The Wealth of NationsAdam Smith

Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776. The book did not invent economics, but it gave the discipline its structure, its central questions, and many of its enduring answers.

Smith begins with the division of labor: a pin factory in which ten workers, each performing a specialized operation, produce thousands of pins per day, while a single worker making pins from start to finish could hardly manage one. From this observation Smith derives the central mechanism of economic growth. Specialization increases productivity, productivity generates surplus, surplus enables trade, and trade extends the market that makes further specialization possible.

The theory of value follows. Smith distinguishes use-value from exchange-value and traces the "natural price" of a commodity to the wages, profit, and rent required to bring it to market. He attacks mercantilism and its obsession with hoarding gold, arguing that the wealth of a nation consists not in precious metals but in the annual produce of its land and labor.

The most famous passage is the least understood. The "invisible hand" appears exactly once. It describes how individual self-interest, channeled through competitive markets, can produce outcomes beneficial to society without anyone intending them. Smith never claimed that markets are self-correcting in all circumstances, and the five books of the Wealth of Nations contain extensive discussions of cases where they are not.