wealth of nation

The Wealth of Nation, A Contemporary Revisit of the Unchanged Laws of Market

Book I

Chapter 1 – Division of Labor

The 18th century English is hard to read as the book is constructed on many clauses for one sentence.

However, the keen observation by Adam Smith for the national economy is mostly interesting for readers.

In this chapter, Smith explains the divisions of labor and the importance of it.

He thinks, that the more specified the task is (the more divisions a business has), the more efficient the business will undertake.

By specific examples, Smith explained the differences between traditional industries and modern industries, in his words, manufactures.

Traditional industries take much on one’s comprehensive abilities. For example, a farmer can be the sower, the reaper, the crafter of one single crop. And in this case, the whole operation reduces the speed of a business.

Manufactures are much more different as it focuses more on efficiency which ultimately subdivides the operation into numerous expertise-oriented, simple and repetitive tasks for workers (workmen, in his words) to exert themselves on.

Thus this difference between quantity and quality ultimately determines the price difference in market. Corns produced in Poland could be just as cheap as ones produced in England, which had better cultivated soil and more labor. However, manufactured goods like silk are vastly different on price depending on whichever has better labor and expense, also technology and raw materials.

In the post Industrial Revolution Europe, the quantity of goods had an exponential increase, and according to Adam Smith, it was due to three reasons:

  1. The dexterity of workers has increased over the years and also as they are assigned for much simpler and repetitive work to increase their dexterity.
  2. The switching between tasks is hugely compressed as now it can all be done in a factory, or in the same space, whereas before everything cost the traveling time in between task and task.
  3. The utilization of machinery vastly increased the speed of manufacturing, also the quality and quantity of them.

Over the years, the world has come to a realization that machinery is the ultimate manufacture beast. Philosophers, at the time as they called, or men of speculation, are the people who specialized at improving machines.

Chapter 2 – The Development of Division of Labor

Smith thinks that the progression of today’s complex business models is not of artificial wisdom. There isn’t someone to push forward this model but humans’ own propensity to truck, barter and exchange, thus the division of labor.

We address ourselves not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.

Smith comes from the idea that everyone is a self-interest person.mOur world of economy or this whole supply chain of everything, is based on the standard that everyone wants something out of others by fulfilling their own wants, not because of benevolence, but because of human self-love.

Co-operation comes from mutual benefits, this self-interest for others’ self-interests.

It is well-distinguished from animals, which can not form the slightest way of exchanging talents and products.

Chapter 3 – The Extent of Market

The extent of market is essentially how a gathering of people being complex and populous enough to bear the biggest divisions of labor.

To extend a market, transportation plays a key role. Water-carriage is always more cost-efficient (cheaper, weights more) than land-carriage.

The rest of the chapter is all about how water, or maritime navigation has transformed human activities and nations’ prosperity.

Water, by the prerequisite that a country owns it, helps a market to extend itself at the greatest length.

Chapter 4 – The Development of Money

Before the invention of money, market was supposed to have all sorts of instruments of commerce. For one has surplus of his goods, however the other who needs it does not provide him his demands.

Coins, were examined by their fineness and wight. However, due to erosion, human usage and foul market treatments, coins, can decrease in value, which appear to be the weight.

In this way, the debtor pays less than the original money he borrows from the creditor. I think, it’s one of the reasons for interest, at least in old times.

In this chapter, Smith also talks about how people define value, or at least his observation from it.

There are, two sorts of value. “Value in use” and “value in exchange”. For his theory, something that has great value in use has no value in exchange, and vice versa, something that has great value in exchange has no value in use. For example, water, is seldomly marked by high price. Diamonds, on the other hand, are expensive, but seldomly be of any use for someone.

However, there’s a contradiction to this theory, or this observation. This theory is correct on the both extreme sides of the market. Anything in between, does not apply.

For example, a car and a luxury car. What are the differences? A normal car’s most prominent trait is its utility as a transportational tool. A luxury car is the value of utility and display. It is a car, but a car that adds the value of display, the reason why it’s expensive. However, it can still be used and has great value in utility, which completely breaks his theory.

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