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Adam Smith's The Wealth of Nations: Summary & Concept

Adam Smith's The Wealth of Nations: Summary & Concept
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  • 0:00 A Look at ''The Wealth…
  • 1:18 Division of Labor
  • 2:13 Productivity
  • 2:51 Free Markets
  • 4:02 Lesson Summary
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Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and is currently working on his PhD in Higher Education Administration.

In the same year Thomas Jefferson wrote the Declaration of Independence, Scottish philosopher and economist Adam Smith published a book called 'The Wealth of Nations.' Over 200 years later, Smith's work stands as the theoretical basis for capitalism.

Background of 'The Wealth of Nations'

An Inquiry into the Nature and Causes of the Wealth of Nations is the full name of the famous book by Scottish economist and moral philosopher Adam Smith. Known more commonly by its shortened name, The Wealth of Nations was published in 1776. At the time of its first publication, The Wealth of Nations was well received by academics and in highly educated circles, but it wasn't necessarily seen as the cornerstone of capitalism, which was the economic system Europe and America would develop as the Industrial Revolution took hold.

The Wealth of Nations is actually six books, as originally written by Smith. If you go look for a copy now, you'll probably get two volumes, each consisting of three original books and providing a total of over 1,100 pages of eighteen-century economic thought. There is a reason it has withstood the test of time - it is filled with valuable content and enlightening discussion.

While we can't even begin to summarize everything Smith discusses, there are three popularized economic concepts that can be credited back to The Wealth of Nations. These three ideas - division of labor, productivity, and free markets - will be briefly described in this lesson.

Division of Labor

In The Wealth of Nations, Adam Smith uses the process of making pins to introduce the idea of division of labor, or breaking down processes into specific steps so one person could develop a specialty. Smith described the typical way pins were made, which involved a single person using one mold to make the head, then going on to the second mold to make the body, and then finally taking the two parts and joining them together.

Smith believed having one-person complete different types of work made a process inefficient. Even the best pin maker, he argued, would be better if he focused only on making heads, pins, or joining the two parts together. This is the basis for division of labor: by having three people work together making pins - one making heads, one making the body, and one putting them together - Smith found that the group could produce more pins together than they could all working separately.

Productivity

Generating more output with the same amount of inputs - productivity - is the second primary concept from The Wealth of Nations. Smith credited productivity as the reason that division of labor was so beneficial. By breaking down processes into steps that can each become the expertise of an individual, the amount of labor used doesn't increase, but the amount of output does.

The idea that measuring performance by the amount of output produced with a given amount of inputs was new in 1776, but as the Industrial Revolution got under way, productivity practically became an obsession for managers and business owners.

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