HISTORY OF ECONOMIC THOUGHT

Spring , 2020

ADAM SMITH AND THE MERCANTILISTS

VIEWS ON WEALTH OF NATIONS

Prof. WOJCIECH Pratik Dayanand Shinde

BIENKOWSKI 45046
 ADA
MS
Ada MIT
mS H: (
econ mith 1723
auth omist, was an –1790)
or. H phi l Scot
e os t
Fath is also opher a ish
er of kno nd
Eco w
nom as “The
ics”
Analyzes what constitutes the wealth of a country and
reasons why certain nations obtain more per capita wealth
than others.

Introduced new economic principles—principles that

continue to govern the world today

Introduces now-familiar concepts of gross domestic

product as a measure of national wealth

Specialization and division of labor, mutual gain from trade,

and the efficiency of markets (also known as the concept of
the invisible hand).
 THE MERCANTILISTS VS ADAM SMITH’S VIEW ON WEALTH OF NATIONS

Mercantilism :The central • Mercantilist believed • Smith rejected the

theme of mercantilism is :
Protectionist measures to
be implemented to
protect domestic
producers;
exports should be
increased, and imports
reduced.
that money was finite mercantilist definition
and that the only way as acquiring gold and
to prosper was to silver.
hoard gold and tariff • Smith proposed that
products from abroad. the wealth of a nation
So, money is better consisted of both farm
than goods, since output and
money could always manufactured goods
buy more goods, while with the labor it took
goods might go to produce them.
unsold, or spoiled or • To, increase its wealth,
consumed and, smith argued, a nation
therefore. “lost”, while needed to expand its
precious metals have economic production.
lasting value. The key to do this was
to encourage division
of labor.
 Book I: Book of the Causes of Improvement in
the productive Powers of Labour

In Book 1, Smith establishes his basic theories that become the groundwork
for his later analysis.

Money is a method of storing and exchanging wealth, which is actually

comprised of commodities and labor.

Smith divides price into three components

wages paid for labor profits of stock rent paid to landlords

The component of any price not paid to workers or landlords is deemed

profit. introduces the concepts of price, stock, and division of labor. He also
introduces his assertion that a nation’s wealth is not comprised of money
 Book II: Book of the Nature, Accumulation,
and Employment of Stock

In Book 2, Smith discusses “stock.” He defines stock as the assets used in a

commercial endeavor. Smith bifurcates stock into capital and revenue

Asserts that it is better for societies to maintain a greater share of stock as

capital investment, as opposed to spending it on economically-unproductive
endeavors.

Smith then differentiates between what he calls home trade, foreign trade of
consumption, and the carrying trade.

Smith reasons that the home trade, that of domestic commerce, is the most
beneficial to a country’s economy because money and goods can be exchanged
more frequently, creating more wealth than the carrying trade, which Smith
defines as foreign trade.
 Book III: Book of the different Progress of
Opulence in different Nations

In Book 3, Smith recounts the economic history of the Roman Empire and all
societies since its fall.

He concludes from this history that a natural economic

model, in which agriculture is the predominant economic activity, followed
by
manufacturing, then trade, is to be preferred.
 Book IV: Book of Systems of political Economy

In Book 4, Smith argues against mercantilism, the predominant economic

system of Smith’s era. Mercantilism is a sort of economic nationalism

objective is to build a wealthy and powerful state by restraining imports and

encouraging exports.

The practical goal of mercantilism was to bring as much gold

and silver into one’s country as possible while maintaining domestic
employment.

Smith concludes that the mercantile system costs the home country more than
it brings back in revenue, and that the system and colonies should be
abandoned in favor of domestic trade, which produces more wealth.
 Book V: Of the Revenue of the Sovereign or
Commonwealth

In Book 5, Smith argues that certain costs of governance are necessary and
unavoidable, and therefore should be paid via taxation.

He also offers a warning that Britain’s national debt at the time was spiraling out
of control.

proposes either a commodity tax or abandoning Britain’s American colonies,

which had been a continual drain on Britain’s resources.
 Conclusion

Wealth of Nations— which was

first published in 1776 during
Author supports an economic
the Scottish Enlightenment and
laissez-faire scheme. In making
Agricultural Revolution — is
his arguments, he introduces
Smith's seminal work in which
now-familiar gross domestic
he analyzes what constitutes a
product concepts as a measure
country's wealth, and why some
of national wealth,
nations receive more wealth per
specialization and division of
capita than others. It is one of
labor, mutual gain from trade,
the most important books
and market efficiency (also
written since it introduced new
known as the invisible hand
economic principles— principles
concept).
that continue to rule today's
world.
 References

SMITH, A.
An inquiry into the nature and causes of the wealth of nations
In-text: (Smith, 1776)
Bibliography: Smith, A., 1776. An Inquiry Into The Nature And Causes Of The
Wealth Of Nations. 3rd ed. London: Printed for W. Strahan and T. Cadell ..., pp.84-
93.

SMITH, A.
An Inquiry into the nature and causes of the wealth of nations
In-text: (Smith, 1990)
Your Bibliography: Smith, A., 1990. An Inquiry Into The Nature And Causes Of
The Wealth Of Nations. Chicago: Encyclopædia Britannica.

LEONTIEF, W. W.
Exports, Imports, Domestic Output, and Employment
In-text: (Leontief, 1946)
Your Bibliography: Leontief, W., 1946. Exports, Imports, Domestic Output, and
Employment. The Quarterly Journal of Economics, 60(2), p.171.
Thank You……….