An Introduction to Adam Smith's The Wealth of Nations.

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A Macat Analysis of Adam Smith's The Wealth of Nations. How can countries economically prosper?

Moral philosopher and pioneer of political economy, Adam Smith wrote The Wealth of Nations in 1776. It is commonly considered the first modern work of economics and introduced many concepts that later became central to economic thought. The main aim of Smith's book was to identify the causes of prosperity within a country.

Amongst many elements he identified, he saw three as being of particular importance. These were the division of labour, the nature of wages and foreign markets. But how do these three factors work to increase prosperity? Let's imagine an English factory that makes pins.

In order for them to become prosperous, the owners decide to read Adam Smith's The Wealth of Nations. ● First, they decide to look at their division of labour.

The factory owners currently employ 100 people to make pins. So each person will first straighten out the wire, cut it up, sharpen it, finish if off and then package the finished pins. But they read Smith's assertion that productivity could be improved if employees focus on one specific task only. So, instead of each worker making a pin from start to finish, the factory owners decide to give each employee a certain job. One will straighten the wire, another will cut it up, another will package the finished pins and this coordination dramatically reduces production time. ● Secondly, the factory owners consider wages.

If all factory workers receive equal wages despite doing different jobs, they would all want the easiest jobs – creating a shortage for certain tasks. The factory owners' solution is to pay those with the hardest jobs the most money – and those with the easiest ones, less.

● Thirdly, the factory owners look to foreign markets.

Smith believed that prosperity could be better achieved by trading with other countries. He challenged the dominant economic ideology of the time, Merchantilism – which was the belief that a country could best increase its wealth by levying trade tariffs on competitors. So suppose England has many pin factories because it's successful at pin-making. And lets say France is bad at making pins but good at making wine. The benefit that Smith pointed out can now be seen. By trading what they are good at, both countries benefit and prosper as a result. Smith's book, The Wealth of Nations was his magnum opus – and it offers one of the world's first collected descriptions of what builds a nations' wealth.

A more detailed examination of his ideas can be found in the Macat Analysis.