The Wealth of Nations by Adam Smith

  • electronic version: http://www2.hn.psu.edu/faculty/jmanis/adam-smith/wealth-nations.pdf

  • Book I - OF THE CAUSES OF IMPROVEMENT IN THE PRODUCTIVE POWERS OF LABOUR, AND OF THE ORDER AC- CORDING TO WHICH ITS PRODUCE IS NATURALLY DISTRIBUTED AMONG THE DIFFERENT RANKS OF THE PEOPLE.

    • Chapter I - THE DIVISION OF LABOR

      • pin-maker example --> what types of work are not amenable to division of labor? philosophy/theology where the connections between parts are necessary for deep insights?

      • if we argue division of labor (specialization) to an extreme end, we sacrifice the fulfillment/accomplishment of the individual for the success of the society/economy, where the individual does not understand what he is actually participating in



        • how do we order our creations that are so complex a single individual can't understand the essence of the whole (F-35, etc.)?


        • how do we maintain integrity among specialization?



      • ag ex: you can't specialize too much in ag --> technology is equally important

      • why division of labor increases production



        • increase in dexterity of the workman on the task


        • saving time between operations (--> saving mental energy between switching)


        • specialized tool for each operation (division of labor leads to development of machinery)



      • definition of philosophy: "philosophers, or men of speculation, whose trade it is not to do any thing, but to observe every thing, and who, upon that ac- count, are often capable of combining together the powers of the most distant and dissimilar objects in the progress of society" (15)

    • Chapter II - OF THE PRINCIPLE WHICH GIVES OC- CASION TO THE DIVISION OF LABOUR

      • Division of labour arises not from innate wisdom, but from humans' propensity to barter

      • "The difference of natural talents in different men, is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education." (20) --> genius is developed, not innate

    • Chapter III - THAT THE DIVISION OF LABOUR IS LIM- ITED BY THE EXTENT OF THE MARKET

      • Limited opportunity for exchange discourages division of labour.

      • "There are some sorts of industry, even of the lowest kind, which can be carried on nowhere but in a great town." (21) --> ideal of urbanization? how is this balanced with the beauty of a quiet rural life?

      • sea travel opens markets

    • Chapter IV - OF THE ORIGIN AND USE OF MONEY

      • every man is a merchant on some level --> need currency to avoid having surplus of things we won't need

      • metals are ideal for currency: easy to store, easy to divide without losing value, etc.

      • the term "value" has two meanings:



        • the utility of an object


        • the purchasing power of an object



      • mentions diamonds as having great value

    • Chapter V - OF THE REAL AND NOMINAL PRICE OF COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY

      • wealth is power over people's labor

      • distinguish between the value of different types and amounts of labor (32)

      • gold example explores the concept of supply and demand relation to price

      • labor real price - things given for it; labor nominal price - money given for it

      • "Labour, therefore, it appears evidently, is the only universal, as well as the only accurate, measure of value, or the only standard by which we can compare the values of different commodities, at all times, and at all places." (36)

      • need to read end of Chapter V

    • Chapter VI - OF THE COMPONENT PART OF THE PRICE OF COMMODITIES

      • all prices are resolved into three items



        • wages


        • rent of resources used to produce


        • "profits of stock" - compensation for capital risk



    • Chapter VII - OF THE NATURAL AND MARKET PRICE OF COMMODITIES

      • when demand exceeds supply, the price goes up; when the supply exceeds demand, the price goes down

      • discusses the importance of information in the market (and keeping information guarded)

    • Chapter VIII - OF THE WAGES OF LABOUR

      • observes that the price of labor follows the laws of supply and demand, with the exception of collusion among laborers or masters

      • "Labour is the real exchange for commodities".

      • "whose interests are by no means the same" (60) --> agency and incentives

      • "A man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occa- sions be somewhat more, otherwise it would be impossible for him to bring up a family, and the race of such workmen could not last beyond the first generation." (61) --> CST

  • Book IV - OF SYSTEMS OF POLITICAL ECONOMY

    • Chapter I - OF THE PRINCIPLE OF THE COMMERCIAL OR MERCANTILE SYSTEM



      • makes argument against protectionist tariffs and large gold reserve