Study Guide

The Wealth of Nations Wealth

By Adam Smith

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And yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the master of the lives and liberties of ten thousand naked savages. (1.1.11)

For Adam Smith, free markets create more wealth for everybody, not just the richest people in society. He backs up this argument by saying that even the worst workers in England are often better off than the richest people in undeveloped countries.

He supplies the far greater part of them [his wants] by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such part of the produce of other men's labour as he has occasion for. (1.4.1)

So how do people create individual wealth? By producing more stuff than they need for themselves. So if a coat maker only needs one or two coats for himself, he'll sell hundreds of others in order to make money to buy other stuff (like groceries and a TV).

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)

Smith points out how different things have counted as money in different cultures. Metal coins are common, but in some places they even use salt cod as a form of money.

The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. (1.5.1)

We might think of things as having a price in terms of money. But when it comes to determining the actual value of something, Smith says that value is connected to how much labor or work we have to do to get something. So let's say you need to work two full days to get enough money for a new TV. For Smith, that means that the real value of the TV is two days' work.

Wealth, as Mr. Hobbes says, is power. But the person who either acquires, or succeeds to a great fortune, does not necessarily acquire or succeed to any political power, either civil or military. (1.5.3)

A lot of people will tell you that money is power. But Smith reminds us that this isn't necessarily the case. In a democratic country, any regular person can get elected to a political position. And even if that person is poor, they can still hold power over a rich person. Then again, having money sure doesn't hurt when someone wants to get elected as a politician.

But this original state of things, in which the labourer enjoyed the whole produce of his own labour, could not last beyond the first introduction of the appropriation of land and the accumulation of stock. (1.8.5)

There was once a situation where everyone worked on the land and kept everything they produced. But over time, people started to own private property and build up stockpiles of extra stuff. These people would become the rich folks, which means that poor people also started existing.

Sudden fortunes, indeed, are sometimes made in such places by what is called the trade of speculation. (1.10.41)

Smith admits that people sometimes get rich overnight by gambling on the stock market. But he doesn't recommend this as a safe way of making money. He's worried that people like this can ruin the economy if they make too many bad bets.

By such maxims as these, however, nations have been taught that their interest consisted in beggaring all their neighbours. (4.3.6)

The traditional wisdom of economics is that your country can only get richer by making other countries poorer. But Smith believes that everyone can get richer at the same time if they open the doors of free trade.

Whatever part of his stock a man employs as a capital, he always expects is to be replaced to him with a profit. (2.3.6)

Whenever a dude with equipment or a stockpile of wealth uses his stuff, he always expects a profit. He won't let someone operate his sock-making machine unless he can make some money off those socks.

Capitals are increased by parsimony, and diminished by prodigality and misconduct. (2.3.14)

Adam Smith is a big fan of being good with your money. In his mind, there are clear rules of making money. If you're careful about spending money and you work hard, you'll do just fine. If you spend money without thinking, things won't go so well.

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