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What it argues
An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, is Adam Smith's comprehensive account of how modern commercial economies work and what policies promote prosperity. Smith was a professor of moral philosophy at Glasgow, and the book is less the founding document of free-market ideology than it is usually taken to be — it is a careful, empirically grounded analysis of the mechanisms of economic growth, full of skepticism about merchants, manufacturers, and their ability to capture governments in their own interest.
The book opens with the famous analysis of the pin factory, used to illustrate the division of labor: a single worker making pins from start to finish produces a handful a day; a factory of ten workers, each specializing in one operation, produces thousands. The division of labor is the primary engine of productivity growth, and its extent is limited by the size of the market — which is why trade, both domestic and international, matters so much. The extension of markets allows further specialization, which produces further gains in output per worker, in a self-reinforcing dynamic.
What it gets right
- 1.
The division of labor is the primary source of productivity growth; specialization allows workers to produce vastly more than they could working alone, but its extent is limited by the size of the market.
- 2.
The self-interested pursuit of profit, in competitive markets, tends to channel resources toward their most productive uses — the mechanism Smith describes as the invisible hand.
- 3.
Monopoly is the enemy of prosperity; Smith is consistently critical of merchants and manufacturers who seek government protection from competition, calling it a conspiracy against the public interest.
What it covers
Who wrote it
Adam Smith (1723–1790) was a Scottish moral philosopher and political economist, widely regarded as the founder of modern economics. He was a professor at Glasgow University, where he taught moral philosophy and befriended David Hume and other figures of the Scottish Enlightenment. His first major work, The Theory of Moral Sentiments (1759), analyzed the moral psychology of sympathy. The Wealth of Nations, published in 1776, occupied him for more than a decade and drew on his observations of commercial society in Britain and France. He served as a customs commissioner in Edinburgh from 1778 until his death.
