Study Guide

The Wealth of Nations Analysis

By Adam Smith

  • Tone

    Professorial (Explainy)

    Adam Smith ain't here to entertain us. He's here to teach us some important lessons about how modern countries should manage their economies. Open this book to any random page and you'll find Smith droning along in his dry, straightforward tone. He is here to present us with clear information, saying things like:

    The causes of this improvement, in the productive powers of labour, and the order, according to which its produce is naturally distributed among the different ranks and conditions of men in the society, make the subject of the First Book of this inquiry. (I.5)

    You'll have to get used to that, because Smith isn't here to hold your hand. He's gonna dish out some clear arguments and it's up to you not to get bored.

  • Genre

    Philosophical Literature

    There's no real plot to this book. It's just Adam Smith laying out his ideas for how Britain can manage its economy better and provide better freedoms for its people. Along the way, he criticizes the country's colonial violence and its dumb policies for interfering in its economy. Smith ain't here to get us involved in characters or a plot. He's an ideas man, and his ideas have become some of the most important ones in the history of the western world.

  • What's Up With the Title?

    Most people just call it The Wealth of Nations, but the full title of Adam Smith's book is An Inquiry into the Nature and Causes of the Wealth of Nations. That's because Smith really wants to lay out for people why some countries are wealthier than others.

    In his mind, the reason you see more progress in some countries is because they engage in free trade and lots of competition. Countries that lag behind are the ones where the governments try to control the markets and discourage competition. The strange thing is that most of the world was completely wrong before Smith wrote this book. That's why he gave the thing such a plain title. He was writing about something that most people took for granted. Little did these readers know that they were about to have their minds blown by Smith's economic theories.

  • What's Up With the Ending?

    If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expence of defending those provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavor to accommodate her future views and designs to the real mediocrity of her circumstances. (5.3.15)

    By the end of this book, Smith is so exasperated with the senselessness of British economic policy that he recommends for the country to jettison all of its colonial territories. In his mind, having these colonies is like having a lot of jewels. They're really expensive and they don't serve any purpose other than showing people how awesome you are.

    Smith is worried that Britain will bankrupt itself if it insists on keeping its empire going despite the economic strain it creates. In the end, he can only plead for people to be smarter and to run their economy more efficiently by having free trade and letting these colonies become independent territories.

  • Setting

    18th-Century England

    Like many British subjects in the 1700's, Adam Smith was pretty proud of how much more "civilized" England was than most of the other countries in the world. In his mind, even the lowliest worker in England is better off than "an African king, the absolute master of the lives and liberties of ten thousand naked savages" (1.1.11).

    This kind of racist prejudice is pretty par for the course in Smith's time, but that doesn't mean he just blindly participates in all the bigotry of his day. He's actually firmly against European colonization because he believes everyone deserves to be free.

    One thing that Smith criticizes heavily about the setting he's living in is the way government keeps meddling in the economy. In his mind, the government's "ultimate object, however, it pretends, is always the same, to enrich the country by an advantageous balance of trade" (4.8.1).

    This idea that a country can only get richer if others get poorer was completely dominant during Smith's time, and the main goal of his Wealth of Nations is to get people past this kind of thinking. He wants people to realize how free trade and competition will make the whole world richer. But unfortunately, he feels trapped in the prejudices of his time, and it would be at least another hundred years after his death before any country would really start putting most of his ideas into practice. Today, he's considered one of the most influential thinkers in history.

  • Tough-o-Meter

    (8) Snow Line

    Adam Smith tries hard to get his ideas across in a clear way, but the fact remains that this is an economics textbook from 1776. So, um, it's not the easiest of reads.

    Even when Smith does make his points clearly, he spends the next forty pages supporting his arguments with examples that many readers today won't understand. Throw in the general boredom factor (and the archaic language factor) and you're in for a tough slog.

    But hey: this book really has actually influenced every aspect of your life. No lie. So it's worth giving it your best shot.

  • Writing Style

    Wordy and Educated

    Adam Smith wants you to pay attention to what he says. And if you were reading this book in the 1700s, the only way he was going to do that was if he showed you he was an educated man who knew what he was talking about. That's why he rarely loses any opportunity to write in a way that reminds you he's read a few fancy books in his time. Just read a sentence like this:

    [This empire] has hitherto been, not an empire, but the project of an empire; not a gold mine, but the project of a gold mine; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost immense expence, without being likely to bring any profit; for the effects of the monopoly of the colony trade, it has been shewn; are, to the great body of the people, mere loss instead of profit. (5.3.15)

    Whew. Hemingway he ain't. Even though Smith ended up selling a ton of books, his writing style shows that this wasn't his first priority. Neither was making his prose clear and poetic. His first priority was making sure people took his ideas seriously.

  • The Invisible Hand

    We're not kidding when we say that Adam Smith's invisible hand is probably one of the most historically important symbols ever created. It lags just behind Tolkien's One Ring, but it's still ahead of Fitzgerald's dang green light across the bay.

    Present day countries (including the United States and Britain) often base massive economic decisions on the assumption that there's an invisible hand that controls markets and makes them more efficient. Ugh. Creepy ghost hand.

    So what is this invisible hand and where does it come from? In Smith's mind, the invisible hand is the godlike force that makes markets produce the most human happiness possible. And this invisible hand only goes to work when all the individuals in a society work completely for their own self-interest. Yes, you read that right. Everything works out as long as everyone behaves selfishly. As Smith writes:

    [By] directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. (4.2.9)

    The end Smith talks about here is increased human happiness and productivity.

    If everyone pursues their self-interest, then they will be extremely productive and everyone will basically profit from all the hard work everyone else is doing. Smith sums things up when he writes:

    By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the publick good. (4.2.9)

    In other words, Smith thinks that people tend to do more harm than good when they base their decisions on helping others, because in the long run this will lead to an inefficient economy and everyone will end up being worse off. Also, can we bring back the spelling "publick"? It looks snazzy.

  • Money

    Some people will tell you that money is the root of all evil and that it'll only cause mo' problems. But Adam Smith is convinced that money is one of the greatest inventions that humanity has ever come up with.

    Before money, people could just trade stuff for other stuff. But say you were a beermaker and the food seller didn't want any beer. Then you wouldn't get any food. As Smith puts it:

    [the beermaker and breadmaker] have nothing to offer in exchange, except the different productions of their respective trades, and the butcher is already provided with all the bread and beer which he had immediate occasion for. (1.4.2)

    In other words, you're out of luck if you produce something that the other person doesn't want. That's why you need some unit of value (like money) that you can use to buy stuff from people who don't necessarily want your stuff.

    The funny thing about money is that it can be almost anything as long as people agree on its value. As Smith notes:

    Salt is said to be the common instrument of commerce and exchanges in Abyssinia; a species of shells in some parts of the coast of India; dried cod at Newfoundland; tobacco in Virginia. (1.4.3)

    No matter what you use, the important thing is that you and everyone else in your society agrees that money symbolizes value that can be used to buy stuff. The only reason a person will sell you something for money is because they can then use that money to buy stuff they want.

    So at the end of the day, money is more a symbol than a physical thing. Its value is totally made-up and symbolic

  • Competition

    Many people might think of competition as a fact of life… which, yeah, it is. But Adam Smith also sees it as a symbol of all that is good and admirable about human existence.

    He also believes that nothing contributes more to human happiness than competition, because competition causes all of us to raise our game and be better. As Smith notes:

    […] competition […] is advantageous to the great body of the people, who profit greatly besides by the good market which the great expence of such a nation affords them in every other way. (4.3.8)

    In other words, competition gives us access to better products and services for cheaper prices because the folks producing these things are always trying to outdo each other. Yay, cutthroat competition!

    There is almost no part of life (in Smith's mind) that can't be improved by competition. In banking, for example, Smith thinks that "free competition too obliges all bankers to be more liberal in their dealings with their customers, lest their rivals should carry them away" (2.2.52).

    So in other words, you have a much better opportunity to qualify for a bank loan if more bankers are competing with each other to keep you satisfied. At the end of the day, Smith thinks that:

    In general, if any branch of trade, or any division of labour, be advantageous to the publick, the freer and more general the competition, it will always be the more so. (2.2.52)

    So yeah, competition is good, especially if you love buying high quality products really cheaply.

  • Narrator Point of View

    Third Person (Omniscient)

    Adam Smith introduces himself in the first person in the introduction to The Wealth of Nations, but apart from that he writes in the third person and delivers his opinions as though they are pure facts. For example, he'll write a line like this:

    Nations tolerably well advanced as to skill, dexterity, and judgment, in the application of labour, have followed very different plans in the general conduct or direction of it. (I.7)

    And this is basically what he spends the entire book exploring – the ways that different countries try to make themselves rich, and why some methods work and others don't.

    When you're telling people how to run their country and their economy, it's probably best that you don't begin every sentence with "I sorta feel like this is the right way to do it, but feel free to disagree." Instead, you want to sound omniscient and rational, so Smith makes sure to remove himself from his claims, making them sound more like facts than opinions.

  • Booker's Seven Basic Plots Analysis

    Anticipation Stage and "Call"

    Our hero Adam Smith is convinced that something is not quite right with the world. He feels "called" from his everyday life to write a book that will help Britain become the wealthiest country on earth. And it's all about convincing the government to take its dirty hands off the economy and to just let things work on their own. It's the economic equivalent of taking training wheels off of a bicycle.

    Dream Stage

    Smith takes us into a wonderful world where everyone uses money to buy and sell the goods they need to live the most fulfilling lives they can. It's not like everyone is rich, but even the poorest people in society live better lives than some of the richest people in the undeveloped countries of the world.

    That's because it's totally possible for the whole country to get richer at the same if the people keep competing to produce better goods more cheaply. Because when you think about it, making more money isn't the only way to become wealthier. You can also become wealthier if the cost of everything goes down and you keep making the same amount of money.

    Frustration Stage

    Unfortunately, Adam Smith's vision of a truly free market is only a dream. The reality is that the British government still interferes a lot in the economy, putting crazy restrictions on foreign goods and encouraging exports even when it makes no sense to do so.

    It's all because Britain thinks it can only get richer if other countries get poorer. But as Smith reminds us, none of this makes sense because free trade can make all of the participants richer at the same time.

    Nightmare Stage

    In case we didn't realize how bad things were, Adam Smith gives us a clear idea of just how inefficient and immoral Britain's economic system is. For starters, it's based completely on the immoral destruction of human freedom, because Britain has overseas colonies where it uses slaves for labor on land that the colonizers have stolen from the original inhabitants. It's all one huge tangle of horror, since it accomplishes the double outrage of ruining human freedom while making Britain poorer than it would be if it just left its colonies to be free.

    The Thrilling Escape from Death, the Death of the Monster

    By the end of the book, Adam Smith has become utterly convinced that his arguments about human freedom and economic policy are correct. Unfortunately, this story of overcoming the monster doesn't have the happy ending that most do. That's because Smith isn't yet sure of how people will react to his ideas. He's pessimistic about his future success.

    But history would ultimately give him a happy ending, as his book would become a bestseller and would become the most influential economics book of the modern age.

  • Plot Analysis

    Exposition (Initial Situation)

    Why Rich, Why Poor?

    Adam Smith opens this book by saying that he wants to tell us all about why some countries are wealthier than others. He hopes that by doing so he'll be able to figure out the main things a country can do in order to make itself richer.

    Before moving into the next section of his book, he gives us a little hint. Rich countries are rich because they have modern markets where everyone is acting as selfishly as possible. Now that might not sound like a winning strategy for some people. After all, you can't run a good football team if you tell everyone to play as selfishly as possible. But for Smith, economies just don't work like football teams. Clear eyes plus full hearts does not equal "can't lose."

    Rising Action (Conflict, Complication)

    That's Just the Way It Is

    As the free market works more efficiently, some people are going to start owning more and more property privately. Other people will have to pay rent to live on this property… and eventually you'll get a class system where some people are rich and others are poor.

    And for Smith, this is a good thing, because it'll make people more competitive. More competition means more efficiency in the market because everyone will always be trying to create a better product or service. But that means that we have to accept the fact that there are always going to be poor people in society. It's not because they don't try hard enough; it's just that we have to sacrifice them if the market is going to be efficient.

    Climax (Crisis, Turning Point)

    Drumroll, Please…

    And now it's time for the secret to success that we've all been waiting for. Adam Smith is going to reveal to us exactly why some countries get richer than others. And at the end of the day, it's all about having a government that just leaves the economy alone and lets it do its own thing.

    On top of that, it's all about making sure that special interest groups (like farmers or business people) don't find ways of manipulating the government into rigging the market in their favor. It doesn't matter if someone thinks of themselves as a "job creator." The government should never give one ounce of special treatment to a specific business or type of business.

    Falling Action

    I'm Right, But It Doesn't Matter

    Despite his confidence in his arguments, Adam Smith is super pessimistic about his chances for inspiring any actual change in Britain's economic policy. That's because he's convinced that people will very rarely act rationally.

    If Britain wanted to be better off, its government would leave the economy alone and let all of its overseas colonies become independent countries. But Smith is convinced that dumb pride will prevent the government from doing these things. So Britain will have to go on losing out on all the great things its economy could be doing.

    Resolution (Denouement)

    And Then There's the King and Taxes

    Adam Smith spends the last section of this book talking about how the King of England imposes taxes on the British people and uses those taxes to support public schools and other institutions for the public good.

    It's all pretty dry… but also surprising, because it shows that Smith actually believes in taxes and public institutions. Many free market-types would think that both of these things are bad and that Smith would never support them. But it's all there in black and white.

  • Three-Act Plot Analysis

    Act I

    The first third of this book focuses on the clear division that exists between the rich developed countries of the world and the poor undeveloped ones. Some people might think that the rich countries are rich because the people living in them are smarter and more motivated. But Adam Smith says this is all just hogwash.

    The most important difference is the fact that the rich countries have markets that are competitive and free. This means that the people in them are constantly working to create better products and to sell them more cheaply. Any society that has access to awesome cheap goods makes even the poorest people look rich compared to other countries.

    Act II

    Despite the fact that Britain is a wealthy country, Smith thinks it could be doing even better if its government followed some commonsense advice for making its economy better. For starters, it should get rid of any laws that make it difficult to import cheap foreign goods.

    Second, it should get rid of all its overseas colonies and allow them to become independent countries. If they could just do these things, Britain would become way richer and its people would see their lives get more comfortable.

    Act III

    Once he has finished laying out his arguments, Smith backtracks and admits that the British government is unlikely to follow his advice, because human pride will get in its way. Like a slave master, the British government will take a financial hit in the long run in exchange for the pride it feels in owning overseas colonies.

    Once he's covered this, Smith also admits that there are some cases where it is good for the government to tax the public in order to support certain government institutions. And that's about it. The book kind of ends on a soft note.

  • Allusions

    Literary and Philosophical References

    • Pliny the Elder (1.4.6)
    • Thomas Hobbes, Leviathan (1.5.3).
    • Plutarch (1.10.94).
    • David Hume (2.2.50).
    • John Locke (4.1.3).

    Historical References

    • Gregory King (1.8.34).
    • Isocrates (1.10.94)
    • Julius Cesar (2.3.34).
    • King John (3.3.9).
    • Christopher Columbus (4.7.3).
    • Sir Walter Raleigh (4.7.10)