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An Inquiry into the Nature and Causes of the Wealth of Nations

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Lola Dzhumabaeva

on 16 November 2012

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Transcript of An Inquiry into the Nature and Causes of the Wealth of Nations

An Inquiry into the
Nature and Causes
of the Wealth of Nations by Adam Smith Of the Natural Progress of Opulence: Of the Rise and Progress of Cities and Towns, after the Fall of the Roman Empire: Of the Discouragement of Agriculture: Public Debt Taxes on Wages, Individuals
and Goods Taxes on Land Restraints upon the Importation Bounties Conclusion of the Mercantile System The "Invisible Hand" is a frequently referenced theme from the book, although it is specifically mentioned only once. Smith's argument about the international political economy opposed the idea of Mercantilism. Bounties upon exportation are, in Great Britain, frequently petitioned for, and sometimes granted to the produce of particular branches of domestic industry. By means of them our merchants and manufacturers, it is pretended, will be enabled to sell their goods as cheap, or cheaper than their rivals in the foreign market. A greater quantity, it is said, will thus be exported, and the balance of trade consequently turned
more in favor of our own country. If taxes are levied on the rent of land, it requires periodic re-assessment since rents do vary from time to time.
It requires the rent agreement to declare and register to prevent any fraudulent collusion between landlord and tenant to evade the tax.
Taxes on the produce of land, such as tithes, are very unfair. They fall harder on those who own and farm less productive land. First-people ought to contribute, as far as possible, in proportion to the income that they derive under the protection of the state.
Second-taxes ought to be certain, and not arbitrary.
Third-taxes should be levied at a convenient time.
Fourth-taxes should cost no more than necessary. In order to maintain their margins, producers pass on taxes to consumers, so are taxes on wages ultimately paid by the employers – and therefore, once again, by the consumers.
Wealth taxes are arbitrary and unfair, given that a person’s wealth varies from moment to moment
Taxes on luxuries raise only the price of those luxuries, but like customs duties, they are very expensive to collect. When the costs of running the public sector are financed through borrowing, it consumes some of the capital that has been built up within the country. "The great commerce of every civilized society is that carried on between the inhabitants of the town and those of the country.
It consists in the exchange of crude for manufactured produce, either immediately, or by the intervention of money, or of some sort of paper which represents money.
The country supplies the town with the means of subsistence and the materials of manufacture. The town repays this supply by sending back a part of the manufactured produce to the inhabitants of the country." "The inhabitants of cities and towns were, after the fall of the Roman empire, not more favoured than those of the country. They consisted of a very different order of people from the first inhabitants of the ancient republics of Greece and Italy.
The towns were chiefly inhabited by tradesmen and mechanics, who seem in those days to have been of servile, or very nearly of servile condition. The rapine and violence which the barbarians exercised against the ancient inhabitants interrupted the commerce between the towns and the country.
The towns were deserted, and the country was left uncultivated, and the western provinces of Europe, which had enjoyed a considerable degree of opulence under the Roman empire, sunk into the lowest state of poverty and barbarism. BOOK I Of Division of Labor Increase in efficiency of production:
- development of skills of workers by narrow specialization
- saving of time which was spent on switch from one type of work to another
-increase in usage of machines
More people are involved in the production of each and every manufactured product. Of reasons of division of labor Part of what makes us human, according to Smith, is our propensity to truck, barter, and exchange items.
The propensity to barter and trade were the main reasons of the first division of labor. That the Division of Labor is Limited by the Extent of the Market As it is the power of exchanging that gives occasion to the division of labor, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, because he won't be able to exchange or to sell all surplus part of produced goods. Of the Origin and Use of money When the division of labor has been once established, producers had to sell all excess products that they produced. So it encourage barter. But the difficulties that they experienced pushed them to create the universal product for exchange. Of the Real and Nominal Price of Commodities The source of REAL VALUE of all commodities derives not from their money price, but from the amount of labor required to purchase them.
Smith explains the difference between prices by looking at the different amounts of labor that was required to bring those products to market.
The NOMINAL PRICE is a money value of the commodity and labor used in production of this commodity. Of the Wages of Labor In this section, Smith describes how the
wages of labor are dictated primarily by the competition
among laborers and masters. Of the profits of Stock Of the Rent of the Land BOOK II BOOK IV BOOK III BOOK V Revenue of the Sovereign or
Common Wealth Maxims of taxation proportionality transparency convenience efficiency House rent Building rent Ground rent The profit on the capital used to build the house The rent derived from the ownership of the land it is built on Taxes on Capital & Profits Income generated by capital Profit Interest Profit is not a good object of taxation, because it is the compensation for the risk and trouble of employing capital Interest would appear to be as easily taxed as rents, but this is not so. Increase profit by Reduce interest rate Loans and repayments are much easier to conceal than land and rents Capital is very mobile, and owners can avoid the tax simply by moving their capital abroad Private capital that is intended for the maintenance of productive labor is diverted into the support of unproductive labor.On the other hand, the more that is borrowed, the less has to be raised in taxation, and borrowing can be a rational way to finance a large, lengthy and costly expenditure, such as a war. Private capitals would certainly suffer greatly if all the costs of a war had to be raised through tax rises at the time (though it might make wars shorter, less popular, and less likely to happen)When the principle of government borrowing has become entrenched, the number of taxes that come with it still put a burden on the public that makes it hard for them to maintain their capitals Of the Division of Stock: The state of the greater part of the laboring poor in all countries:When the stock which a man possesses is no more than sufficient to maintain him for a few days or a few weeks, his revenue is, in this case, derived from his labor only.But when he possesses stock sufficient to maintain him for months or years, he naturally endeavors to derive a revenue from the greater part of it. Of Money Considered as
a particular Branch of the General
Stock of the Society The greater part of commodities resolves itself into three parts where someone pays:the wages of the laborthe profits of the stockthe rent of the land Of the Accumulation of
Capital, or of Productive and
Unproductive Labor: "One sort of labour adds to the value of the subject upon which it is bestowed (productive): there is another which has no such effect (unproductive). Of Stock Lent at Interest: "The stock which is lent at interest is always considered as a capital by the lender.
He expects that in due time it is to be restored to him, and that in the meantime the borrower is to pay him a certain annual rent for the use of it.
The borrower may use it either as a capital, or as a stock reserved for immediate consumption. If he uses it as a capital, he employs it in the maintenance of productive laborers, who reproduce the value with a profit. Alan Mamatov
Sanzhar Yesenaliyev
Nurbek Asanbai Uluu
Lola Dzhumabaeva The Principle of the Commercial or Mercantile System The book has sometimes been described as a critique of mercantilism and a synthesis of the emerging economic thinking of Smith's time Drawbacks Merchants and manufacturers are not contented with the monopoly of the home market, but desire likewise the most extensive foreign sale for their goods. Their country has no jurisdiction in foreign nations, and therefore can seldom procure them any monopoly there. They are generally obliged, therefore, to content themselves with petitioning for certain encouragements to exportation. Treaties of Commerce "When a nation binds itself by treaty either to permit the entry of certain goods from one foreign country which it prohibits from all others, or to exempt the goods of one country from duties to which it subjects those of all others, the country, or at least the merchants and manufacturers of the country, whose commerce is so favored, must necessarily derive great advantage from the treaty.” Colonies "The interest which occasioned the first settlement of the different European colonies in America and the West Indies was not altogether so plain and distinct as that which directed the establishment of those of ancient Greece and Rome.” Causes of Prosperity of new Colonies "The colony of a civilized nation which takes possession either of a waste country, or of one so thinly inhabited that the natives easily give place to the new settlers, advances more rapidly to wealth and greatness than any other human society.” The Agricultural Systems Chapter 9's long title is "Of the Agricultural Systems, or of those Systems of Political Economy, which Represent the Produce of Land, as either the Sole or the Principal, Source of the Revenue and Wealth of Every Country". References: Adam Smith; 1981; An Inquiry into the Nature and Causes of the Wealth of Nations; (Volume 1; Volume 2)
http://www.gumer.info/bibliotek_Buks/Econom/smit/smit_1.pdf Components of the price Natural and Market Price Salary of the workers
Capital (equipment)
Rent for land
Profit Natural price is determined by the producer and consist of price of all inputs and profit.
Market price is determined by the market demand for the commodity. Market of Labor Laborers represent supply of labor
Masters represent demand for labor.

The more is Q supplied the less are wages
The more is Q demanded the more are wages The stock market is pretty much similar to the market of labor.
The interest rate in this market is determined by the competition of merchants, masters and investors.

The profit of stock is negatively related to the wages. Land
Percents for improving the land
Additional resources of land
Profit for landlord Thank you for attention!!!
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