The Wealth of Nations Adam Smith

1
The Wealth of NationsAdam Smith

• Alex Scanlon
• Andy Western
• Shaunda Brown

2
Background

• Written in 1776
• Uses historical knowledge as his key evidence,
  along with intuition and reason
• The support of a classical liberal economic
  philosophy broke with prevailing mercantilism

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The Division of Labor

• Three reasons why specialization works
• Improved dexterity of the worker
• Saving time of switching between types of work
• Innovation of machinery
• How did specialization come about?
• Peoples desire to exchange their labor for goods
  and services they cant produce themselves

4
Division of Labor (cont.)

• Limits on specialization
• Market size determines the degree of division
• Accessibility to various means of transport
  determines market size

5
The Accumulation of Stock

• Without the division of labor there is no need
  for accumulation of stock
• Specialization leads to building up of stocks
• A persons production provides a small part of
  his or her occasional wants
• Stock of their produce facilitates trade

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Accumulation of Stock (cont.)

• Accumulation must precede specialization
• The degree of specialization is a function of the
  amount of accumulation
• Greater accumulation of stock leads to a greater
  workforce through greater specialization

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The Progress of Opulence

• Trade between town and country
• Town gets raw materials and subsistence
• Country gets manufactured goods
• Cultivation of the country must proceed the
  progress of towns
• Once domestic agricultural and manufacture needs
  are met, then foreign commerce can take place

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Progress of Opulence (cont.)

• What caused Europe to stray from the progress in
  history
• The laws of primogeniture
• The practice of slavery
• Land policies regarding rent and taxation
• These prevented cultivation of land for
  agriculture

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Smiths Conclusion

• Expanding markets lead to higher productivity via
  the division of labor
• Economic growth is self-generating and
  self-reinforcing
• Natural economic progress tends to allocate
  capital first towards agriculture, move towards
  manufacturing, and then direct resources to
  foreign trade.

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Thoughts

• Are the theories that were held to be true by
  Smith in 1776 still relevant to society today?
• Did America follow the natural progression of
  economics unlike the whole of Europe?
• How accurate are Smiths observations?