Study Guide

The Wealth of Nations Book II, Chapter 3

By Adam Smith

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Book II, Chapter 3

Of the Accumulation of Capital, or of Productive and Unproductive Labour

  • Smith distinguishes between two types of labor that he calls "productive" and "unproductive" labor. For example, a manufacturer performs productive labor by adding value to the objects that he/she is creating.
  • But a household servant is engaged in unproductive labor because he/she doesn't add value to anything. The first person increases the wealth of the country overall, while the second performs a job that sucks up wages. Sure, your house might be tidier, but no additional wealth is created by the house servant.
  • Imagine one person who hires a bunch of workers to make coats for her and another who hires a bunch of servants to clean his house. The first person will get richer over time because she'll make a profit by selling the coats.
  • The second person will get poorer because he'll pour wages into his servants without creating any profit to replace this lost wage money. The same goes for a country, where emphasis should be on people who are creating wealth and having productive labor.
  • In Smith's view, this is why some countries are richer than others. The focus more on producing new things, while the rich people in poor countries tend to spend their money on servants.
  • Therefore, it doesn't matter how much money there is in a country. What matters is the amount of goods that country produces and how those goods are valued. A country that produces fewer and fewer goods can't hang on to money. It just doesn't work that way.

The Wealth of Nations Book II, Chapter 3 Study Group

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