose heart he knew was as sound as his head; and he was sure that had he lived to this day and beheld the novel state of wretchedness to which the country was now reduced – a state, which as the like had never occurred before, could never have entered into his mind; that Great Man would have reason to blush for some of the doctrines he had laid down. He would now have abundant opportunities of observing that all those artificial means of enhancing the price of provisions, which he had considered as no way mischievous, were practised at this time to a most alarming extent. He would see the Farmer keeping up his produce while the poor were labouring under all the miseries of want, and he would see Forestallers, Regraters, and all kinds of Middle-men making large profits upon it.
Lord Grenville replied that "he must remind him, that so far from there having been any difference in the state of the Country when that great man lived, and the present times, his book was first published at a period, previous to which there had been two or three seasons of great dearth and distress; and during those seasons there were speculators without number, who raised an unfounded and unjust clamour against Forestallers and Regraters, and who proposed that a certain price should be fixed on every article: but all their plans were wisely rejected, and the Treatise on the Wealth of Nations, which came forward soon after, pointed out in the clearest light how absurd and futile they must have been".
In 1803 The Times argued against war with Spain: "She is our best customer; and by the gentle and peaceable stream of commerce, the treasures of the new world flow with greater certainty into English reservoirs, than it could do by the most successful warfare. They come in this way to support our manufactures, to encourage industry, to feed our poor, to pay taxes, to reward ingenuity, to diffuse riches among all classes of people. But for the full understanding of this beneficial circulation of wealth, we must refer to Dr. Adam Smith's incomparable Treatise on the Wealth of Nations". In 1810 a correspondent writing under the pseudonym of Publicola included at the head of his letter Smith's line that "Exclusive Companies are nuisances in every respect" and called him "that learned writer". In 1821 The Times quoted Smith's opinion that the interests of corn dealers and the people were the same.
In 1826 the English radical William Cobbett criticised in his Rural Rides the political economists' hostility to the Poor Law: "Well, amidst all this suffering, there is one good thing; the Scotch political economy is blown to the devil, and the Edinburgh Review and Adam Smith along with it".
The Radical MP Richard Cobden as a young man studied The Wealth of Nations; his copy is still in the library of his home at Dunford House and there are lively marginal notes on the places where Smith condemns British colonial policy. There are none on the passage about the invisible hand. Cobden campaigned for free trade in his agitation against the Corn Laws. On 13 October 1843 Cobden quoted (accurately) Smith's protest against the "plain violation of the most sacred property" of every man derived from his labour. On 8 May 1844 he cited Smith's opposition to slave labour and on 3 July 1844 claimed that Smith had been misrepresentated by protectionists as a monopolist. On 8 October 1849 Cobden claimed that he had "gone through the length and breadth of this country, with Adam Smith in my hand, to advocate the principles of Free Trade." He also said he had tried "to popularise to the people of this country, and of the Continent, those arguments with which Adam Smith, David Hume, Ricardo, and every man who has written on this subject, have demonstrated the funding system to be injurious to mankind, and unjust in principle". Cobden believed it to be morally wrong to lend money to be spent on war. When The Times claimed the political economists were against Cobden on this, Cobden wrote on 16 October 1849: "I can quote Adam Smith whose authority is without appeal now in intellectual circles, it gives one the basis of science upon which to raise appeals to the moral feelings". When in 1850 the Russian government attempted to raise a loan, ostensibly for the construction of a railway from St. Petersburg to Moscow, but actually to cover the deficit brought about by its war against Hungary, Cobden said on 18 January: "I take my stand on one of the strongest grounds in stating that Adam Smith and other great authorities on political economy are opposed to the very principle of such loans". In 1863, during Cobden's dispute with The Times over its claims that his fellow Radical John Bright wanted to divide the land of the rich amongst the poor, Cobden read to a friend the passage in the Wealth of Nations which criticised primogeniture and entail. Cobden said that if Bright had been as plain-speaking as Smith, "how he would have been branded as an incendiary and Socialist". On 23 November 1864 Cobden proclaimed: "If I were five-and-twenty or thirty, instead of, unhappily, twice that number of years, I would take Adam Smith in hand—I would not go beyond him, I would have no politics in it – I would take Adam Smith in hand, and I would have a League for free trade in Land just as we had a League for free trade in Corn. You will find just the same authority in Adam Smith for the one as for the other; and if it were only taken up as it must be taken up to succeed, not as a political, revolutionary, Radical, Chartist notion, but taken up on politico-economic grounds, the agitation would be certain to succeed".
James Madison, in a speech given in Congress on 2 February 1791, cited The Wealth of Nations in opposing a national bank: "The principal disadvantages consisted in, 1st. banishing the precious metals, by substituting another medium to perform their office: This effect was inevitable. It was admitted by the most enlightened patrons of banks, particularly by Smith on the Wealth of Nations". Thomas Jefferson, writing to John Norvell on 14 June 1807, claimed that on "the subjects of money & commerce, Smith's Wealth of Nations is the best book to be read, unless Say's Political Economy can be had, which treats the same subject on the same principles, but in a shorter compass & more lucid manner".
George Stigler attributes to Smith "the most important substantive proposition in all of economics" and foundation of resource-allocation theory. It is that, under competition, owners of resources (labour, land, and capital) will use them most profitably, resulting in an equal rate of return in equilibrium for all uses (adjusted for apparent differences arising from such factors as training, trust, hardship, and unemployment). He also describes Smith's theorem that "the division of labour is limited by the extent of the market" as the "core of a theory of the functions of firm and industry" and a "fundamental principle of economic organisation."
Paul Samuelson finds in Smith's pluralist use of supply and demand – as applied to wages, rents, and profit – a valid and valuable anticipation of the general equilibrium modelling of Walras a century later. Moreover, Smith's allowance for wage increases in the short and intermediate term from capital accumulation and invention added a realism missed later by Malthus, Ricardo, and Marx in their propounding a rigid subsistence-wage theory of labour supply.
In noting the last words of the Wealth of Nations,
- If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expence of defending those provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.
Ronald Coase suggests that if Smith's earlier proposal of granting colonies representation in the British parliament proportional to their contributions to public revenues had been followed, "there would have been no 1776, … America would now be ruling England, and we [in America] would be today celebrating Adam Smith not simply as the author of the Wealth of Nations, but hailing him as a founding father."
Mark Blaug argues that it was Smith's achievement to shift the burden of proof against those maintaining that the pursuit of self-interest does not achieve social good. But he notes Smith's relevant attention to definite institutional arrangements and process as disciplining self-interest to widen the scope of the market, accumulate capital, and grow income.
Economic anthropologist David Graeber argues that throughout antiquity, one can identify many different systems of credit and later monetary exchange, drawing evidence for his argument from historical and also ethnographical records, that the traditional explanation for the origins of monetary economies from primitive bartering systems, as laid out by Adam Smith, doesn't find empirical support. The author argues that credit systems developed as means of account long before the advent of coinage around 600 BCE, and can still be seen operating in non-monetary economies. The idea of barter, on the other hand, seems only to apply to limited exchanges between societies that had infrequent contact and often in a context of ritualized warfare, rendering its conceptualization among economists as a myth. As an alternative explanation for the creation of economic life, the author suggests that it originally related to social currencies, closely related to non-market quotidian interactions among a community and based on the "everyday communism" that is based on mutual expectations and responsibilities among individuals. This type of economy is, then, contrasted with the moral foundations of exchange based on formal equality and reciprocity (but not necessarily leading to market relations) and hierarchy, based on clear inequalities that tend to crystallize in customs and castes.
- The Theory of Moral Sentiments (1759), Adam Smith's other major work
- The National Gain, a pamphlet by Finnish–Swedish economist and politician Anders Chydenius which preceded The Wealth of Nations and which had similar ideas.
- GradeSaver. "The Wealth of Nations Summary". www.gradesaver.com. Retrieved 2016-10-02.
- See Smith, Adam (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. 1 (1 ed.). London: W. Strahan. Retrieved 2012-12-07., volume 2 via Google Books
- See Smith, Adam (1778). An Inquiry into the Nature and Causes of the Wealth of Nations. 1 (2 ed.). London: W. Strahan; T.Cadell. Retrieved 10 March 2015.; Smith, Adam (1778). An Inquiry into the Nature and Causes of the Wealth of Nations. 2 (2 ed.). London: W. Strahan; T.Cadell. Retrieved 10 March 2015. via Google Books
- See Smith, Adam (1789). An Inquiry into the Nature and Causes of the Wealth of Nations. 1 (5 ed.). London: A. Strahan; T.Cadell. Retrieved 9 March 2015.; Smith, Adam (1789). An Inquiry into the Nature and Causes of the Wealth of Nations. 2 (5 ed.). London: A. Strahan; T.Cadell. Retrieved 9 March 2015.; Smith, Adam (1789). An Inquiry into the Nature and Causes of the Wealth of Nations. 3 (5 ed.). London: A. Strahan; T.Cadell. Retrieved 9 March 2015. via Google Books
- An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith. London: Methuen and Co., Ltd., ed. Edwin Cannan, 1904. Fifth edition.
- John Rae, Life of Adam Smith (London: Macmillan & Co., 1895), p. 285.
- Rae, pp. 285–86.
- Rae, p. 287.
- Rae, p. 286.
- Rae, p. 294.
- Rae, p. 290.
- Rae, p. 289.
- L. G. Mitchell, Charles James Fox (Penguin, 1997), p. 185.
- The Times (3 August 1787), p. 2.
- Thomas Paine, Rights of Man, Common Sense, and Other Political Writings (Oxford University Press, 1995), p. 126.
- John Ehrman, The Younger Pitt. The Years of Acclaim (London: Constable, 1969), p. 267, n. 1.
- Rae, p. 291.
- John Ehrman, The Younger Pitt. The Consuming Struggle (London: Constable, 1996), p. 12.
- The Times (24 December 1798), p. 4.
- The Times (6 December 1800), p. 2.
- J. J. Sack, From Jacobite to Conservative. Reaction and orthodoxy in Britain, c. 1760–1832 (Cambridge University Press, 2004), p. 182.
- The Times (25 October 1803), p. 2.
- The Times (8 February 1810), p. 2.
- The Times (17 September 1821), p. 2.
- William Cobbett, Rural Rides (Penguin, 2001), p. 335.
- William D. Grampp, The Manchester School of Economics (London: Oxford University Press, 1960), p. 103.
- John Bright and J. E. Thorold Rogers (eds.), Speeches on Questions of Public Policy by Richard Cobden, M.P. Volume I (London: T. Fisher Unwin, 1908), p. 45.
- Bright and Thorold Rogers, Volume I, p. 92.
- Bright and Thorold Rogers, Volume I, pp. 104–05.
- John Bright and J. E. Thorold Rogers (eds.), Speeches on Questions of Public Policy by Richard Cobden, M.P. Volume II (London: T. Fisher Unwin, 1908), pp. 399–400.
- Wendy Hinde, Richard Cobden. A Victorian Outsider (Yale University Press, 1987), p. 204.
- Bright and Thorold Rogers, Volume II, p. 406.
- Donald Read, Cobden and Bright. A Victorian Political Partnership (Edward Arnold, 1967), p. 189.
- Bright and Thorold Rogers, Volume II, p. 493.
- H. C. G. Matthew, Gladstone. 1875–1898 (Oxford University Press, 1995), p. 20.
- G. E. Fasnacht, Acton's Political Philosophy. An Analysis (London: Hollis and Carter, 1952), p. 145.
- Fasnacht, p. 241.
- James Madison, Writings (The Library of America, 1999), p. 481.
- Thomas Jefferson, Writings (The Library of America, 1984), p. 1176.
- George J. Stigler (1976). "The Successes and Failures of Professor Smith," Journal of Political Economy, 84(6), p. 1202 (pp. 1199–1213). Also published as Selected Papers, No. 50 (PDF), Graduate School of Business, University of Chicago.
- George J. Stigler, 1951. "The Division of Labor Is Limited by the Extent of the Market." Journal of Political Economy, 59(3), pp. 185, 193. Reprinted in J.M. Buchanan and Y.J. Yoon, ed., 1994, The Return to Increasing Returns, pp. 47, 58.
- Paul A. Samuelson (1977). "A Modern Theorist's Vindication of Adam Smith," American Economic Review, 67(1), p. 42. Reprinted in J.C. Wood, ed., Adam Smith: Critical Assessments, pp. 498–509. Preview.
- Smith (1776). Bk. V: Of the Revenue of the Sovereign or Commonwealth, ch. 3 Of Public Debts, para. 92.
- R. H. Coase (1977). "The Wealth of Nations," Economic Inquiry 15(3), pp. 323–25 (309–25). Press + button or Ctrl+.
- Mark Blaug (1997). Economic Theory in Retrospect, 5th ed., in ch. 2, sect. 19, "Adam Smith as an Economist, pp. 59–62.
- Graeber, David (2010). Debt: the first 5,000 years. Brooklyn, NY: Melville House. ISBN 9781933633862.
- Johnson, David V. (February 15, 2012). "What We Owe to Each Other An Interview with David Graeber, Part 1". Boston Review. Retrieved February 20, 2012.
- Smith, Adam. The Wealth of Nations: A Translation into Modern English, Industrial Systems Research, 2015. ISBN 978-0-906321-70-6 
- An Inquiry into the Nature and Causes of the Wealth of Nations: A Selected Edition Adam Smith (Author), Kathryn Sutherland (Editor), 2008, Oxford Paperbacks, Oxford, UK; ISBN 978-0-19-953592-7
- Adam Smith's The Wealth of Nations: A modern-day interpretation of an economic classic. Karen McCreadie, 2009, Infinite Ideas, Oxford, UK; ISBN 978-1-906821-03-6
- O'Rourke, P. J. (2006), On The Wealth of Nations, Books That Changed the World, Atlantic Monthly Press, ISBN 978-0871139498
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