Book Review: Wealth of Nations by Adam Smith

A Brief Summary:

The natural processes of a successful economy are found in Adam Smith’s Wealth of Nations. Although two hundred plus years old, Smith focuses on significantly profound and pertinent principles for any age. Stressing that regulations tend to limit prosperity and production, his extensive research of history and economics proves that a free market is an effective system in producing a wealthy nation. “The object of political economy of every country is to increase the riches and power of the country,” writes Smith. He proposes that wealth is built on labor, savings and investment. His labor theory of value regards “labor [as the] the real measure of the exchangeable value of all commodities [and that] the real price of everything is the toil and trouble of acquiring it.” Unlike our nation’s current course of consuming, Smith declares that saving is the sure path to wealth. He observes that, “Parsimony, and not industry is the immediate cause of the increase of capital.” Importantly, he measures the wealthiest nations as those who have a surplus to invest or to increase production. His main theme throughout is that great fortunes are made through a long life of industry, frugality, and careful saving.

My Response to Smith's Wealth of Nations:

Lamentably our country is in financial trouble. The future looks bleak as we contemplate the consequences of consumer and national debt, deflation of currency and an increase of government intervention and regulations. A close look at society will reveal that individuals as a majority are heavily in debt. What is the solution to this downward financial spiral? Do our societal choices mimic individual choices?

God, as a standard of what is right and wrong sets moral principles for promoting human happiness and progress. When those principles are followed, happiness and progress abounds. But the opposite is true that misery and decline follow when wrong choices are made. For example, a prodigal, who does not live within his means, destroys his capital and that of others. His idleness and prodigality encroaches upon the industry and capital of his progenitors. If a great number in a society follow his immoral example then society is in a state of debt and moral decline. Adam Smith states in his book, Wealth of Nations, that if prodigality is not compensated by frugality the path will lead to an impoverished country. Individuals must change if the society is to change. Change must come from the bottom up.

Supposing that Adam Smith is correct, I propose that the solution to our economic woes begin with individuals who are hard working and frugal, who save for a rainy day and who invest surplus income. Individually achieving these four principles will have a great affect in improving our nation’s economy. Smith affirms, “As capital of an individual can be increased only by what he saves from his annual revenue or his annual gains, so the capital for a society, which is the same with that of all the individuals who compose it, can be increased only in the same manner.” Sorry John Maynard Keynes, your philosophy of spending, debt and deflation of money has historically proven to send a nation to its ruin.

Smith explains that the principle of saving regularly is a natural expression of bettering oneself and that the greater the fortune, the greater ability to improve individual, familial and societal conditions provided that the individual is a moral person. “Capitals are increased by parsimony, and diminished by prodigality and misconduct,” writes Smith. Wealth is not built upon spending and consuming, but upon sound principles of careful investing, saving, frugality and parsimoniously living. If Smith’s principles are practiced, the nation’s downward spiral can be reversed.