Study Guide

The Wealth of Nations Summary

By Adam Smith

The Wealth of Nations Summary

Adam Smith doesn't waste any time getting down to business at the opening of this book. He tells us that his goal is to figure out why some countries in the world are wealthier than others. Is it because the people of these countries work harder? Probably not. There are countries all over the world where people spend their entire lives working. So why do the people in other countries spend less time working while still leading more comfortable lives? Well for Adam Smith, the secret is… wait for it… free trade!

What is free trade? Well Smith is going to spend the rest of this book explaining just that. But first, he wants to walk us through the origin of money and why we use money to buy stuff. The reason for this is because money makes it way easier for us to get the things we want. After all, if we could only get stuff by trading thing we already had, then we'd only be able to trade with people who wanted our specific stuff. And that would slow things down a lot.

So yeah, we use money so that we can swap goods and services with people. And for Smith, all of this trade is like a magic wand. It makes everything about our lives more efficient and helps ensure that the marketplace will always fulfill our wants to the best possible extent.

Unfortunately, government often tries to butt in and mess with free trade by banning foreign products or taxing them so much they become super expensive. If they just took their hands off the steering wheel, Smith is convinced that the "autopilot" mechanism of the free market would make everyone a lot better off, even the poorest people in society.

If governments stay out of the market, then the people who create products will always work to make the biggest profit for themselves. And if they do this, they'll always spend their time and effort making things that the public has a big demand for. And if you follow all of that to its natural conclusion, the market will always work to satisfy all of people's most pressing wants as much as possible. Now the fact is that along the way, some people will get super rich and others will stay poor. But Smith thinks that this is just the price we have to pay for human freedom and an efficient market. And he's definitely willing to pay that price.

When he writes about the free market, Smith is reacting against the dominant form of economics in his time, which was called mercantilism. This system of economics basically assumes that one country can only get rich if another gets poor. It's a system of winners and losers, so every country tries as hard as possible to bring money into its borders without letting any escape.

But, according to Smith, this seemingly commonsense approach actually makes the country poorer in the long run. If another country can provide cheaper and better goods, you're actually letting your country's people down by not giving them access to these better products.

Adam Smith closes the book with a long talk about taxes and public expenses. Despite what many free-market folks think today, Smith definitely believed in government taxes and public institutions like schools and the police. Many people today think that schools, hospitals, and even the police should be privately owned, but Smith argues that some things can't possibly function well in the free market, so they need to be run by the government for the sake of the greater good.

Just be sure to read this section closely if you want to repeat these arguments, because some Adam Smith fans will yell and call you a liar if you tell them that Smith believed in taxes and public institutions. And they're dead wrong.