Wealth of Nations

Adam Smith

An Inquiry into the Nature and Causes of the

Wealth of Nations

with an Introduction by Mark G. Spencer

WORDSWORTH CLASSICS

OF WORLD LITERATURE

Wealth of Nations first published

by Wordsworth Editions Limited in 2012

Published as an ePublication 2013

ISBN 978 1 84870 564 7

Introduction © Mark G. Spencer 2012

Wordsworth Editions Limited

8B East Street, Ware, Hertfordshire SG12 9HJ

Wordsworth® is a registered trademark of

Wordsworth Editions Limited

Wordsworth Editions is

the company founded in 1987 by

MICHAEL TRAYLER

All rights reserved. This publication may not be reproduced, distributed, or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publishers.

Readers interested in other titles from Wordsworth Editions are invited to visit our website at

www.wordsworth-editions.com

For our latest list of printed books, and a full mail-order service contact

Bibliophile Books, Unit 5 Datapoint,

South Crescent, London E16 4TL

Tel: +44 020 74 74 24 74

Fax: +44 020 74 74 85 89

orders@bibliophilebooks.com

www.bibliophilebooks.com

For my husband

ANTHONY JOHN RANSON

with love from your wife, the publisher

Eternally grateful for your

unconditional love

Contents

Introduction

Further Reading

Wealth of Nations

Volume One

Introduction and Plan of the Work

Book 1: Of the Causes of Improvement in the Productive Powers of Labour, and of the Order according to which its Produce is Naturally Distributed Among the Different Ranks of the People

Chapter 1: Of the Division of Labour

Chapter 2: Of the Principle which Gives Occasion to the Division of Labour

Chapter 3: That the Division of Labour is Limited by the Extent of the Market

Chapter 4: Of the Origin and Use of Money

Chapter 5: Of the Real and Nominal Price of Commodities, or of their Price in Labour, and their Price in Money

Chapter 6: Of the Component Parts of the Price of Commodities

Chapter 7: Of the Natural and Market Price of Commodities

Chapter 8: Of the Wages of Labour

Chapter 9: Of the Profits of Stock

Chapter 10: Of Wages and Profit in the Different Employments of Labour and Stock

Part 1: Inequalities arising from the Nature of the Employments themselves

Part 2: Inequalities occasioned by the Policy of Europe

Chapter 11: Of the Rent of Land

Part 1: Of the Produce of Land which always affords Rent

Part 2: Of the Produce of Land which sometimes does, and sometimes does not, afford Rent

Part 3: Of the Variations in the Proportion between the respective Values of that sort of Produce which always affords Rent, and of that which sometimes does, and sometimes does not, afford Rent

Digression concerning the Variations in the Value of Silver during the Course of the Four last Centuries

Variations in the Proportion between the respective Values of Gold and Silver

Grounds of the Suspicion that the Value of Silver still continues to decrease

Different Effects of the Progress of Improvement upon three different Sorts of rude Produce

Conclusion of the Digression concerning the Variations in the Value of Silver

Effects of the Progress of Improvement upon the real Price of Manufactures

Conclusion of the Chapter

Prices of Wheat

Book 2: Of the Nature, Accumulation, and Employment of Stock

Introduction

Chapter 1: Of the Division of Stock

Chapter 2: Of Money, Considered as a Particular Branch of the General Stock of the Society, or of the Expence of Maintaining the National Capital

Chapter 3: Of the Accumulation of Capital, or of Productive and Unproductive Labour

Chapter 4: Of Stock Lent at Interest

Chapter 5: Of the Different Employment of Capitals

Book 3: Of the Different Progress of Opulence in Different Nations

Chapter 1: Of the Natural Progress of Opulence

Chapter 2: Of the Discouragement of Agriculture in the Ancient State of Europe after the Fall of the Roman Empire

Chapter 3: Of the Rise and Progress of Cities and Towns after the Fall of the Roman Empire

Chapter 4: How the Commerce of Towns Contributed to the Improvement of the Country

Book 4: Of Systems of Political Economy

Introduction

Chapter 1: Of the Principle of the Commercial or Mercantile System

Chapter 2: Of Restraints upon Importation from Foreign Countries of such Goods as can be Produced at Home

Chapter 3: Of the extraordinary Restraints upon the Importation of Goods of almost all Kinds, from those Countries with which the Balance is supposed to be Disadvantageous

Part 1: Of the Unreasonableness of those Restraints, even upon the Principles of the Commercial System

Digression concerning Banks of Deposit, particularly concerning that of Amsterdam

Part 2: Of the Unreasonableness of those extraordinary Restraints, upon other Principles

Volume Two

Chapter 4: Of Drawbacks

Chapter 5: Of Bounties

Digression concerning the Corn Trade and Corn Laws

Chapter 6: Of Treaties of Commerce

Chapter 7: Of Colonies

Part 1: Of the Motives for Establishing New Colonies

Part 2: Causes of the Prosperity of New Colonies

Part 3: Of the Advantages which Europe has derived from the Discovery of America, and from that of a Passage to the East Indies by the Cape of Good Hope

Chapter 8: Conclusion of the Mercantile System

Chapter 9: Of the Agricultural Systems, or of those Systems of Political Economy which Represent the Produce of Land, as either the Sole or the Principal Source of the Revenue and Wealth of Every Country

Book 5: Of the Revenue of the Sovereign or Commonwealth

Chapter 1: Of the Expences of the Sovereign or Commonwealth

Part 1: Of the Expence of Defence

Part 2: Of the Expense of Justice

Part 3: Of the Expense of public Works and public Institutions

Article 1: Of the public Works and Institutions for facilitating the Commerce of the Society

Article 2: Of the Expence of the Institutions for the Education of Youth

Article 3: Of the Expence of the Institutions for the Instruction of People of all Ages

Part 4: Of the Expence of supporting the Dignity of the Sovereign

Conclusion

Chapter 2: Of the Sources of the General or Public Revenue of the Society

Part 1: Of the Funds, or Sources of Revenue, which may peculiarly belong to the Sovereign or Commowealth

Part 2: Of Taxes

Article 1: Taxes upon Rent. Taxes upon the Rent of Land

Taxes which are proportioned, not to the Rent, but to the Produce of Land

Taxes upon the Rent of Houses

Article 2: Taxes upon Profit, or upon the Revenue arising from Stock

Taxes upon the Profit of particular Employments

Appendix to Articles 1 and 2: Taxes upon the Capital Value of Lands, Houses, and Stock

Article 3: Taxes upon the Wages of Labour

Article 4: Taxes which it is intended should fall indifferently upon every different Species of Revenue

Capitation Taxes

Taxes upon Consumable Commodities

Chapter 3: Of Public Debts

Appendix: On the Herring Bounty

Index of Names

Introduction

Adam Smith and the Wealth of Nations

Adam Smith (1723–1790) was one of the brightest stars of the eighteenth-century Scottish Enlightenment. An Inquiry into the Nature and Causes of the Wealth of Nations was his most important book. First published in London in March 1776, its release was eagerly anticipated by Smith’s contemporaries. Upon publication, the Wealth of Nations became an immediate bestseller. The first edition sold out quickly and others followed. There were five authorized editions in Smith’s life, with a sixth edition being published in 1791, the year after his death. During his lifetime Wealth of Nations was translated into Danish, Dutch, French, German, Italian, and Spanish, with a summary appearing in Swedish. There were also eighteenth-century pirated re-printings, including several in Ireland (the first in Dublin even before the end of 1776), and in America (Philadelphia in 1789, and then again in 1796) where Smith’s book was to have a particularly notable impact, in part because the American colonies figured largely in the Wealth of Nations and also because the book circulated during the years of the American Revolution (1776–1783) and its aftermath. In the nineteenth and twentieth centuries the Wealth of Nations circulated globally, with Chinese, Finnish, Japanese, Russian and Turkish translations, among scores of others.

Today, Smith’s Wealth of Nations easily and rightfully claims a place as one of the classics of world literature. It is commonly celebrated as the first book of modern political economy and still provides the foundation for the study of that discipline. But it is much more than that. Along with important discussions of economics and political theory, Smith’s eighteenth-century approach mixed a substantial amount of plain common sense with large measures of history, philosophy, psychology, sociology, and much else. Few texts remind us so clearly that the Enlightenment was not only about abstract theory and book learning but was very much a lived experience, encompassing the writing and dissemination of books concerned with improving the human condition in practical ways for real people.

It is also important to remember that Wealth of Nations was not a one-off wonder, produced by a great mind working in isolation. Yes, Smith often kept to himself, was even something of a recluse at times, and lived up to the stereotypical character of an absent-minded professor – a favorite anecdote records him being so lost

in thought that he once walked some 15 miles from his home, wearing only his nightgown. But Smith’s ideas took shape within the socially and intellectually rich environment of the Scottish Enlightenment. He was acquainted with almost all of the Scottish Enlightenment’s greatest thinkers and writers, including philosophers, historians, medical men, geographers, artists, general

men of letters, and merchants. A roll call of names would include his teacher, Francis Hutcheson (1694–1746); a one time patron, Henry Home of Kames (1696–1782); his physician, the chemist William Cullen (1710–1790); Joseph Black (1728–1799), also a chemist, and a mining consultant; James Hutton (1726–1797), the founder of modern geology; James Oswald (1715–1769), MP and merchant; Robert Adam (1728–1792), a noted architect and speculative builder; and the distinguished professors Hugh Blair (1718–1800), Adam Ferguson (1723–1816), John Millar (1735–1802), and Principal William Robertson (1721–1793). Of special note here is Smith’s lasting and close friendship with his beloved David Hume (1711–1776) and later with Black and Hutton who became his literary executors. Smith also lived and worked in Glasgow, then the center of Scottish commerce, from 1751 to 1762. There he attended the Political Economy Club founded by a prominent banker and merchant, Provost Andrew Cochrane (1693–1777). Still, while the Wealth of Nations was the product of a particular mind that took shape in a particular time and place, it is a master-piece by any measure, remaining to this day essential reading for anyone who wishes to be better acquainted with the Western intellectual tradition.

Adam Smith’s precise date of birth is not known. He was baptized on 5 June 1723 in the burgh of Kirkcaldy in the east of Scotland on the Fife coast between the centers of Edinburgh to

the south and St Andrews to the north. Smith’s father, also Adam Smith (1679–1723), had been Clerk of the Court Martial in Scotland and, from 1714, was Controller of Customs at Kirkcaldy. He died several months before his son’s birth. Smith was raised by his mother, Margaret Douglas Smith (1694–1784). His first biographer, the philosopher Dugald Stewart (1753–1828) who had also been one of Smith’s students, recorded in his Account of the Life and Writings of Adam Smith, LL.D. (1794) that Smith’s ‘constitution during infancy was infirm and sickly, and required all the tender solicitude of his surviving parent.’

Not many of the events of Smith’s earliest years are known in detail. Perhaps that is why one childhood incident has become especially ingrained in the Smith historiography. From the time of Stewart’s account on most biographers can not resist repeating the story of the three-year-old Smith’s abduction by Gypsies! As Stewart told it:

An accident which happened to him when he was about three years old, is of too interesting a nature to be omitted in the account of so valuable a life. He had been carried by his mother to Strathenry, on a visit to his uncle Mr Douglas, and was one day amusing himself alone at the door of the house, when he was stolen by a party of that set of vagrants who are known in Scotland by the name of tinkers [Gypsies]. Luckily he was soon missed by his uncle, who, hearing that some vagrants had passed, pursued them, with what assistance he could find, till he overtook them in Leslie wood; and was the happy instrument of preserving to the world a genius, which was destined, not only to extend the boundaries of science, but to enlighten and reform the commercial policy of Europe.

Some of Smith’s subsequent biographers have read much into this event. One, W. R. Scott, even postulated that ‘the shock and, more especially, the constraint would remain deeply impressed on [Smith’s] sub-conscious mind, and this would engender an attitude which would be antipathetic to any enforced compliance and receptive to everything which was in the direction of freedom.’ With less sensationalism but more certainty historians can record that Smith attended the local burgh school of Kirkcaldy, under the guidance of schoolmaster David Miller. Smith showed promise in his studies in the rudiments of Latin, history, rhetoric, and mathematics. Several who knew Smith comment on his particular ability to memorize. In November 1737 the fourteen-year-old Smith matriculated at Glasgow University (that was

not an uncommonly young age to attend university in the eighteenth-century, in fact David Hume went to the University of Edinburgh at the age of eleven). What classes he took are

not known for certain, but probably included Latin and Greek, logic and mathematics, natural and moral philosophy. His most influential teachers were Robert Simson (1687–1768) and Francis Hutcheson (1694–1746). The first was a very fine classicist and the first Professor of Mathematics to teach Newtonian physics in the College. Hutcheson, the Professor of Moral Philosophy whom Smith called the ‘never to be forgotten’ was a favorite with the Glasgow students from 1729 to 1746, partly because