Adam Smith’s magnum opus “An Inquiry into the causes of the wealth of nations” is a work that encompasses economics and moral sentiments that are concerned with the political and social aspects of the creation of wealth and the relative richness of one nation over the other. The book is divided into five parts or five books that explain each aspect of the precursor of today’s capitalist system. Each of the books points to one specific aspect of the political economy as Adam Smith called the system of producing and distributing wealth.
Book one describes the division of labor and the means of profit-making along with the accumulation of capital and the consequences of free trade. Essentially the main points of the book are to do with the structure of the economy that was in operation in the 18th century and the mechanism or the workings of the same. One of the key points of the book is how Smith describes the nature of taxation and the accumulation of capital.
Both of these components of the political economy are necessary for the effective and efficient working of the economy and hence Smith’s treatise is an important and seminal work in this regard. The other notable feature of the work is the explanation given for colonization and the justification for the British Empire along with its colonies. Smith dwells at length on the economic efficacies of the same and describes the sovereign structure of the economy along with its constituents in terms of how the colonies contribute to the overall well-being of the Empire and are in turn enriched by investments. Thus, there is a clear case for the mercantile and expansionist role.
In my opinion, Smith’s arguments for free trade are the best example of visionary thinking and show someone who had the foresight to visualize the directions that capitalism would take ahead of his time. The other point that is often quoted is Smith’s characterization of people as rational and self-interest-seeking individuals who participate in the economy to maximize their gains in the process. The famous assertion of Adam Smith that the “bread on the table is made not because of the baker’s generosity but because he tends to increase his profit” shows the very nature of the capitalist enterprise.
I tend to agree with Smith about the profit-maximizing behavior and the tendency of people to act in their interest though it may not always be the case that people are rational at heart and do the same in their actions. The other famous assertion of Smith is the so-called “invisible hand” of the market that keeps the market in equilibrium and tends to regulate the market without much intervention from the outside.
The main point that I tend to disagree with Smith is his assertion about the markets regulating themselves and reaching points of equilibrium without outside intervention and regulation. In the context of the recent economic crisis, it would be hard to argue that the theory of the invisible hand the theory of moral sentiments would suffice to regulate the market. Thus, this is one point that I disagree with.
I find the ideas about the origin of money the most challenging and I found it hard to assimilate some of the concepts like the evolution from the barter system to the use of money to the rise of fractional use of money and interest, particularly in banking. Smith foresaw much of the evolution of the capitalist economy and pointed to the use of money as a medium of monetary and trade exchange rather than goods.
As explained above, the key ideas that are the most significant and impacted me the most are the ones about moral sentiments, the invisible hand, and the theory of free trade. The moral sentiments concern the pursuit of happiness and self-interest by rationally minded individuals. The other point is about the invisible hand of the market in the functioning of the economy. These two points are now taken to be self-evident though when they were first proposed; they seemed revolutionary and path-breaking.
The last point is about the benefits of free trade that were the most remarkable of all. It is to the credit of Adam Smith that he foresaw the benefits of trade, exchange, and barters of goods much in the same way that David Ricardo propounded the theory of comparative advantage.
I would have liked the author to spend more time on how the effects of the expansion of a country into overseas colonies have an impact on the economy of the colonized. Adam Smith dwells at length on the benefits of colonization on the host country. However, he could have listed the effects of the same on the countries that have been colonized and how they have adapted to the process of colonization. This has been a relevant theme from which later economists drew their theses.
I have benefited enormously from the insights that the book provides and my thinking on the subject has been influenced in the way I perceive the workings of the market and the structure of the economy. The ideas about the factors of production that include land, labor, capital, and entrepreneurship make the core concepts by which economics is taught and the way the economy operates. It is significant to note that there were many aspects of the communist economy that Adam Smith touched upon as well.
I would certainly recommend the book to others, particularly to anyone who has an interest in Economics and wishes to make it a course to study or for a career. The book is essential reading for all of us who want to get acquainted with economics. I would also recommend the book to anyone who wants to know the origins of the modern capitalist system and to get an insight into the thinking of one of the most original thinkers in the history of western philosophy.
Sources
An Inquiry into the Nature and Causes of the Wealth of Nations – Book 1; Adam Smith.