Summary of Adam Smiths 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 passing 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.
Smiths 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
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