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

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 

Surplus Value

In Smith “surplus” refers to the portion of output that exceeds the workers’ subsistence and can be saved or reinvested as capital (Not the Marxist meaning)

E.g., A farmer produces more grain than needed for survival; the extra can be sold or invested

• This surplus enables capital accumulation and economic growth. Smith’s neutral concept becomes the foundation Marx later reinterprets as exploitation

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 

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 

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 

Productive vs. Unproductive Labor

Productive labor adds value, typically goods or marketable services which adds to capital; unproductive labor does not

E.g., A software engineer writing code 

• Generates income and increases national wealth; Smith’s distinction reflects on his focus on production as the basis of wealth which later becomes central to Marx’s critique of capitalism

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 

Limits of Barter

Barter fails because it requires a double coincidence of wants. Without money, trade is highly inefficient

E.g., A shoemaker wants bread, but the baker doesn’t want shoes — trade breaks

• Explains the necessity of money and the emergence of markets. It is a major argument against primitive or state-managed economies

Double Coincidence of Wants

For barter to work, each party must want exactly what the other offers

E.g., The tailor wants a pot; the potter wants a coat — coincidence occurs. But if not, no trade

• Smith uses this to explain why money develops and why economies cannot rely on direct exchange

Use Value vs. Exchange value

Use Value: The usefulness of a good

Exchange Value: The value of a good in relation to other goods, usually expressed as price

E.g., Water has high use value but low exchange value; diamonds have low use value but high exchange value

• Smith’s distinction becomes crucial for Marx’s critique of commodities and exploitation

Three Great Classes (Natural Price)

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; anchors in Smith’s theory of long-run price stability  

Market

A system of exchange in which supply and demand are coordinated through competition and self-interest.

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

• Foundation of social coordination and economic order without central direction

Market Price

The actual price at which goods sell, fluctuating based on supply and demand

E.g., A poor harvest raises the market price of wheat above its natural price

• Shows how short-run market forces differ from long-run production costs

Law of Supply 

As the price of a good rises, producers are willing to supply more of it; as the price of a good decreases, producers supply less

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

• Ensures goods flow where they’re needed most in markets without centralized authority

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; if movie tickets were cheap or on sale, more people would go

• Balances production and consumption naturally; explains market equilibrium and price

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 

Natural vs. Artificial Inequality

Natural = based on skill, risk, or difficulty

Artificial = from law, discrimination or privilege

E.g., A neurosurgeon earn more due to natural causes; women earning less for the same work reflects artificial inequality  

• Smith sees inequality not simply as natural but shaped by power and institutions — a major precursor to Marx 

Natural Progress of Opulence

Wealth moves from agriculture —> manufacturing —> commerce

E.g., A rural region industrializing time 

• Describes economic evolution as orderly and cumulative 

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 as serving merchants, distorting markets, and mistaking money for wealth rather than productive labour and free exchange.

Role of Government in Natural Society

Smith argues that the state has 3 duties:

1. Defense

2. Justice

3. Public Works (infrastructure, education, etc)

E.g., Roads, schools, courts and military forces are essential but not profitable for private actors

• Smith is not laissez-faire absolutist; he sees necessary public functions that support markets and general welfare

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