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Introduction and Plan of Work
Themes
Key
LitCharts assigns a color and icon to each theme in The Wealth of Nations, which you can use to track the themes throughout the work.
Labor, Markets, and Growth
Capital Accumulation and Investment
Institutions and Good Governance
Mercantilism and Free Trade
Money and Banking
Summary
Analysis
Laborers become more skilled and productive primarily because of the division of labor. While the division of labor is most powerful at the scale of the whole economy, where entire factories and towns specialize in just one aspect of a production process, it’s easier to understand at the scale of small industry—like a pin factory. An untrained person probably couldn’t make a single pin in a day, not to mention thousands. But a pin factory separates the process into 18 different steps, and each worker performs just one or a few of them. Smith once saw a small, poorly-run, 10-man pin factory make at least 48,000 pins a day.
If there is any one central idea in The Wealth of Nations, this is it: the division of labor drives productivity growth. In simpler terms, specialization enables people to produce more goods, faster, with the same amount of resources. The centrality of this idea in Smith’s thinking explains why the pin factory example remains one of his best-known passages today (along with the oft-misunderstood “invisible hand” metaphor). The pin factory shows that the productivity gains from specialization are exponential, not linear: 10 people working together with the right equipment are not 10 times, but thousands of times, more productive than a single artisan.
Themes
The division of labor can make every kind of manufacturing more productive in this way, which is why the countries with the highest living standards tend to have the most specialized, advanced division of labor. But since agriculture depends on the seasons, it can’t benefit from the division of labor as much as manufacturing can. Thus, products like corn (grain) tend to have a similar price no matter which country produces them, while ones like silk and wool tend to vary widely, depending on which countries are best suited to produce them. Hence French silk is cheaper and better than English silk, but English wool is cheaper and better than French wool. Polish grain is just as good and cheap as English and French grain, but Poland produces no manufactured goods at all.
The basic economic logic is simply different for agriculture, manufacturing, and services. Since manufacturing is more amenable to specialization than agriculture, growth in the manufacturing sector tends to drive overall economic growth. Recall that Smith published The Wealth of Nations in 1776, well before the Industrial Revolution truly took hold or steam power even became widespread in Britain. Contemporary readers can easily connect the dots between Smith’s observations about factory production, the technological improvements achieved during the Industrial Revolution, and the massive productivity growth that Britain would see in the era that followed.
Themes
The division of labor increases productivity for three reasons. First, it improves dexterity: each worker repeatedly performs the same task, so gets better and faster at it. Second, people save time because they don’t have to switch between different tasks. Third, when people constantly focus on the same tasks, they figure out ways to make those tasks easier and invent machinery to help automate it. Specialized machine-makers can further improve these machines, and specialized philosophers and scientists can identify how to bring “distant and dissimilar objects” together to solve problems.
Specialization leads to productivity growth by creating expertise. Then, different kinds of expertise work together in the economy to multiply these productivity gains. This helps explain why scientists, philosophers, and the like tend to emerge in societies that are highly specialized and economically developed. Scientists discover natural processes and create machines that make production more efficient, while philosophers help people understand the world, live better lives, and make better collective decisions. This is an appropriate time to recall that Smith was a philosopher by training. (Economics as a discipline did not yet exist.) Consequently, Smith is less interested in maximizing profit or growth for their own sake than in creating an economy that helps as many people as possible meet as many of their needs as possible. Keeping this in mind will help readers understand where modern economists have diverged from Smith’s thinking.
Themes
A society with an advanced division of labor can achieve “universal opulence” because everyone can trade their own specialized products for everyone else’s. In such countries, everyone benefits from the work of thousands of different artisans. For instance, to create a simple wool coat, it takes many workers to obtain the wool, dye, thread, and so on; many more to transport those materials to the customer; specialized artisans to actually assemble the materials into the coat; and hundreds or thousands more people to build all the tools that these artisans use, from the shepherd’s shears to the weaver’s loom. Thanks to the division of labor, even poor people in the world’s wealthiest countries live better than kings in its poorest.
“Universal opulence” is a lofty economic ideal: a society in which everyone can meet all of their needs through market exchange. This requires not just a division of labor that enables a wide variety of goods to be grown and produced, but also an income and wealth distribution that enables everyone to afford what they need. Today, we have certainly achieved the production part of this dream: our interconnected global economy produces all of the goods and services that humanity needs as a whole. Yet most people still cannot access all the goods and services they need, as income, wealth, and economic activity are not fairly distributed. The second half of The Wealth of Nations focuses much more heavily on these distributional questions and can help us understand where we stand today on the long road from hunter-gatherer economies to “universal opulence.”
Themes
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