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Wealth Of Nations Summary Notes

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POL8: Adam Smith

Easter 2018

An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
Introduction and Plan of the Work

• annual supply of a nation consists of what is directly produced by labour and what is purchased from other nations (10)

• annual supply depends on two factors: the skill, dexterity and judgement with which its labour is applied; the proportion of those in employment and those that are not the former seems to be more important, because despite almost everyone being in
◦ useful labour in savage nations of hunters and fishers, such nations are miserably poor. Even the lowest labourer in a wealthy country enjoy a greater share of necessaries and conveniences of life than any savage.
◦ the latter depends on the quantity of capital stock used in setting labour to work,
and the particularly ways it is used (11)

• Plan
Bk I: deals w/ why the productive power of labour improves
Bk II: the capital stock that sets labour to work and how it is accumulated
Bk III: the policies of industry and agriculture
Bk IV: the relation of policy to the conduct of princes and states
Bk V: revenue of the sovereign (public debts, taxation etc.)
Bk I
Division of labour

• 'the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment…seem to have been the effects of the division of labour'
◦ esp for great manufactures. Use the example of making pins and the 18 operations involved in the process as an example.
◦ agriculture is more difficult to be divided into procedures like manufacture, that is why improvement in agricultural labour cannot keep pace w/ manufactures.

• the increase in the quantity of work due to division of labour is due to three things: the increased dexterity of the labour due to practice; saving time needed to pass one piece of work to another procedure; and invent of machines that facilitate labour.

• talks about how some countries are better suited to produce certain industrial products,
suited to the climate and soil of that place e.g. silk for France and wool for England.

• origin: evolved from the tendency in human nature to barter and exchange
◦ what marks humans from animals: 'nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog'
◦ humans 'in civilised society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons.' 'We address ourselves, not to their humanity but to their self love, and never talk to them of our own necessities but their advantages'
◦ therefore, being sure that he can sell the surplus of his labour beyond anything that he can consume, encourages man to apply himself to a particular occupation.

• the extent of division of labour is limited by the size of market. When the market is small, no one will want to dedicate himself entirely to one employment. Therefore, water carriage is developed to extend the market. Land carriage is a lot less profitable than water carriage.
There can be little or no commerce between distant parts of the world w/ land carriage,
because the value of good must be a lot higher relative to the weight for the trade to be profitable. Therefore, the first civilisations are along the coast. POL8: Adam Smith

Easter 2018

Money

• developed because of the needs to be a commodity that can be an intermediary in barter.
Metals were first adopted because of their durability, and ability to be melted into smaller parts. Instead weighing different metals, coins w/ public stamps that ascertain the fitness and weight of the metal to avoid fraud. It becomes a 'universal instrument of commerce', a sign of civilisation.
◦ he talked about how some states abuse the confidence of their people and reduce the quantity of coins e.g. the Romans, England, France, so they can pay off public debts much more easily.

• value: two different meanings—value in use (utility) and value in exchange (power of purchasing other goods)
◦ labour (which is equivalent to the necessaries and conveniences of life which are given for it) is the true measure of the exchange values of commodities; money is only the nominal price. However, the value of labour is difficult to be determined due to the hardship or ingenuity of some employment. Therefore the value is decided by 'the higgling and bargaining of the market'.
◦ nominal value of a commodity fluctuates from time to time and from place to place e.g. an ounce of silver in Canton and in London. Whereas the labour taken to produce corn anytime and anywhere is the same.
Wages of labour

• related to only to the labour time, but the hardship and the dexterity required for the labour.

• the value of products divided into rent, wages for labour and profit. Profit of the stock is the wages for 'the labour of inspection and direction', which is linked to the size of the stock.

• the rates of rent, wages are generally regulated by the circumstances of society. That is the natural price of a commodity. There is a market price that can be lower, same as or higher than the natural price. Market price is set by demand and supply. Demand is called
'effectual demand' because wanting it doesn't mean being able to afford it.

• therefore, rent for land or materials and profits are deducted from the wage of labour. It is eventually a contract between the workman and the master, who has opposing interests.
However, the wage must sustain the man and his family.

• Since workmen need the masters more than the other way round (masters can easily live up to two years surviving on his stock), masters can combine together to lower the wages of labour. Smith chastises this kind of action.

• The wage of labour is linked to the rate of growth in national wealth. America is growing much faster than England, so the wage is higher, despite England being a wealthier country.
This is therefore linked to an increase in population in North America, as children are a source of opulence.

• the increase of stock increases the wage of labour, but decreases profit. It is because when merchants increase stock in the same trade or different trades, competition lowers the profit.
How circumstances and policies affect wages and profits

• in perfect liberty, different employments would have equal advantages, or else people would crowd into some and desert some professions. POL8: Adam Smith

Easter 2018

However, some policies or circumstances make some employments less desirable (therefore resulting in higher wage) than others:
agreeableness of the employment: link to honour
◦ difficulty of learning the employment: wages earned must be able to replace the costs of education. This is where the difference between skilled and unskilled labour is founded.
◦ constancy of employment
◦ amount of trust in those who exercise the employment
◦ probably of success in it: this is linked to two things, the reputation of the profession
(e.g. the study of law) and the confidence of the man in his abilities and fortune.
Public admiration is part of the reward
How policies in Europe exaggerate the inequalities
◦ restraining competition in certain employments:
 long apprenticeship is an example
 England has corporation laws that require a prerogative of the crown to establish a corporation. Rather than preventing monopoly, Smith thinks it is to extract money from the subject.
 regulations that increase the profits and wages of the merchants and women in town distort the natural equality between town and country, making the industries in town more advantageous. However, country has a another disadvantage that is the dispersal of inhabitants makes it difficult for them to combine and act in corporation.
 he talked more about association of those in the same trade. They usually assemble (even rarely) for 'conspiracy agains the public' i.e. raising prices. It is difficult to prevent such meetings, but it is definitely unnecessary and harmful to competition for such associations to exist.
◦ increasing competition in certain employment
◦ obstructing free circulation of labour and stock,
both from employment to employment and from place to place
 statute of apprenticeship
 corporation laws favour the movement of stock but not of labour, and this is peculiar to England he believes.
 laws of settlements that require a certificate to move from one parish to another is also a great obstruction, leading to very unequal wages across towns in England (Scotland is much better)

Rent of land

• generally what the tenant is able to pay for

• frequently no more than a reasonable profit for the stock used by the landowner for the improvement of the land

• however, land is naturally a monopoly price, so no proportionally to the stock the landowner has invested.

• rent is also dependent on the price of goods produced on the land.
Bk II
Accumulation of stock by individuals

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