This book did for economics what Newton did to physics. The wisdom about trade, commerce and public policy contained in the book is still useful today. In his book Smith has outlined the concept of the gross domestic product, national wealth, productivity, labor, and public policy. Adam Smith has also explored the role of division of labor in enhancing economic productivity in society. Furthermore, he has discussed to greater length the role played by the government in the regulation of commerce and promotion of justice. This article will provide a review of Adam Smith’s book titled The Wealth of Nations. The book is divided into five main sections, with numerous chapters in each section, which often focus on the cause of the nature of the wealth of nations, indirectly and directly. This paper will provide a comprehensive review of the book on the basis of these five main sections, a summary and a conclusion of the review.


Politician and thinkers throughout the years have explored economic issues, but they normally subordinate strong economy to other goals and objectives, such as acquisition of territory and centralized government. Adam Smith published the book titled The Wealth of Nations in 1776. The book played a critical role in bringing economics to the modern era. Thereafter, Smith and other scholars focused on the ways in which the economy performs more efficiently. However, they did not consider moral goals and objectives that an economy needs to serve.  In his argument, Adams Smith argued that the most effective and efficient economy was the one that enhanced free-market economy with little interference from the government. When Britain and other countries implemented Smith’s theory in their countries, their economies expanded rapidly, and enormous wealth was created. Although economics has undergone sporadic change, it is fair to say that we essentially live in Adam Smith’s world.

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Book I

Adam Smith begins the book by affirming that the greatest improvement in the productive power lies on the labor and division of labor. Smith believes that the division of labor is crucial in increasing productivity even during production of simple products. Adam Smith has provided varied reasons for increase in productivity (Smith, 1955). According to Adam Smith, the division of labor leads to the development of specialized technical knowledge required to accomplish a certain task. Consequently, this makes the laborers to engage their assigned task more effectively, resulting to productivity. Furthermore, the division of laborers saves a lot of laborers’ time. This is because the laborer focuses on a single task rather on multitasking. In addition, Adam Smith holds the isolated time spent by laborers when executing an isolated task, which enables them to make a breakthrough to innovations that enhance productivity. Therefore, the increased division of labor during production process leads to enhanced productivity. Adam Smith believes that the increasing productivity and division of labor enhances the wealth of the society (Smith & Cannan, 2000).

In this section of the book Adam Smith describes the manner in which the benefits accrued from division of labor are spread throughout the society through material exchange. Smith believes that division of labor by skill set enhances creation of modest surpluses and efficiency. These surpluses allow each member of the society to trade the fruits of his/her labor force for other necessities. Therefore, instead of each man struggling to produce many things to satisfy his/her own needs, each man should specialize and produce more to exchange for other necessities (Smith & Cannan, 2000). This, Smith argues, would increase the well-being of all members of the society engaged in such trade and production. He further states that division of labor is not essentially a result of oversight and regulation by the authority, but is a result of human nature. Smith believes that it is human propensity to barter, truck and exchange items. Furthermore, it is the assurance of being able to trade that encourages the division of labor.

Adam Smith insists that it is not the natural ability that defines the occupation of most people, but the custom, habit and education. In modern complex societies, people are often employed because they have developed some specialized knowledge in their role. This extensive and specialized system of education in crucial subjects will be difficult (Smith & Cannan, 2000).

In this section the author insists that the division of labor is limited by size of the market.  Smith believes that size of the market controls the division of labor that it can sustainably support. This is because the larger the market, the greater the length to which labor can be effectively divided (Smith & Cannan, 2000).  Since productivity increases with an increase in division of labor, large market is often required to consume the product. In this section Adam Smith also argues that money also plays a crucial role in extending the market because it necessitates trade to such a large extent. He further believes that if there were no universally accepted currencies, trading would otherwise be complicated. This situation is rare because it is difficult to meet people with requirements that coincide. The most important theme is the idea of the market (Smith & Cannan, 2000). According to Smith, when the market is unregulated by the government, it possesses internal forces that help it to self-regulate. Furthermore, the author holds that markets are not only interrelated, but also their interaction is automatic. This is because the goods produced are exchanged, and resources are distributed with the utmost efficiency through the process that occurs naturally.

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Book II

In the book II of The Wealth of Nations, Adam Smith describes how extra income resulting from the division of labor builds off capital. He also explains how accumulation of capital strengthens the system and enhances expansion of the division of labor and supports technological advancement and specialization (Mazlish, 2002). In the first two chapters of this section, Smith explains about money value, consumption and investment in more theoretical terms. This section reinforces Smith’s argument about fixed and circulating capital in the social context, as outlined in the book I. According to the author, the true value of money in the society is what is purchased, produced or sustained by its brief possession by each person. He further explores the issue of banking and the role played by the bank in the economic system. He claims that the main role of the bank is to allow the capital to flow and change hand at a more rapid pace. In this section Smith has witnessed numerous banking crises (Mazlish, 2002). Therefore, Smith issues the warning against the risk associated with over-issuing the bank notes. In this section Smith believes that competition in the banking sector is vital since it ensures that banks behave in a more prudent manner. It is worthy to note that Adam Smith was not altogether against the government regulation on the banking issue (Mazlish, 2002).

Adam Smith has also explored the issue of accumulation of capital and productive and unproductive labor in this section. He believes that productive labor adds value to the people, while unproductive does not. Smith’s idea of unproductive labor extends beyond the profession of unskilled servant to physician and sovereign. He notes that an individual who is unproductive in a society is maintained by annual produce of the productive labor and land of a country. In capital accumulation, Smith notes, the produce is often divided into two. The first part replaces the lost wealth, and the second institutes the income of the owner of the capital as profit. He argues that the produce that replaces the capital is often destined to maintenance of laborers in terms of wages. In contrast, the revenue part of product goes toward sustaining the unproductive labor. In the chapters of this section Smith suggests that societies follow the natural progression towards opulence and industrialism. He also reflects on various ways in which capital can be used in the market (O'Rourke & Smith, 2007).

The most vital and persistent message of this section is the impression that a portion of capital needs to be saved. This will make it possible for the productive capital of the society to be expanded. Consequently, this allows for greater efficiencies in the future since capital accumulates and leads to greater surpluses. These surpluses represent the expanded capital and the cycle continues. Adam Smith notes that consequently this leads to the rise in wages because when the capital increases the wages get increased, too. He further suggests that the appropriate investment of the expanding capital by wealthy classes ensures that the capital trickles down to the poorest in the society. The entire process occurs through trading activities and prudent investments. In this section Adam Smith implies that countries are better off when they engage in trading activities with one another, and liquefy the trade hurdles are created in a misguided and convoluted effort of self-protection (O'Rourke & Smith, 2007).

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Book III

This section provides a brief historical summary of the development of economic relations. Adam Smith begins this section by analyzing the agricultural society and how urban towns came to the development. He further describes how urban centers depend upon rural areas for sustainability. He claims that a town relies on the country, but the country also relies on a town, as market for its surplus good. In this section Adam Smith explains how the feudal order in Europe was broken gradually over time. He further outlines how the system of trading developed to replace small towns with their imperfect markets that heralded them. He explains how wealth resided within the limits of influential landlords under feudal order. However, the wealth was eroded when the reviewed law granted tenants more power over their lands hence began demanding security (O'Driscoll, 1979).

According to Adam Smith, under the feudal system the law applied differently to people with regard to the social system, and was abandoned in favor of a system in which people were equal under the common law. Smith indicated that this was a significant development because it signaled separation of the legal code from the political power. This encouraged development of the system that promotes civil equality and justice.  Smith argues that it requires a strong legal system for capitalism to succeed because this involved the need to have confidence that their capital will be protected. In this section Adam Smith touches on the development of cities. He claims that development of cities signals progression of economies (O'Driscoll, 1979). Although cities rely on the rural areas for livelihood, Adam believed that cities acted as the major force of progression in the history of development of the cities in Europe. Adam Smith believes that towns and successful city dwellers usually represent forces for industry and trade development. In contrast, the lifestyle and estates of the landed aristocracy represented political oppression and economic stagnation (O'Driscoll, 1979). He further argues that it is an industrialist and a merchant that are responsible for economic growth and progression of the society. In contrast, aristocrats are usually responsible for development of system stagnation and unsustainable economic practices. Adam Smith clearly criticized social class favors of another since it evidently limits political, social and economic progress.

In this section Adam Smith criticizes and argues against the mercantilist theory by suggesting that trade is not a zero-sum game. He has also argued that people involved in agricultural practices benefit as much as the city dwellers from their trading activities. Through this section Adam Smith has laid a foundation for affirmation of the claim that people, irrespective of their social status, are equal in prosperity, provided that they are hand-working. With regard to this, Smith disregarded classist thinking and social narrative that champions aristocracy and oppression (Smith & Raphael, 1991). At the end of the section the author emphasizes on the idea that development of urban centers leads to increased political stability, freedom and equality.

Book IV

In this section Adam Smith demystifies major tenants of mercantilism. Smith writes that most mercantilist regulations are often short-sighted and beneficial to only a small group of people. Although such policy may benefit an individual in the short run, Smith claims that it harms the society in general. He also indirectly reinforces ideas about morality and society that are explored throughout the book. The author has used two main ideas in order to demonstrate how mercantilism has been negative to the economic theory (Smith & Raphael, 1991). He refers to money as a tool of trade rather than the marker of absolute value. He further claims that money is not a zero-sum game, but when conducted without restrictions, it can benefit all the involved parties. In this section Smith provides a glimpse into the moral philosophy. In chapter two he describes how market is regulated by each person pursuing his/her interest while being unrestrained by the government regulation and policy.

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In chapters four to six Adam Smith claims that countries entering into preferential trade agreement with other countries often create a situation that mimics a monopoly. As a result of lack of freedom of exchange, a certain merchant is usually granted a considerable advantage over others. Adam Smith has also criticized the trade agreement made between Portugal and Great Britain. Since Portugal was great holder and importer of gold, it was believed that through agreement the country would enable Britain to access the gold. However, Smith claims that gold, like any other trade product, is only valuable insomuch as it can be traded for other goods (Smith & Raphael, 1991).

Throughout this section Adam Smith constantly points out how the interest of special groups deflects the economic harm of their policies onto social groups that essentially could not have a stake in the creation of such policy. For instance, Smith points out that country A gains from preferential trade agreement with country B. This deflects negative consequences of agreement away from its citizens to the citizens of country B, who experience higher prices as a result of agreement made between the two countries (O'Rourke & Smith, 2007).

In chapters seven and nine of this section the author has explored the importance of establishing new colonies. He contrasts colonies in West Indies and those in North America. According to Smith, the colonies often emerged because of overpopulation in various territories, and to satisfy the demand for land ownership. He also criticizes the folly of searching gold and silver mines. This is because he believes that such a venture has very low probability of success.

However, Smith claims that nature of humankind makes them believe in luck, a situation that encourages them to take undue risks in a search of mines. Although Smith is opposed to the need of colonies, he points out that those colonies were badly managed. They increased the level of industry opulence (O'Rourke & Smith, 2007). He suggests that colonies have increased the size of the market, which led to the ultimate economic development and diversification of the market. Consequently, this led to the increase in productivity (O'Rourke & Smith, 2007).

Book V

In this section Adam Smith explores the role of sovereign and claims that a state has a responsibility to protect the society from invasion and violence from other societies. The author begins this section by exploring on the nature of military force through the use of historical perspective. Smith claims that the smaller and more mobile the population is the higher percentage of population will be ready to fight in a battle. He further states that once a society settles permanently, agricultural societies are usually more ready to prepare for the war than non-agricultural societies (Smith & Skinner, 1970). Adam Smith concludes that with time the war has evolved and that standing armies are far more superior to militias. However, Smith acknowledges that an upright army can pose a governmental threat, especially when it turns against the government.

Smith has also explored the cost of public works and the way the cost is distributed. He claims that more productive countries spend more on the public works than less productive nations. This is because public work is used more intensively owing to the presence of more capital surplus. Furthermore, he has explored whether public work can be funded privately. He claims that private persons given the responsibility of managing public works may essentially have personal interest due to monetary incentives (Smith & Skinner, 1970). He suggests that this works well when the public work in question requires maintenance. Adam Smith in this section has further discussed the education sector. He first explored different ways in which educational institution can be designed to self-sustaining in terms of cost. For instance, he suggests imposition of tuition fees. He also believes that competition can be used as a driver of excellence. This is because teachers may be motivated to improve on the eminence of their training in order to receive fees and honor from the students. He argues that motivation of teachers needs to be stressed in order to improve the value of education (Smith & Skinner, 1970).

Adam Smith has outlined the virtues of privately funded school and warns that education needs to be made available to everyone in society. He believes that better education leads to social cohesion. This is because an educated inhabitant is often able to make better political choice than uneducated populace. In this section Smith has observed that there were different types of taxes through which the state raises money to fund its public works. These taxes include the taxes levied from land rent, house rent and selected employments (Smith & Skinner, 1970). According to Smith, rent can be levied by canon or in accordance to non-variable rates. However, he claims that this would be unfair because of varying levels of land value, which make some lands more productive than others. Adam Smith believes that an ideal tax system for the land rent requires the landlords and tenants to publish their lease in a public register.

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In the first paragraph of the book entitled The Wealth of Nations, Adam Smith outlines his conception on the nature and the cause of wealth of nations. Through this he separates his opinions from those of physiocrats and mercantilists. According to Smith, the annual labor of nations is the fund that fundamentally supplies the country with all the conveniences and necessaries of life, which it annually ingests (Cushing, 1998). Furthermore, supply also consists of either labor or immediate produce. In different instances Adam Smith criticized mercantilists for their concerted concerns with the accumulation of gold and identification of gold with the wealth of countries. Furthermore, Adam Smith believed that most mercantilists were confused about the issue. To him, treasure was the yearly flow of goods and services and not accumulation of precious gold (Cushing, 1998). Smith also revealed deep understanding of interrelationship between imports and exports. He perceived that the basic role of export was to pay for imports. In the introduction part Smith implied that the end product of economic activity was consumption. This position has been explored further throughout the book. This is another aspect that differentiates Smiths’ economic from that of mercantilist’s, who regarded production as the end in itself. Adam Smith has also explored the issue of labor in the book to a great extent.  He argues that labor is the source of wealth for every nation. This argument separated him from physiocrats who stress on the land as the source of wealth for nations (Cushing, 1998). In his book Adam Smith has emphasized on the need to measure the wealth of nation in terms of per capita. For instance, when in the modern world England is said to be wealthier than China, it is well understood that the comparison is not usually based on the total input or output of two nations, but on per capita revenue of the people in two countries. Principally, Adam Smith’s views are still being used today. Smith has also criticized the mercantilist system for sacrificing the interest of the consumer in favor of the producer (Smith & Skinner 1970). This is because the system makes production to be the ultimate end objective rather than consumption. A significant part of the book deals with nature, while the rest deals with the cause of wealth of nations, either indirectly or directly. Since the book is categorized into five major divisions, the first section deals with the value theory, distribution of income and division of labor; section two deals with the analysis of capital as the cause of wealth for nations (Cushing, 1998). In section three the book analyzes the economic history of selected countries. Unit four of the book outlines the history of economic thought. It also examines the physiocrat and mercantilist system. Lastly, the last section covers public finance.


In conclusion, it is evident that Adam Smith’s The Wealth of Nations is unique and the most persuasive book to be written in the history of contemporary economic. It is clear that Adam Smith recognized that economic specialization and cooperation was the key to improving the living standards of society. The importance of labor specialization emphasized by Smith is still evident in the modern world (O'Rourke & Smith, 2007). In addition, the author has emphasized on the need to measure the country’s wealth in per capita revenue of population. Adam Smith has shattered the old way perception toward trade, commerce and public policy. Through this, he laid a fundamental foundation of the field of modern economics (O'Rourke & Smith, 2007). This is because Adam Smith opposes the mercantilist system, which sacrifices the interest of the large society in favor of a selected few in the society.


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