The Wealth of Nations established a new discipline: economics. Others had written on economic matters before, but it was the first book on economics to really catch the public’s attention.


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The Wealth of Nations established a new discipline: economics. Others had written on economic matters before, but it was the first book on economics to really catch the public’s attention.

Smith’s fearless criticism of the folly of rulers and the corruption of vested interests made him into a popular figure. Published in 1776, The Wealth of Nations spans two volumes and 380,000 words.

Smith’s fearless criticism of the folly of rulers and the corruption of vested interests made him into a popular figure. Published in 1776, The Wealth of Nations spans two volumes and 380,000 words.


The book covers arcane subjects such as the production of wheat, ale and barley in 13th century England, how the price of silver dropped after the Spanish conquest of South America, and how a government might fairly tax salt, leather, soap, and candles.

The book covers arcane subjects such as the production of wheat, ale and barley in 13th century England, how the price of silver dropped after the Spanish conquest of South America, and how a government might fairly tax salt, leather, soap, and candles.


But The Wealth of Nations is surprisingly relevant, and still provides valuable lessons on basic economics. Adam Smith provides a recipe for national prosperity that has not been bettered, based on small government and personal freedom.

But The Wealth of Nations is surprisingly relevant, and still provides valuable lessons on basic economics. Adam Smith provides a recipe for national prosperity that has not been bettered, based on small government and personal freedom.


“To prohibit a great people… from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind.” Adam Smith

“To prohibit a great people… from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mank

Smith argues that the “invisible hand” of the free market means that people acting to their own highest benefit end up elevating the whole.

Smith argues that the “invisible hand” of the free market means that people acting to their own highest benefit end up elevating the whole.


“It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Adam Smith

“It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Adam Smith


This was not an excuse to act greedily or unjustly. It simply meant that a person’s honest labors to progress in life for the sake of their family would lead to a good use of resources in society as a whole.

This was not an excuse to act greedily or unjustly. It simply meant that a person’s honest labors to progress in life for the sake of their family would lead to a good use of resources in society as a whole.


Smith believed that how wealthy a country becomes depends on the organization and skill of its labor force, plus the proportion of the population engaged in useful work.

Smith believed that how wealthy a country becomes depends on the organization and skill of its labor force, plus the proportion of the population engaged in useful work.


In rich countries, most people’s needs are abundantly supplied. This is because rich countries have a much greater “division of labor” than poor ones. There is great efficiency in dividing up tasks according to the ability of people best able to do them.

In rich countries, most people’s needs are abundantly supplied. This is because rich countries have a much greater “division of labor” than poor ones. There is great efficiency in dividing up tasks according to the ability of people best able to do them. 

What is the “invisible hand”?

Adam Smith’s famous example of the division of labor is the manufacture of pins. Imagine a workshop where the stages of production are divided up: one worker performs the operation of drawing out the wire, another straightens it, another cuts it, another finishes the pin.

Adam Smith’s famous example of the division of labor is the manufacture of pins. Imagine a workshop where the stages of production are divided up: one worker performs the operation of drawing out the wire, another straightens it, another cuts it, another 

The result: many thousands more pins can be made in a week than in a workshop where one person has to perform all these tasks.

The result: many thousands more pins can be made in a week than in a workshop where one person has to perform all these tasks.


Smith mentions the Scottish Highlanders of his time. As they lived so remotely from towns they had to be their own “butcher, baker and brewer”. But in a city, a person’s work speciality allows them no time to make all the things that satisfy their needs.

Smith mentions the Scottish Highlanders of his time. As they lived so remotely from towns they had to be their own “butcher, baker and brewer”. But in a city, a person’s work speciality allows them no time to make all the things that satisfy their needs.


Instead, they must sell the excess of what they produce. For example, a shoemaker may need only six pairs of shoes for his family, but makes hundreds more. In selling them, he is able to buy the things his family needs.

Instead, they must sell the excess of what they produce. For example, a shoemaker may need only six pairs of shoes for his family, but makes hundreds more. In selling them, he is able to buy the things his family needs.


The bigger the city, the more specialized the workforce, and the greater the trade in goods and services. Big cities are wealthy precisely because of their increased division of mental and physical labor. Many people are even paid “to think”.

The bigger the city, the more specialized the workforce, and the greater the trade in goods and services. Big cities are wealthy precisely because of their increased division of mental and physical labor. Many people are even paid “to think”.


The third key idea in The Wealth of Nations, after the power of self-interest and the division of labor, is the determination of value.

The third key idea in The Wealth of Nations, after the power of self-interest and the division of labor, is the determination of value.


“The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” Adam Smith

“The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” Adam Smith


The value of something is determined by the difficulty and ingenuity involved in its creation. People become rich by saving others the labor of having to make it themselves.

The value of something is determined by the difficulty and ingenuity involved in its creation. 
People become rich by saving others the labor of having to make it themselves.


But this is where Adam Smith gets insightful. He notes that “the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him.”

But this is where Adam Smith gets insightful. He notes that “the whole produce of labour does not always belong to the labourer. He must in most cases share it with the owner of the stock which employs him.”


This was Karl Marx’s problem with capitalism: the person who actually makes something loses out on most of the gains from its sale. But in Adam Smith’s mind this is fair, since it is only the owner’s capital that allows the the wages of the laborer to be paid.

This was Karl Marx’s problem with capitalism: the person who actually makes something loses out on most of the gains from its sale. But in Adam Smith’s mind this is fair, since it is only the owner’s capital that allows the the wages of the laborer to be 

 Grow rich through the division of labor

Adam Smith provides a simple recipe for how countries can become wealthy. It begins with its citizens being good savers. Every frugal person becomes a “public benefactor”, as their savings are invested towards productive ends in society, which creates jobs.

Adam Smith provides a simple recipe for how countries can become wealthy. It begins with its citizens being good savers. Every frugal person becomes a “public benefactor”, as their savings are invested towards productive ends in society, which creates job

The wealth formula of savings-investment-employment may seem obvious to us today, but in Adam Smith’s time it was not the prevailing view of how nations could grow rich. Nations sought to build up their store of gold, silver and other precious metals, often through conquest or war.

The wealth formula of savings-investment-employment may seem obvious to us today, but in Adam Smith’s time it was not the prevailing view of how nations could grow rich. Nations sought to build up their store of gold, silver and other precious metals, oft

The other avenue by which countries could grow rich was trade. Adam Smith noted that the most successful cultures of the past were all traders, usually maritime.

The other avenue by which countries could grow rich was trade. Adam Smith noted that the most successful cultures of the past were all traders, usually maritime.


Countries who trade will always be richer than those who do not, since the trading country is able to buy raw materials from overseas and turn them into manufactured goods, which are more valuable than raw commodities.

Countries who trade will always be richer than those who do not, since the trading country is able to buy raw materials from overseas and turn them into manufactured goods, which are more valuable than raw commodities.


Smith’s insight was that trade always benefits both parties to the transaction. National wealth grows when things and money are circulated and exchanged.

Smith’s insight was that trade always benefits both parties to the transaction. National wealth grows when things and money are circulated and exchanged.


This was understood by the medieval European cities such as Florence, which amassed huge riches not by simply doing business with the countryside surrounding them, but with “the most remote corners of the globe”.

This was understood by the medieval European cities such as Florence, which amassed huge riches not by simply doing business with the countryside surrounding them, but with “the most remote corners of the globe”.


Cities and countries that myopically stay within their own borders, in contrast, like dynastic China and ancient Egypt, were destined to founder.

Cities and countries that myopically stay within their own borders, in contrast, like dynastic China and ancient Egypt, were destined to founder.


Adam Smith frowned on nations that believed they could get rich not by developing their land or industry, but by looting other countries. “The sacred thirst for gold” brought the Spaniards to the New World, yet the effect on the long term prosperity of Spain was not good.

Adam Smith frowned on nations that believed they could get rich not by developing their land or industry, but by looting other countries. “The sacred thirst for gold” brought the Spaniards to the New World, yet the effect on the long term prosperity of Sp

Instead of plundering in search of fantastic gains, Spain would have been better off slowly developing its own resources, using trade to sell its surpluses and bring it what it needed to make high value products.

Instead of plundering in search of fantastic gains, Spain would have been better off slowly developing its own resources, using trade to sell its surpluses and bring it what it needed to make high value products.


 How countries grow rich

Adam Smith was skeptical of the monopoly trading companies (such as the British East India Company), and he was not keen on colonization of other lands.

Adam Smith was skeptical of the monopoly trading companies (such as the British East India Company), and he was not keen on colonization of other lands.


The Wealth of Nations was written when America was still a collection of British colonies, and Smith argues that Britain should withdraw. It had cost the British taxpayer too much, and it was time for Britain to assume more modest ambitions.

The Wealth of Nations was written when America was still a collection of British colonies, and Smith argues that Britain should withdraw. It had cost the British taxpayer too much, and it was time for Britain to assume more modest ambitions.


The fifth big idea from Adam Smith’s The Wealth of Nations is “natural liberty”. Rulers can either hinder or help the progress of their citizens. They help them by getting out of the way and establishing basic security and order to let people and their enterprises flourish.

The fifth big idea from Adam Smith’s The Wealth of Nations is “natural liberty”. Rulers can either hinder or help the progress of their citizens. They help them by getting out of the way and establishing basic security and order to let people and their en

In the late 1700s, there was huge frustration with government red tape and extortion. Officials extracted every possible penny from citizens through taxes, customs, excises and arbitrary rules.

In the late 1700s, there was huge frustration with government red tape and extortion. Officials extracted every possible penny from citizens through taxes, customs, excises and arbitrary rules.


Smith’s principle of “natural liberty” assumed people should be free to follow their economic interests with a minimum of government interference. He insisted there were only three areas where government should have a role:

Smith’s principle of “natural liberty” assumed people should be free to follow their economic interests with a minimum of government interference. He insisted there were only three areas where government should have a role: 


1) Protecting a society from “the violence and invasion of other independent societies”.2) Protecting citizens from violence and establishing the rule of law. 3) Building public works and institutions (schools, roads etc) that are too expensive for a single individual to undertake.

1) Protecting a society from “the violence and invasion of other independent societies”.
2) Protecting citizens from violence and establishing the rule of law. 3) Building public works and institutions (schools, roads etc) that are too expensive for a sin

These three roles of government have stood the test of time. Today, governments inevitably grow large and bloated, moving into areas that are not really their business. In time this inevitably makes the public poorer overall.

These three roles of government have stood the test of time. Today, governments inevitably grow large and bloated, moving into areas that are not really their business. In time this inevitably makes the public poorer overall.


Although governments believe in their ability to “pick winners” in terms of subsidizing particular industries to create jobs, Adam Smith warned that such investment stopped the natural tendency of a society to allocate resources in the best way.

Although governments believe in their ability to “pick winners” in terms of subsidizing particular industries to create jobs, Adam Smith warned that such investment stopped the natural tendency of a society to allocate resources in the best way.


The Wealth of Nations was published when Europe was entering a new industrial era, and the nature of government needed to change quickly if there were not to be revolutions. People were fed up and wanted to be free to pursue their economic destinies.

The Wealth of Nations was published when Europe was entering a new industrial era, and the nature of government needed to change quickly if there were not to be revolutions. People were fed up and wanted to be free to pursue their economic destinies.


The smartest governments did not put faith in themselves to create prosperity, Adam Smith argued, but rather in the ingenuity of their citizens. The wealth of nations was not of its government, but of its people.

The smartest governments did not put faith in themselves to create prosperity, Adam Smith argued, but rather in the ingenuity of their citizens. The wealth of nations was not of its government, but of its people.


Faith in the people

The Wealth of Nations

Wealth of Nations

5 key ideas from "The Wealth of Nations" by Adam Smith

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