The invisible hand?

What makes a nation wealthy? Is it hard work, resources, luck?

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Adam Smith: The Father of Economics Adam Smith was a philosopher and economic
theorist born in Scotland in 1723. He's known primarily for his groundbreaking
1776 book on economics called An Inquiry into the Nature and Causes of the
Wealth of Nations. Smith introduced the concept that free trade would benefit
individuals and society as a whole. He believed that governments should not
impose policies that interfered with free trade, domestically and abroad.
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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. Division of labour/ productivity/ free markets.

Context: Smith, a Scottish moral philosopher by trade, wrote the book to describe the
industrialized capitalist system that was upending the mercantilist system.Mercantilism held
that wealth was fixed and finite. The only way to prosper was to hoard gold and
place tariffs on products from abroad. According to this theory, nations should sell their goods
to other countries while buying nothing in return. Predictably, countries fell into rounds of
retaliatory tariffs that choked off international trade + protectionism + His opponent at this
time is a proponent of mercantilism — the idea that a country can only get rich if another
country becomes poor which leads encouraging exports and discouraging imports. Why wrong?

Scotland wines and wool

The core of Smith's thesis was that humans' natural tendency for self-interest (or in modern
terms, looking out for yourself) results in prosperity.

Smith's Elements of Prosperity

Smith believed a nation needed the following three elements to bring about universal
prosperity.

1. Enlightened Self-Interest

Smith wanted people to practice thrift, hard work, and enlightened self-interest. He thought
the practice of enlightened self-interest was natural for the majority of people.
In his famous example, a butcher does not supply meat based on good-hearted intentions, but
because he profits by selling meat. If the meat he sells is poor, he will not have repeat
customers and, thus, no profit.

Therefore, it's in the butcher's interest to sell good meat at a price that customers are willing
to pay, so that both parties benefit in every transaction.

 The division of labor is economically good, generating immense surplus from the increased innovation,
efficiency, and dexterity of its workers. But it is morally detrimental as it makes an individual focused on
a very narrow and confined sphere. 

What makes the division of labor possible? Money.

he division of labor began because 1. We have our own natural strengths and learned strengths 2. We are
an animal that has an instinct for bartering and exchanging. It does not rely on some overarching plan but
is a formation of natural evolution

2. Limited Government

Smith saw the responsibilities of the government as being limited to the defense of the nation,
universal education, public works (infrastructure such as roads and bridges), the enforcement
of legal rights (property rights and contracts), and the punishment of crime.2

The government should step in when people acted on their short-term interests. It should
make and enforce laws against robbery, fraud, and other, similar crimes. Smith cautioned
against larger, bureaucratic governments, writing, "there is no art which one government
sooner learns of another, than that of draining money from the pockets of the people."2

Smith believed that the role of universal education was to counteract the negative and dulling
effects of the division of labor that was a necessary part of industrialization. 

3. Solid Currency and Free-Market Economy

The third element Smith proposed was a solid currency twinned with free-market principles.
By backing currency with hard metals, Smith hoped to curtail the government's ability to
depreciate currency by circulating more of it. In turn, this could curb wasteful expenditures
(such as spending on wars).2

With hard currency acting as a check on spending, Smith wanted the government to follow

free-market principles. These included keeping taxes low and eliminating tariffs to allow
for free trade across borders. He pointed out that tariffs and other taxes only succeeded in
making life more expensive for the people while stifling industry and trade abroad.
 The central thesis of Smith's The Wealth of Nations is that our
individual need to fulfill self-interest results in societal benefit.
 He called the force behind this fulfillment the invisible hand.
 Self-interest and the division of labor in an economy result in mutual
interdependencies that promote stability and prosperity through the
market mechanism.
 Smith rejected government interference in market activities.
 He believed that a government's three functions should be to protect
national borders, enforce civil law, and engage in public works (e.g.,
education).