Study Guide

The Wealth of Nations Book IV, Chapter 1

By Adam Smith

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Book IV, Chapter 1

Of the Principle of the Commercial, or Mercantile Systems

  • When we think of a rich person, we don't think of someone with a lot of sheep. We think of someone with a lot of money. And the same is true when we think of rich countries.
  • But as Smith wants to show us, it's not always true that a country with a lot of money is well off.
  • It's important to realize that if a country was completely separated from trade with other countries, it wouldn't matter if the country had lots of money. Money is only good if it can buy you something; it has no value on its own.
  • Yet someone countries are so obsessed with keeping their wealth that they have made laws against people carrying money out of the country.
  • The merchants eventually convinced the folks in charge that foreign trade would make the country richer by introducing cheaper goods into its market. If the price of goods goes down, then the value of money still in the country goes up.
  • The eventual outcome of these theories is that countries focused on having a good balance of trade. In other words, countries decided that the only way they could get richer was to export more stuff than they imported. That meant that more wealth was coming in than going out. They restricted the importation of foreign goods and promoted the exportation of other goods.

The Wealth of Nations Book IV, Chapter 1 Study Group

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