AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS by Adam Smith A P S E C S P ENN TATE LECTRONIC LASSICS ERIES UBLICATION moc.scigolaxe.www An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith is a publication of the Pennsylvania State University. This Portable Document file is furnished free and without any charge of any kind. Any person using this document file, for any purpose, and in any way does so at his or her own risk. Neither the Pennsylvania State University nor Jim Manis, Faculty Editor, nor anyone associ- ated with the Pennsylvania State University assumes any responsibility for the material contained within the document or for the file as an electronic transmission, in any way. An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, the Pennsylvania State University, Electronic Classics Series, Jim Manis, Faculty Editor, Hazleton, PA 18202 is a Portable Docu- ment File produced as part of an ongoing student publication project to bring classical works of litera- ture, in English, to free and easy access of those wishing to make use of them. Cover Design: Jim Manis Copyright © 2005 The Pennsylvania State University The Pennsylvania State University is an equal opportunity university. Contents INTRODUCTION AND PLAN OF THE WORK .......................................................................... 8 BOOK I OF THE CAUSES OF IMPROVEMENT IN THE PRODUCTIVE POWERS OF LABOUR, AND OF THE ORDER ACCORDING TO WHICH ITS PRODUCE IS NATU- RALLY DISTRIBUTED AMONG THE DIFFERENT RANKS OF THE PEOPLE........... 10 CHAPTER I OF THE DIVISION OF LABOUR ......................................................................... 10 CHAPTER II OF THE PRINCIPLE WHICH GIVES OCCASION TO THE DIVISION OF LABOUR..................................................................................................................................... 18 CHAPTER III THAT THE DIVISION OF LABOUR IS LIMITED BY THE EXTENT OF THE MARKET........................................................................................................................... 21 CHAPTER IV OF THE ORIGIN AND USE OF MONEY.......................................................... 25 CHAPTER V OF THE REAL AND NOMINAL PRICE OF COMMODITIES, OR OF THEIR PRICE IN LABOUR, AND THEIR PRICE IN MONEY....................................................... 31 CHAPTER VI OF THE COMPONENT PART OF THE PRICE OF COMMODITIES ......... 45 CHAPTER VII OF THE NATURAL AND MARKET PRICE OF COMMODITIES.............. 51 CHAPTER VIII OF THE WAGES OF LABOUR........................................................................ 58 CHAPTER IX OF THE PROFITS OF STOCK........................................................................... 77 CHAPTER X OF WAGES AND PROFIT IN THE DIFFERENT EMPLOYMENTS OF LABOUR AND STOCK............................................................................................................. 86 CHAPTER XI OF THE RENT OF LAND.................................................................................. 124 BOOK II OF THE NATURE, ACCUMULATION, AND EMPLOYMENT OF STOCK... 222 INTRODUCTION ......................................................................................................................... 222 CHAPTER I OF THE DIVISION OF STOCK .......................................................................... 224 CHAPTER II OF MONEY, CONSIDERED AS A PARTICULAR BRANCH OF THE GEN- ERAL STOCK OF THE SOCIETY, OR OF THE EXPENSE OF MAINTAINING THE NATIONAL CAPITAL ............................................................................................................ 230 CHAPTER III OF THE ACCUMULATION OF CAPITAL, OR OF PRODUCTIVE AND UNPRODUCTIVE LABOUR ................................................................................................. 270 CHAPTER IV OF STOCK LENT AT INTEREST .................................................................... 286 CHAPTER V OF THE DIFFERENT EMPLOYMENTS OF CAPITALS .............................. 293 BOOK III OF THE DIFFERENT PROGRESS OF OPULENCE IN DIFFERENT NA- TIONS........................................................................................................................................ 307 CHAPTER I OF THE NATURAL PROGRESS OF OPULENCE ........................................... 307 CHAPTER II OF THE DISCOURAGEMENT OF AGRICULTURE IN THE ANCIENT STATE OF EUROPE, AFTER THE FALL OF THE ROMAN EMPIRE............................311 CHAPTER III OF THE RISE AND PROGRESS OF CITIES AND TOWNS, AFTER THE FALL OF THE ROMAN EMPIRE......................................................................................... 321 CHAPTER IV HOW THE COMMERCE OF TOWNS CONTRIBUTED TO THE IM- PROVEMENT OF THE COUNTRY ..................................................................................... 330 BOOK IV OF SYSTEMS OF POLITICAL ECONOMY...................................................... 341 CHAPTER I OF THE PRINCIPLE OF THE COMMERCIAL OR MERCANTILE SYSTEM 342 CHAPTER II OF RESTRAINTS UPON IMPORTATION FROM FOREIGN COUNTRIES OF SUCH GOODS AS CAN BE PRODUCED AT HOME .................................................. 361 CHAPTER III OF THE EXTRAORDINARY RESTRAINTS UPON THE IMPORTATION OF GOODS OF ALMOST ALL KINDS, FROM THOSE COUNTRIES WITH WHICH THE BALANCE IS SUPPOSED TO BE DISADVANTAGEOUS....................................... 378 Part I — Of the Unreasonableness of those Restraints, even upon the-Principles of the Commercial System. ...............378 PART II. — Of the Unreasonableness of those extraordinary Restraints, upon other Principles....................................391 CHAPTER IV OF DRAWBACKS............................................................................................... 400 CHAPTER V OF BOUNTIES...................................................................................................... 405 CHAPTER VI OF TREATIES OF COMMERCE ..................................................................... 437 CHAPTER VII OF COLONIES .................................................................................................. 447 CHAPTER VIII CONCLUSION OF THE MERCANTILE SYSTEM ................................... 522 CHAPTER IX OF THE AGRICULTURAL SYSTEMS, OR OF THOSE SYSTEMS OF PO- LITICAL ECONOMY WHICH REPRESENT THE PRODUCE OF LAND, AS EITHER THE SOLE OR THE PRINCIPAL SOURCE OF THE REVENUE AND WEALTH OF EVERY COUNTRY ................................................................................................................. 539 APPENDIX TO BOOK IV .................................................................,.........................................562 BOOK V OF THE REVENUE OF THE SOVEREIGN OR COMMONWEALTH ............... 564 CHAPTER I OF THE EXPENSES OF THE SOVEREIGN OR COMMONWEALTH........ 564 PART I Of the Expense of Defence..........................................................................................................................................564 PART II Of the Expense of Justice.........................................................................................................................................579 PART III Of the Expense of public Works and public Institutions.......................................................................................590 PART IV Of the Expense of supporting the Dignity of the Sovereign ..................................................................................666 CONCLUSION..........................................................................................................................................................................667 CHAPTER II OF THE SOURCES OF THE GENERAL OR PUBLIC REVENUE OF THE SOCIETY .................................................................................................................................. 668 PART I Of the Funds, or Sources, of Revenue, which may peculiarly belong to the Sovereign or Commonwealth.......668 PART II Of Taxes......................................................................................................................................................................676 CHAPTER III OF PUBLIC DEBTS ........................................................................................... 749 The Wealth of Nations AN INQUIRY INTO THE According, therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who NATURE AND CAUSES are to consume it, the nation will be better or worse supplied with all the necessaries and conveniencies for which it has occasion. OF But this proportion must in every nation be regulated by two different circumstances: first, by the skill, dexterity, and judgment THE WEALTH OF with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed in NATIONS useful labour, and that of those who are not so employed. What- ever be the soil, climate, or extent of territory of any particular nation, the abundance or scantiness of its annual supply must, in by that particular situation, depend upon those two circumstances. The abundance or scantiness of this supply, too, seems to de- Adam Smith pend more upon the former of those two circumstances than upon the latter. Among the savage nations of hunters and fishers, every individual who is able to work is more or less employed in useful IIIIINNNNNTTTTTRRRRROOOOODDDDDUUUUUCCCCCTTTTTIIIIIOOOOONNNNN AAAAANNNNNDDDDD PPPPPLLLLLAAAAANNNNN OOOOOFFFFF TTTTTHHHHHEEEEE labour, and endeavours to provide, as well as he can, the neces- WWWWWOOOOORRRRRKKKKK saries and conveniencies of life, for himself, and such of his family or tribe as are either too old, or too young, or too infirm, to go a- T HE ANNUAL LABOUR of every nation is the fund which hunting and fishing. Such nations, however, are so miserably poor, originally supplies it with all the necessaries and that, from mere want, they are frequently reduced, or at least think conveniencies of life which it annually consumes, and themselves reduced, to the necessity sometimes of directly destroy- which consist always either in the immediate produce of that labour, ing, and sometimes of abandoning their infants, their old people, or in what is purchased with that produce from other nations. 8 Adam Smith and those afflicted with lingering diseases, to perish with hunger, employed. The second book, therefore, treats of the nature of capital or to be devoured by wild beasts. Among civilized and thriving stock, of the manner in which it is gradually accumulated, and of nations, on the contrary, though a great number of people do not the different quantities of labour which it puts into motion, ac- labour at all, many of whom consume the produce of ten times, cording to the different ways in which it is employed. frequently of a hundred times, more labour than the greater part Nations tolerably well advanced as to skill, dexterity, and judg- of those who work; yet the produce of the whole labour of the ment, in the application of labour, have followed very different plans society is so great, that all are often abundantly supplied; and a in the general conduct or direction of it; and those plans have not workman, even of the lowest and poorest order, if he is frugal and all been equally favourable to the greatness of its produce. The policy industrious, may enjoy a greater share of the necessaries and of some nations has given extraordinary encouragement to the in- conveniencies of life than it is possible for any savage to acquire. dustry of the country; that of others to the industry of towns. Scarce The causes of this improvement in the productive powers of any nation has dealt equally and impartially with every sort of in- labour, and the order according to which its produce is naturally dustry. Since the down-fall of the Roman empire, the policy of Eu- distributed among the different ranks and conditions of men in rope has been more favourable to arts, manufactures, and commerce, the society, make the subject of the first book of this Inquiry. the industry of towns, than to agriculture, the Industry of the coun- Whatever be the actual state of the skill, dexterity, and judg- try. The circumstances which seem to have introduced and estab- ment, with which labour is applied in any nation, the abundance lished this policy are explained in the third book. or scantiness of its annual supply must depend, during the con- Though those different plans were, perhaps, first introduced by tinuance of that state, upon the proportion between the number the private interests and prejudices of particular orders of men, with- of those who are annually employed in useful labour, and that of out any regard to, or foresight of, their consequences upon the gen- those who are not so employed. The number of useful and pro- eral welfare of the society; yet they have given occasion to very dif- ductive labourers, it will hereafter appear, is everywhere in pro- ferent theories of political economy; of which some magnify the portion to the quantity of capital stock which is employed in set- importance of that industry which is carried on in towns, others of ting them to work, and to the particular way in which it is so that which is carried on in the country. Those theories have had a 9 The Wealth of Nations considerable influence, not only upon the opinions of men of learn- BOOK I ing, but upon the public conduct of princes and sovereign states. I have endeavoured, in the fourth book, to explain as fully and dis- OOOOOFFFFF TTTTTHHHHHEEEEE CCCCCAAAAAUUUUUSSSSSEEEEESSSSS OOOOOFFFFF IIIIIMMMMMPPPPPRRRRROOOOOVVVVVEEEEEMMMMMEEEEENNNNNTTTTT IIIIINNNNN tinctly as I can those different theories, and the principal effects TTTTTHHHHHEEEEE PPPPPRRRRROOOOODDDDDUUUUUCCCCCTTTTTIIIIIVVVVVEEEEE PPPPPOOOOOWWWWWEEEEERRRRRSSSSS OOOOOFFFFF which they have produced in different ages and nations. LLLLLAAAAABBBBBOOOOOUUUUURRRRR,,,,, AAAAANNNNNDDDDD OOOOOFFFFF TTTTTHHHHHEEEEE OOOOORRRRRDDDDDEEEEERRRRR AAAAACCCCC----- To explain in what has consisted the revenue of the great body CCCCCOOOOORRRRRDDDDDIIIIINNNNNGGGGG TTTTTOOOOO WWWWWHHHHHIIIIICCCCCHHHHH IIIIITTTTTSSSSS PPPPPRRRRROOOOODDDDDUUUUUCCCCCEEEEE IIIIISSSSS of the people, or what has been the nature of those funds, which, NNNNNAAAAATTTTTUUUUURRRRRAAAAALLLLLLLLLLYYYYY DDDDDIIIIISSSSSTTTTTRRRRRIIIIIBBBBBUUUUUTTTTTEEEEEDDDDD AAAAAMMMMMOOOOONNNNNGGGGG in different ages and nations, have supplied their annual consump- TTTTTHHHHHEEEEE DDDDDIIIIIFFFFFFFFFFEEEEERRRRREEEEENNNNNTTTTT RRRRRAAAAANNNNNKKKKKSSSSS OOOOOFFFFF TTTTTHHHHHEEEEE tion, is the object of these four first books. The fifth and last book PPPPPEEEEEOOOOOPPPPPLLLLLEEEEE..... treats of the revenue of the sovereign, or commonwealth. In this book I have endeavoured to shew, first, what are the necessary CCCCCHHHHHAAAAAPPPPPTTTTTEEEEERRRRR IIIII expenses of the sovereign, or commonwealth; which of those ex- penses ought to be defrayed by the general contribution of the OOOOOFFFFF TTTTTHHHHHEEEEE DDDDDIIIIIVVVVVIIIIISSSSSIIIIIOOOOONNNNN OOOOOFFFFF LLLLLAAAAABBBBBOOOOOUUUUURRRRR whole society, and which of them, by that of some particular part only, or of some particular members of it: secondly, what are the T HE GREATEST IMPROVEMENTS in the productive powers of different methods in which the whole society may be made to labour, and the greater part of the skill, dexterity, and contribute towards defraying the expenses incumbent on the whole judgment, with which it is anywhere directed, or ap- society, and what are the principal advantages and inconvenien- plied, seem to have been the effects of the division of labour. The cies of each of those methods; and, thirdly and lastly, what are the effects of the division of labour, in the general business of society, reasons and causes which have induced almost all modern govern- will be more easily understood, by considering in what manner it ments to mortgage some part of this revenue, or to contract debts; operates in some particular manufactures. It is commonly sup- and what have been the effects of those debts upon the real wealth, posed to be carried furthest in some very trifling ones; not per- the annual produce of the land and labour of the society. haps that it really is carried further in them than in others of more 10