Why Is The Wealth of Nations So Important? Adam Smith and Classical Economics (2010)

• published: 17 Aug 2013
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An Inquiry into the Nature and Causes of the Wealth of Nations, (generally referred to by its shortened title The Wealth of Nations), is the magnum opus of the Scottish economist and moral philosopher Adam Smith. First published in 1776, the book offers one of the world's first collected descriptions of what builds nations' wealth and is today a fundamental work in classical economics. Through reflection over the economics at the beginning of the Industrial Revolution the book touches upon broad topics as the division of labour, productivity and free markets. George Stigler attributes to Smith "the most important substantive proposition in all of economics" and foundation of resource-allocation theory. It is that, under competition, owners of resources (labor, land, and capital) will use them most profitably, resulting in an equal rate of return in equilibrium for all uses (adjusted for apparent differences arising from such factors as training, trust, hardship, and unemployment).[61] He also describes Smith's theorem that "the division of labour is limited by the extent of the market" as the "core of a theory of the functions of firm and industry" and a "fundamental principle of economic organisation."[62] Paul Samuelson finds in Smith's pluralist use of supply and demand — as applied to wages, rents, and profit -- a valid and valuable anticipation of the general equilibrium modelling of Walras a century later. Moreover, Smith's allowance for wage increases in the short and intermediate term from capital accumulation and invention added a realism missed later by Malthus, Ricardo, and Marx in their propounding a rigid subsistence-wage theory of labour supply.[63] In noting the last words of the Wealth of Nations, If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expence of defending those provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.[64] Ronald Coase suggests that if Smith's earlier proposal of granting colonies representation in the British parliament proportional to their contributions to public revenues had been followed, "there would have been no 1776, ... America would now be ruling England, and we [in America] would be today celebrating Adam Smith not simply as the author of the Wealth of Nations, but hailing him as a founding father."[65] Mark Blaug argues that it was Smith's achievement to shift the burden of proof against those maintaining that the pursuit of self-interest does not achieve social good. But he notes Smith's relevant attention to definite institutional arrangements and process as disciplining self-interest to widen the scope of the market, accumulate capital, and grow income.[66] Libertarian theorist Murray Rothbard, however, disagrees: [I]t is not just that Smith's Wealth of Nations has had a terribly overblown reputation from his day to ours. The problem is that the Wealth of Nations was somehow able to blind all men, economists and laymen alike, to the very knowledge that other economists, let alone better ones, had existed and written before 1776. The Wealth of Nations exerted such a colossal impact on the world that all knowledge of previous economists was blotted out, hence Smith's reputation as Founding Father. The historical problem is this: how could this phenomenon have taken place with a book so derivative, so deeply flawed, so much less worthy than its predecessors? The answer is surely not any lucidity or clarity of style or thought. For the much-revered Wealth of Nations is a huge, sprawling, inchoate, confused tome, rife with vagueness, ambiguity and deep inner contradictions. There is of course an advantage, in the history of social thought, to a work being huge, sprawling, ambivalent and confused. There is sociological advantage to vagueness and obscurity. The bemused German Smithian, Christian J. Kraus, once referred to the Wealth of Nations as the 'Bible' of political economy. In a sense, Professor Kraus spoke wiser than he knew. For, in one way, the Wealth of Nations is like the Bible; it is possible to derive varying and contradictory interpretations from various -- or even the same -- parts of the book. http://en.wikipedia.org/wiki/Wealth_of_nations