Adam Smith Wealth of Nations Flashcards

The Benefit of Free Exchange

• Free exchanges in the market benefit both parties involved.
• Each society can prosper without detracting from another's wealth.
• Society gains more when trading partners are prosperous.

Gross National Product

• Wealth is defined by annual production and commerce, not just gold and silver reserves.
• Smith introduces the concept of gross national product to explain wealth accumulation.

Economic Regulations are Counter-Productive

• Government regulations often hinder market efficiency.
• The innate wisdom of a free market is the best regulator of commerce.

Reinvestment

• Focus on improving production methods through investments for sustainable wealth growth.
• Direct consumption of capital limits long-term income increases.

Governments Should Have Limited Powers

• An open, competitive marketplace thrives without government interference.
• Government roles should include protection of citizens, justice, and law enforcement.

The Invisible Hand

• Individual self-interest naturally leads to societal order and stability.
• The "invisible hand" metaphor explains how personal pursuits can foster societal harmony.

Beware of Special Interests

• Undue pressure from specific interest groups destabilizes overall society.
• Government should avoid regulations favored by particular social or economic factions.

Quote on Economic Freedom

• Smith emphasizes that inhibiting a society's economic activities is a violation of rights.
• His views on free trade contributed to early American economic identity.

Complexity of the Division of Labor

• The division of labor increases living standards and efficiency in production.
• Cooperation among individuals drives economic organization and prosperity.

Absolute and Effectual Demanders

• Absolute demanders desire goods regardless of their affordability.
• Effectual demanders influence market prices based on their purchasing ability.

Balance of Trade

• The balance of trade measures the difference between a country's exports and imports.

Bounties and Subsidies

• Bounties aim to promote exported goods and create monopolies abroad.
• Petitioned by manufacturers, they distort the natural balance of trade.

Capital and Circulating Capital

• Capital is utilized to generate revenue rather than for immediate consumption.
• Circulating capital consists of goods that are bought and sold to create profit.

Commodities and Drawbacks

• A commodity is any good sold in the market.
• Drawbacks allow merchants to recover taxes on goods exported.

Productive vs Unproductive Labor

• Productive labor results in tangible goods, whereas unproductive labor does not create physical products, relying on profits generated by productive sectors.

Public Debt, Goods, and Works

• Public debt arises when government expenditures exceed tax revenues and is often linked to defense costs.
• Public goods benefit society broadly, while public works are state-funded infrastructure.

Role of Money

• Money facilitates commerce and should circulate to create wealth, rather than act as dormant reserves.
• It represents opportunities for growth and wealth accumulation.

Government's Role in Economy

• Smith advocates for government protection of market rules while allowing free market operation.
• Education and infrastructure should receive public support to enhance commerce.

Creation and Maintenance of Wealth

• Wealth is generated through savings exceeding production costs and should result in real goods exchange.
• Prosperity is linked to economic growth; stagnation leads to decline in living standards.

Critique of Oppressive Government

• Oppressive systems reduce labor productivity by discouraging workers from valuing their labor.
• Such economies suffer from inefficiency and lower quality of life for all citizens.

Overview of "Wealth of Nations"

• Published in 1776, it critiques mercantilism and examines economic practices from historical perspectives.
• Smith combines observations from various trades with moral philosophy to provide insights into economic efficiency.