The Book
The year 1776 brought forth our Declaration of Independence. It was also the same year Adam Smith, an English professor of moral philosophy, published his book on economics of his day. Officially entitled, “Inquiry into the Nature and Causes of The Wealth of Nations,” it is still in print and most copies run close to 1000 pages.
Smith wrote this in response to the behavior of the mercantilists of his day, whom he despised. Mercantilists were business owners who favored government protection from foreign imports and pursued market domination. He believed a country’s wealth should be based on the amount of consumption produced and not accumulation.
He divides his work into five “Books”, each with multiple “chapters.” Book I deals with the powers of labor, Book II focus on the role of stock, Book III on the opulence found in different nations, Book IV on the political economy and Book V on the role of the Sovereign.
What He Says
He describes many scenarios involving daily business dealings to prove points, but only in general terms. In other words, he doesn’t mention any specific business by name and thus no case studies to independently verify.
At the end of chapter II of Book II he talks about the benefit of free competition vs. monopoly:
“By dividing the whole circulation into a greater number of parts, the failure of any one company, an accident which, in the course of things must sometimes happen, becomes of less consequence to the public. This free competition too obliges all bankers to be more liberal in their dealings with their customers, lest their rivals carry them away. In general, if any branch of trade or any division of labor be advantageous to the public, the freer and more general the competition, it will always be the more so.”
In chapter II of Book IV he argued that protectionism of home markets from foreign products may be counterproductive.
“To give the monopoly of the home market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in all cases, be either a useless or hurtful regulation….It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.”
Smith mentions laborers but does not get into the area of worker organization, employee safety or what specific amount is considered fair wages. He does mention that those who labor are also consumers, and as consumers should earn enough to provide adequate sustenance to contribute to the economy:
“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of people, should have such a share of the produce of their own labor as to be themselves tolerably well fed, clothed and lodged.”
He believed that business should be allowed to pursue their own interest. Government should not place itself in the position of favoring specific merchant classes.
“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from … the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of society.”
Conclusion
Adam Smith was of a different era in terms of commerce. His generation did not have to deal with international corporations, labor unions, and Big Tech. It is difficult to know what he would think of the influence of merger and acquisitions on commerce. He did have to deal with monopolies, favoritism, and inequality. In his book Smith covered a great deal of economic territory. As a result, some can get lost trying to find a clear, concise message from it. Today people with different economic views can find support from Smith. Nevertheless, his work is still considered a pioneer in the history of economic thought.