48 pages • 1 hour read
Adam SmithThe Wealth of Nations. The Theory of Moral Sentiments
Nonfiction | Book | Adult | Published in 1776A modern alternative to SparkNotes and CliffsNotes, SuperSummary offers high-quality Study Guides with detailed chapter summaries and analysis of major themes, characters, and more.
Themes
Division of Labor
The division of labor, or specialization, is dividing a manufacturing process into different tasks to be completed by multiple people more efficiently than if one person had performed all the tasks. In such a system, individual actors specialize in routine, repetitive, and mundane tasks in which they obtain a high degree of skill. Because each laborer is completing only one repetitive task at which they are highly skilled, they complete the task more efficiently, and the entire series of tasks is completed more efficiently than if one actor had performed every task required to manufacture the product. This is the central component of economic efficiency. Smith reasons that the more sophisticated the division of labor is, the more productive the industry will be. Smith relates this theory not only to manufacturing, but also to include divisions of labor between trades, creating a more efficient and productive macroeconomy.
The Invisible Hand of the Market
In The Wealth of Nations, Smith pioneers the now popular idea of free market economics. Smith uses the invisible hand as a convenient method of describing the market forces, shaped by individual, self-interested, decision-makers in a free market, which direct labor and capital to its most productive use. The invisible hand is at the heart of Smith’s theory that when human beings are free to make decisions in their self-interest, without interference from regulations, monopolies, or other intrusions, economies will develop naturally to their best and most productive states. While Smith’s invisible hand theory is employed in favor of free markets, Smith is not in favor of markets totally free from all regulation. Smith is also concerned with anticompetitive practices by private actors, which unnaturally distort markets and can be curbed through government intervention.
Political Economy
Smith spends much of The Wealth of Nations addressing the political economy of nations, making arguments as to how nations should and shouldn’t grow their economies. In the crosshairs for Smith is mercantilism, which he argues mistakenly ascribes value to money in creating wealth. Smith argues that commodities, not money, represent both an individual’s and a nation’s wealth, and that the mercantilists’ endless pursuit of gold and silver is costing Britain wealth, rather than increasing overall wealth. Smith argues that instead, a nation should focus on harvesting and trading its commodities, first domestically, then internationally.
