Study Guide

The Wealth of Nations Book I, Chapter 2

By Adam Smith

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Book I, Chapter 2

Of the Principle Which Gives Occasion to the Division of Labour

  • We learned in Chapter 1 that the division of labor is important, but one thing Smith thinks is even more important for creating a wealthy nation is to have open trade with other people and other countries. In other words, he thinks of trade as the killer app of modern capitalism.
  • Anyone who creates something usually needs more than that one thing. For example, a shirt-maker needs more to survive than just shirts. So he has to make more shirts than he needs and trade some of them for food, money, or housing.
  • As different people grow up, they realize they're good at different things. So they go into specialized jobs and use the product or service they create to exchange for other stuff they need. Seems simple enough, right? Well this is actually the key to modern wealth according to Smith. All of the least developed countries, he argues, are the ones who are most suspicious of trading with other countries.

The Wealth of Nations Book I, Chapter 2 Study Group

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