SOCB42: Adam Smith - Wealth of Nations

The Necessaries and Conveniences of Life

The goods and services that are essential or customary for people to live and work productively

E.g., clean water and internet access as modern “necessaries”

• Define wealth in human terms — the standard of living, not gold or money

Universal Causes of Wealth 

The general, timeless conditions that create wealth—mainly the division of labor and exchange 

E.g., Tech workers specializing in coding and design to produce more efficiently 

• Explains how productivity drives national wealth 

Historical Causes of Wealth 

The particular historical circumstances that explain why some nations grow rich and others remain poor 

E.g., England’s enclosure movement freeing land for trade 

• Connects economic progress to institutional and social change

Patrimonialism 

A political system where power and wealth are based on personal loyalty and inherited privilege (as in feudal societies)

E.g., A noble family passing land across generations 

• Illustrates feudalism as a barrier to meritocracy and growth 

Division of Labour 

The specialization of tasks among workers 

E.g., An assembly line for smartphones

• Increases efficiency and total output — foundation of modern industry 

Propensity to Truck, Barter, and Trade

Natural human tendency to exchange goods and services

E.g., A designer trades a logo for a musician’s performance 

• Explains why markets naturally emerge in all societies 

Division of Labor — Limited by the Extent of the Market

The scale of exchange determines how much specialization can occur

E.g., Global trade allowing niche jobs like app development 

• Links geography and trade to productivity 

Market

The social and economic system in which individuals exchange goods and services according to their self-interest

E.g., Farmers’ market where goods are traded for mutual gain

• Foundation of social coordination and economic order

Capital 

Wealth (money, tools, machines, etc) used to produce more goods or income 

E.g., Investing profits into better equipment 

• Drives economic growth through reinvestment 

Stock

The total amount of a person’s or nation’s accumulated capital, both fixed (tools, buildings) and circulating (money, materials)

E.g., A bakery’s ovens (fixed) and flour (circulating) 

• Differentiates between productive assets and trade goods 

Capital Accumulation

The reinvestment of profits into productive labor

E.g., A factory using last year’s profits to build another plant 

• Core of long-term economic growth and inequality formation 

Productive vs. Unproductive Labor

Productive labor adds to capital; unproductive labor does not

E.g., A software engineer writing code 

• Generates income and increases national wealth 

Propensity to Better One’s Condition

The natural human drive to improve one’s situation over time — to seek more comfort, security, and propensity

E.g., A worker takes night courses to get promoted 

• Moral engine of capitalism; turns self-interest into social progress 

Commercial Society

A society organized around exchange, markets, and contracts

E.g., Modern urban economies driven by trade and services 

• Replaces feudal hierarchy with free exchange and merit 

Money 

The common medium of exchange that eliminates the inconveniences of barter 

E.g., Using cash to buy groceries instead of trading goods

• Enables large-scale markets and efficient trade 

Law of Supply 

As the price of a good rises, producers are willing to supply more of it

E.g., Rising coffee prices prompt farmers to grow more beans 

• Ensures goods flow where they’re needed most 

Law of Demand

As the price of a good rises, consumers demand less of it, and vice versa

E.g., If movie tickets got expensive, fewer people go

• Balances production and consumption naturally 

Obstacles to Free Markets 

Barriers—often legal or political—that prevents markers from operating freely

E.g., A government banning foreign imports to protect one company

• Distorts natural prices and reduces efficiency 

The Original State

A hypothetical condition of early human society before property, law and government

E.g., A self-sufficient farming village with no money system 

• Provides a contrast to shows how markets evolve 

Three Great Classes 

Workers (wages), Landowners (rent), Capital (profit)

E.g., A clothing brand uses fabric (land), workers (labour), and sewing machines (capital)

• Basis for how income (rent, wages, profit) is distributed 

Factors of Production 

The resources used to produce goods and services: land, labour, and capital

E.g., A company can wait out a strike longer than employees can 

• Anticipates later theories of class and wage inequality 

Advantages of Owners over Workers

Employers possess greater bargaining power due to wealth, organization, and the ability to wait

E.g., A doctor earns more than a cashier 

• Reflects real productivity differences in a free market 

Natural vs. Artificial Inequality

Natural = based on skill, risk, or difficulty

Artificial = from law or privilege

E.g., Licensing laws that limit competition 

• Reveals how power distorts “natural” market outcomes 

Class Conflict 

Tension among the three great classes (workers, landlords, capitalists) over distribution of wealth 

E.g., A wage strike demanding better pay 

• Acknowledges structural inequalities even in free markets 

Natural Progress of Opulence

Wealth moves from agriculture —> manufacturing —> commerce

E.g., A rural region industrializing time 

• Describes economic evolution as orderly and cumulative 

European Feudalism as Historical Inhibitor 

Feudal institutions (hereditary land ownership, serfdom) prevented economic development

E.g., Serfs tied to noble estates 

• Explains why Europe’s progress required ending feudalism 

Structural vs. Non-Structural Change 

Structural change alters fundamental institutions (e.g., property, class, production), while non-structural change affects surface features (e.g., prices, policies) 

E.g., Abolishing serfdom (structural) vs. adjusting taxes (non-structural) 

• Distinguishes real transformation from superficial reform 

Mercantilism

Belief wealth = gold, trade surpluses

E.g., A government taxes foreign imports to protect local industries and increase its gold reserves

• Smith rejects this system because it benefits merchants, distorts markets, and mistakes money for real wealth; argues true wealth comes from productive labour and free exchange

System of Natural Liberty 

Economy best left to free competition and limited government 

E.g., Anyone can open a bakery and compete freely, with success determined by consumer choice 

• Forms the basis of classical liberalism — competition and self-interest naturally guide resources to their best use, prompting prosperity and social good

Evolution of Defense Across Types of Societies

As societies grow wealthier and more specialized, defense shifts from citizen militias —> standing armies 

E.g., Modern standing armies replacing citizen soldiers

• Explains why rich nations centralize defense and state power

Problem Caused by Division of Labor

While efficient, extreme specialization can dull the worker’s mind and make them dependent\

E.g., A data clerk entering the same number all day

• Warns of morals and intellectual decline amid economic progress

Implications of Established vs. Non-Established Religion in Commercial Society 

Established religion (state-supported) breeds complacency; non-established sects are more active and competitive

E.g., Competing religious sects motivating social discipline 

• Illustrates Smith’s belief in competition as morally beneficial