Nations Wealth: Unlocking Wealth, a Journey Through 'The Wealth of Nations'
By Fouad Sabry
()
About this ebook
What is Nations Wealth
Adam Smith (1723-1790), a Scottish economist and moral philosopher, is credited with writing the magnum opus known as An Inquiry into the Nature and Causes of the Wealth of Nations. This work is more commonly referred to by its abbreviated title, The Wealth of Nations. The book, which was initially published in 1776, is considered to be a significant work in the field of classical economics. It provides one of the first integrated descriptions of what contributes to the prosperity of nations around the world. Smith discusses a variety of economic issues, including the division of labor, productivity, and free markets, as he reflects on the state of the economy at the beginning of the Industrial Revolution.
How you will benefit
(I) Insights, and validations about the following topics:
Chapter 1: The Wealth of Nations
Chapter 2: Adam Smith
Chapter 3: Classical liberalism
Chapter 4: David Ricardo
Chapter 5: Income
Chapter 6: Labor theory of value
Chapter 7: Capital (economics)
Chapter 8: Classical economics
Chapter 9: Invisible hand
Chapter 10: Richard Cobden
Chapter 11: William Petty
Chapter 12: Direct tax
Chapter 13: Primitive accumulation of capital
Chapter 14: Productive and unproductive labour
Chapter 15: Returns (economics)
Chapter 16: History of economic thought
Chapter 17: Principles of Political Economy
Chapter 18: Economic democracy
Chapter 19: Exploitation of labour
Chapter 20: Surplus value
Chapter 21: Class conflict
(II) Answering the public top questions about nations wealth.
(III) Real world examples for the usage of nations wealth in many fields.
Who this book is for
Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of nations wealth.
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Nations Wealth - Fouad Sabry
Chapter 1: The Wealth of Nations
The Wealth of Nations, or An Inquiry into the Nature and Causes of the Wealth of Nations, is the magnum opus of Scottish economist and moral philosopher Adam Smith (1723-1790). The book, which was first published in 1776, provides one of the earliest connected accounts of what contributes to the wealth of nations and has become a cornerstone of classical economics. Smith, reflecting on economics at the beginning of the Industrial Revolution, discusses the division of labor, productivity, and free markets, among other topics.
The Wealth of Nations was published in two volumes on March 9, 1776 (with books I–III in the first volume and books IV and V in the second), analogous to Immanuel Kant's Critique of Pure Reason for philosophy.
Bust of Smith in the Adam Smith Theatre, Kirkcaldy
During Smith's lifetime, five editions of The Wealth of Nations were published: in 1776, 1778, Finally, Cannan notes only trivial differences between the fourth and fifth editions—a set of misprints being removed from the fourth and a different set being added to the fifth.
The division of labor has contributed to a greater increase in production than any other factor. This diversification is the primary cause of universal opulence
in nations with the highest levels of industry and development. This is partially attributable to improved production quality, but it is primarily attributable to improved production efficiency, resulting in a higher nominal output of units produced per time unit. Agriculture is less amenable to division of labor than manufacturing; therefore, rich nations are not as far ahead of poor nations in agriculture as they are in manufacturing.
Of the Principle that Causes the Division of Labor: The division of labor is not the result of innate intelligence, but rather the human propensity to barter.
That the Division of Labor is Restricted by the Market Size: Limited exchange opportunities discourage division of labor. Because water-carrying
(i.e. transportation) expands the market, cities located near waterways are the first to implement division of labor and its improvements. Around the highly navigable Mediterranean Sea, civilization began.
That the Division of Labor is Restricted by the Market Size: Limited exchange opportunities discourage division of labor. Because water-carrying
(i.e. transportation) expands the market, cities located near waterways are the first to implement division of labor and its improvements. Around the highly navigable Mediterranean Sea, civilization began.
In this section, Smith describes how the wages of labor are primarily determined by the competition between laborers and masters. When workers compete against one another for limited employment opportunities, the collective wage of labor falls, whereas when employers compete against one another for limited labor supplies, the collective wage of labor rises. However, this process of competition is frequently circumvented by laborer and employer alliances. When laborers join forces and cease bidding against one another, their wages increase, whereas when masters join forces, wages decrease. In Smith's day, the law dealt with organized labor very harshly.
Smith himself wrote about the severity
of such laws against worker actions and made a point to contrast the clamour
of the masters
against workers' associations with the fact that masters' associations and collusions are never heard by the people
despite the fact that they occur always and everywhere.
:
It has been stated that we rarely hear of the unions of masters, but frequently of those of laborers. But anyone who concludes from this that masters rarely collaborate is ignorant of both the world and the subject. Masters are always and everywhere in a tacit, but consistent and uniform, agreement not to raise the wages of labor above their actual rate [...]. Occasionally, masters will also engage in particular arrangements to reduce the wages of labor below this rate. These are always conducted with the utmost secrecy and silence until the moment of execution; and when the workmen yield, as they sometimes do without resistance despite being severely punished, no one ever hears about them
. In contrast, the masters [...] never cease to call aloud for the assistance of the civil magistrate, and the strict execution of those laws that have been enacted with such severity against the combination of servants, laborers, and journeymen
In societies where the quantity of labor exceeds the amount of revenue available for waged labor, competition among workers is greater than competition among employers, resulting in a decline in wages. In contrast, where revenue is abundant, wages increase. Smith argues that, therefore, labour wages only rise as a result of greater revenue disposed to pay for labour. Smith considered labor to be comparable to other commodities in this regard:
As with any other commodity, the demand for men regulates the production of men, accelerating it when it progresses too slowly and halting it when it advances too quickly. This demand regulates and determines the state of propagation in all of the world's countries, including North America, Europe, and China, making it rapidly progressive in the first, slow and gradual in the second, and completely stationary in the third.
However, in order for wages to remain high, the proportion of revenue to labor must increase continuously. Smith demonstrates this by contrasting England and North American colonies. In England, there is more revenue than in the colonies, but wages are lower because more workers are attracted to new employment opportunities as a result of the increased revenue; consequently, workers eventually compete as fiercely as before. In contrast, as long as capital continues to flow to colonial economies at least at the same rate as population growth to fill out
this excess capital, colonial wages remain higher than those in England.
Smith was extremely concerned about poverty issues. He composes:
Although poverty does not prevent procreation, it is extremely detrimental to childrearing [...] In the Highlands of Scotland, it is not unusual for a mother who has given birth to twenty children to have only two surviving children. In some areas, fifty percent of children born die before they reach the age of four, in many areas before they reach the age of seven, and in nearly all areas before they reach the age of nine or ten. This high mortality, however, will be most prevalent among the children of the common people, who cannot afford the same level of care as those of higher station.
Examining the amount of labor a person can afford to purchase is the only way to determine his socioeconomic status. Labor is the true medium of exchange for goods
.
Smith also describes the relationship between inexpensive years and the production of manufactured goods compared to expensive years. He argues that while some examples, such as the production of linen in France, demonstrate a correlation, another example from Scotland demonstrates the opposite. He concludes that there are too many variables to make any definitive statements regarding this.
Regarding Stock Profits: In this chapter, Smith uses interest rates as an indicator of stock profits. Because interest can only be paid with stock profits, creditors will be able to raise or lower rates in proportion to the increase or decrease in debtors' profits.
Smith argues that the profits of stock are inversely proportional to the wages of labor, since as more money is spent compensating labor, less money is left for personal profit. Profits will be substantially greater in societies where competition among workers is greater than competition among employers. This is demonstrated by Smith's comparison of the interest rates in England and Scotland. In England, laws against usury had kept maximum interest rates extremely low, but even the maximum rate was believed to be higher than the average rate of interest charged on loans. However, interest rates in Scotland are significantly higher. This is the result of an increase in the proportion of capitalists in England, which reduces competition among workers and raises wages.
Smith observes, however, that the colonial interest rates are also remarkably high (recall that, in the previous chapter, Smith described how wages in the colonies are higher than in England). This, according to Smith, is due to the fact that when an empire conquers a colony, land and resources are incredibly inexpensive. This allows capitalists to increase their profits while simultaneously attracting a large number of capitalists to the colonies, thereby increasing wages. As this occurs, however, the profits of stock in the mother country increase (or at least stop falling), as a large portion of it has already fled abroad.
Of Wages and Profit in the Various Employments of Labour and Stock: Smith repeatedly attacks politically aligned groups of individuals who attempt to use their collective influence to manipulate the government into doing their bidding. Historically, these were referred to as factions
; however, they are now more commonly referred to as special interests,
a term that can encompass international bankers, corporate conglomerates, outright oligopolies, trade unions, and other groups. Indeed, Smith had a deep mistrust of the merchant class. He believed that the members of this class, particularly if they banded together to form guilds, could form a power bloc and manipulate the state into regulating for special interests against the public interest:
People of the same profession rarely get together, even for merriment and diversion; when they do, the conversation inevitably leads to a plot against the public or a scheme to raise prices. It is impossible to prohibit such gatherings by any law that could be enforced or that is compatible with liberty and justice. But while the law cannot prohibit members of the same profession from occasionally congregating, it should do nothing to facilitate or make such gatherings necessary.
Smith also argues against government subsidies of certain occupations because they will attract many more people to the occupation than is normal, thereby lowering their collective wages.
The second section of Chapter 10's Of the Rent of the Land provides insight into the concept of feudalism. Rent, as the price paid for the use of land, is logically the maximum amount a tenant can afford under the actual conditions of the land. In adjusting lease terms, the landlord attempts to leave himself no larger a portion of the harvest than is necessary to maintain the stock from which he provides the seed, pays the labor, and purchases and maintains the cattle and other instruments of husbandry, in addition to the ordinary profits of farming stock in the vicinity.
Evidently, this is the smallest portion with which a tenant can be satisfied without being a loser, and the landlord rarely intends to leave him more. Whatever portion of the produce, or what amounts to the same thing, whatever portion of its price, is over and above this share, he naturally attempts to reserve for himself as the rent of his land, which is the amount the tenant can afford to pay under the actual conditions of the land. Sometimes, in fact, the generosity or, more often, the ignorance of the landlord leads him to accept a smaller share; and occasionally, though less frequently, the ignorance of the tenant leads him to agree to pay a little more or settle for a little less than the average profits of farming stock in the area. This portion, however, may still be regarded as the natural rent of land, or the rent for which land is most naturally intended to be let.
Concerning the Distribution of Stock:
When a person's inventory is insufficient to sustain him for more than a few days or weeks, he rarely considers generating income from it. He consumes it as sparingly as possible and uses his labor to acquire something to replace it before it is completely consumed. In this instance, his income is derived solely from his labor. This is the condition of the majority of the working poor in all nations.
But when he has sufficient stock to sustain him for months or years, he attempts to generate income from the majority of it, reserving only enough for his immediate consumption to sustain him until this income begins to flow. His entire stock is therefore divided into two categories. His capital consists of the portion that he anticipates will generate this income.
Of Money Considered as a Particular Branch of the Society's General Stock:
From references in the first book, that the price of the majority of commodities consists of three parts, of which one pays the wages of the labor, another the profits of the stock, and a third the rent of the land which had been employed in producing and bringing them to market; that there are, however, some commodities in which the price consists of only two of those parts, the wages of labour and the profits of stock, and very few in which it consists of only one, the rent of the land.
Of Capital Accumulation versus Productive and Unproductive Labor:
One type of labor increases the value of the object to which it is applied, while another has no such effect. The former is considered productive because it creates value, while the latter is considered unproductive. Thus, a manufacturer's labor generally increases the value of the materials he works with, his own maintenance, and his employer's profit. In contrast, the work of a menial servant adds nothing to the value of the item.
Stock Loaned with Interest:
The lender always considers the stock that is lent against interest to be capital. He anticipates that it will be returned to him in due time and that the borrower will pay him a certain annual rent for its use. The borrower may use the funds as either a capital investment or a supply reserved for immediate consumption. If he uses it as capital, he maintains productive laborers who reproduce the value for a profit. In this instance, he is able to restore the principal and pay the interest without alienating or encroaching on any other source of income. If he uses it as a reserve for immediate consumption, he acts like a profligate and wastes what was intended for the support of the hardworking on the maintenance of the idle. In this instance, he cannot restore the principal nor pay the interest without alienating or encroaching upon another source of income, such as the property or land rent. Undoubtedly, the stock that is lent at interest is occasionally utilized in both of these ways, but the former is employed significantly more frequently than the latter.
Among the various uses of Capital:
A capital may be employed in four different ways: either, first, in procuring the rude produce annually required for the use and consumption of the society; or, secondly, in manufacturing and preparing that rude produce for immediate use and consumption; or, thirdly, in transporting either the rude or manufactured produce from places of abundance to places of demand; or, fourthly, in dividing particular portions of either into such small parcels as suit the market.
This example is used by Adam Smith to discuss long-term economic growth. As subsistence is, by the nature of things, preceding convenience and luxury, the industry that procures the former must necessarily precede that which serves the latter,
says Smith. Prior to industrial success, subsistence from the countryside is required. Industry and commerce occur in cities, while agriculture is prevalent in rural areas.
Agricultural work is preferable to industrial work due to the fact that the owner has complete control. Smith explains that:
In the towns of our North American colonies, where uncultivated land is still available on favorable terms, no manufacturing for distant sale has ever been established. When a craftsman has a little more stock than is required for his own business of supplying the neighboring country, he invests it in the purchase and improvement of uncultivated land in North America rather than attempting to establish a production for distant markets. From an artisan, he becomes a planter, and neither the high wages nor the easy subsistence offered to artisans in that country can entice him to work for others rather than himself. He believes that a craftsman is the servant of his customers, from whom he derives his subsistence, whereas a planter who cultivates his own land and derives his subsistence from the labor of his own family is truly a master and independent of the rest of the