Bookcover - The Wealth of Nations

The Wealth of Nations

by Adam Smith

Rating: 8/10


A classic that has shaped a lot of thinking in economics over the last centuries. Adam Smith describes how markets interact with one another and how countries should be governed so that the market can flourish. A central idea is tying these thoughts together - the invisible hand. Free trade leads to the emergence of efficiency. And the pie get's bigger almost "magically".

Because everybody, when guided by their interests, tries to pursue the things that they are good at and improve at those things.

So if one country is better at producing wine, while another is better at producing butter, the two will specialize in each, and start trading with each other. And as a result both prosper and increase their wealth and efficiency. And this according to Smith is a process that happens from the bottom up.

There is no central planning behind this organization, it just happens, because people do, what they want to do.

It is complexity arising out of chaos. There are some points about money in the book as well, about how it arises, and what it is. And how the prices of goods are related to their cost of production, their actual and perceived value and their buying power. Smith also argues about the differences between how stock and labour can be used to create wealth, and how stock usually tries to buy labour in some form or another to turn raw materials into goods, that can be sold for a profit. In a way, that's what economy is, the production of goods for a profit, by using stock, to buy labour and raw goods. People who don't achieve a profit in doing this, go bankrupt, and therefore only the ones who are efficient at this job, can amass capital and stock and therefore keep playing the game. This is what leads Smith to his idea of the invisible hand as well. Because there is an evolution going on within markets, that selects for those, who manufacture and sell things at the highest quality with the lowest cost. In other words, markets force innovation.

All in all, this is a classic book, worth reading. However, it's not definitive and some ideas have to be updated to fit the modern state of the globalized world economy.