Summary Of Adam Smith 6ci6

Summary of Adam Smith’s ‘Wealth of Nations’ One of the revolutionary principles in Wealth of Nations, written by Adam Smith, is about the source of wealth. While earlier physiocrats were claiming that land or agriculture is the source of wealth, Adam Smith argued that the main source of nations’ prosperity is “labour”. According to him, two conditions are effective for a nation to achieve wealth: ‘skill and dexterity of people’ and ‘the proportion of people in the useful labour’. The former circumstance is more important because a society which is composed of hunters and fishers, (although everybody is in the workforce) is much poorer than civilized country where the produce is abundant in spite of fewer workmen. (Smith, 1-2) Smith then explains the main cause of the improvement in the productive powers of labour such as skill and dexterity. The answer is “division of labour”. The effects of division of labour can be seen easily in every trifling manufacture such as pin-making. A workman, who is not accustomed to this business, could make maximum 20 pins in a day. Whereas, when this business is divided into many peculiar jobs which are being done by about 10 workmen, 48.000 pins could be produced in a day. (Smith, 8-9) This example obviously shows the importance of division of labour to achieve productivity. 3 important circumstances which are derived from division of labour play a serious role to increase productivity: 1) improved dexterity, 2) saving of time and 3) application of machinery invented by workmen. A workman performing only a simple operation becomes an expert on it easily. He also does not lose any time ing from one job to another. And lastly, being occupied with the same job all along his life, workman invents some machinery to make his work easier. (Smith, 11-13) In the next step, Smith illustrates the origin of division of labour. According to him, the division of labour arises from a propensity in human nature to exchange. (Smith, 17) We buy or

barter the products which we have occasion for from the producers. It is not their benevolence to sell or give them to us; they do it, because it is their own self-interest. (Smith, 18) To give an example, in a primitive society, a workman who is building houses realizes that with the surplus product of his labour he can provide his basic necessities. So, he dedicates himself to this job and becomes a carpenter. (Smith, 19) Another argument Smith defends is that the division of labour is limited by the extent of the market. In the other words, the more power of exchange which gives occasion to division of labour, the less the division of labour is limited. (Smith, 21) So various kinds of jobs cannot be done in towns where the extent of market is limited. There is no need to a nailer who makes thousands of nails a day, in a small village. (Smith, 22) Sea-trade also helps the market to enlarge its size. After the full establishment of division of labour, people began to exchange their surplus product with others. However difficulties of barter lead them to select one good as an intermediary such as salt, sugar or shells. Later, because of their some characteristics (durable and divisible), metals were started to be used. After being used in unstamped bars, metals like gold and silver became standardized by means of fineness and weight. So, in this sense, money became the main medium of exchange being used all over the world. Smith’s next argument is about the values. Since we are buying our needs with surplus product of our labour, labour is the real measure of the exchangeable value. However, because of the difficulties to measure the labour, people frequently used other commodities, and lastly money to exchange and estimate the value. But, gold and silver are not standard, they sometimes

cost less, sometimes more labour. So money is the nominal and labour is the real price of all commodities. (Smith, 36-37) Another topic which Smith emphasizes is the wages of labour. According to him the produce is the original wage of a workman. However, this situation has been broken down by appropriation of land and accumulation of stock. Then he explains the effects of high and low wages of labour with respect to wealth and productivity. Lastly, Smith devises a method to prevent stupefying effect of division of labour. Unless the workmen are educated, they would become ignorant because of doing the same job all the time. These are the main principles on which Adam Smith built his system of economy. With these concepts, he discovers and explains the invisible hand regulating the economy in which all citizens are interested in their self-interest. Batuhan BARLAS 2006101498