Adam Smith and The Wealth of Nations

Preview question: What motivates someone to trade with someone else?

Source: Adam Smith from The Wealth of Nations, 1776 

Vocab 

tailor: someone who makes clothes 

occupation: job 

cultivate: improve 

possess: have 

endeavors: tries 

intends to: tries to or means to 

promote: improve 

public interest: what’s good for everyone in society 

benevolence: generosity 

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The tailor does not attempt to make his own shoes, but buys them at the shoemaker. The shoemaker does not attempt to make his own clothes, but uses a tailor. The farmer attempts to make neither the one nor the other, but uses those different craftsmen. All of them find it in their best interests to employ their talents in a particular occupation, and to cultivate and bring to perfection whatever talent or genius he may possess... This is the way in which they have some advantage over their neighbors and simply purchase whatever else they have the occasion for. 

Every individual, therefore, endeavors as much as he can to direct his resources toward his own talents so that its produce may be of the greatest value to themself... every individual neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own gain... 

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest and their desire for a profit.... ...

By pursuing their own interest, people frequently promote the good of the society more effectively than when they really intend to promote it. 

Answer questions 1-5

The Wealth of Nations continued:

Vocab 

sole: only 

commodity: product, good 

regulated: determined 

quantity: amount 

exceeds: is greater than 

invisible hand: Smith uses this term to refer to all the decisions of people in an economy

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The sole purpose of all production is to provide the best possible goods to the consumer at the lowest possible price. The price of every particular commodity is regulated by the cost of its production, the quantity which is actually brought to market, and the demand of those who are willing to pay. 

When the quantity of any commodity which is brought to market falls short of the demand, all those who want the product cannot be supplied with the quantity which they want. Therefore, some of them will be willing to pay more. A competition will immediately begin among them, and the market price will rise more or less above the natural price. 

When the quantity brought to market exceeds the demand, it cannot be all sold to those who are willing to pay the price. Some part must be sold to those who are willing to pay less, so the price of the commodity falls. 

If one seller endeavours to raise prices without an increase in demand, consumers can simply choose among the other sellers who offer a lower price. As if led by an invisible hand, competition ensures that sellers provide the best possible goods to the consumer at the lowest possible price.

Answer questions 6-10