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President, McGill Students’ Trading Society
Published in 1776, Adam Smith’s An Inquiry into the Nature & Causes of The Wealth of Nations is cited as being one of the most important and influential works in economic theory ever crafted. This hefty book definitively stakes out the key concepts of classical macroeconomics, including collective supply and demand, general equilibrium based on market forces, and even ventures into making strong statements on the role of government in monetary and fiscal policy. The book is mentioned in economics classes the world over, and the concepts Smith puts forth are at the root of the teachings in these courses. That being said, it is striking that the work is not on the reading list of these courses as much as the book’s widespread popularity would imply. As such, I chose to read and study the work to see if its lessons hold true today.
In terms of language and structure, The Wealth of Nations is heavily outdated and presents a real challenge to the reader. More recent works in the field of the political economy make for far lighter reading, and are simply more accessible. Ultimately, the vocabulary and structure used is not material as to the lessons and ideas at the heart of the book, but a well-prepared university macroeconomics textbook would make for a far more pleasant reading experience than Smith’s work.
Far more integral to the continuing value of The Wealth of Nations is the modernity of the economics concepts set forth. And in this sense, the world of today reveals that we hold true to Smith’s teachings. Excepting recent aberrations, the trend toward a global neoliberal doctrine has been immense. Trade barriers are getting broken down in all regions, and in nations at all stages of development. Moreover, his relatively minor foray into the mixed nature of money, both as a means of trade and as an embodiment of value, seems to be at the root of the current world of fiat currencies and floating exchange rates. Furthermore, Smith’s application of logical, economic thinking is perhaps the most important aspect of The Wealth of Nations. He not only originates macroeconomic concepts, but he reveals how the state of the world reflects these concepts, and he tells a start-to-finish story chained together by sound logic that permits the reader to fully understand the concepts set forth.
However, some concepts are notably missing from the work. The conspicuous example missing is the fact that price elasticities of both demand and supply are concepts that had not yet been formulated. As such, Smith argues that imposing a tax would either impart the extra cost on entirely the supplier or entirely on the consumer. Moreover, the notion of externalities, and certainly the idea of operating within the sustainable environment would have been entirely foreign at the time of the book’s writing. On a slightly less material note, Smith gave in to the common economist’s tendency to quote numbers and values to prove his arguments. But these numbers are incredibly outdated and nonsensical today. Furthermore, I can only guess that Smith would be shocked that the Hudson’s Bay Company persists to this day, outliving the British East India Company, and the Dutch East and West India Companies, which he argued were granted far more valuable endowments. Moreover, the country it operated in, which he calls “miserable” is one of the world’s leading economies and has one of the happiest populations in history.
Ultimately, Adam Smith’s An Inquiry into the Nature & Causes of the Wealth of Nations has value that cannot be denied. The root concepts it sets forth are the foundation of today’s modern economics and define the capitalist world as we know it. As such, we should appreciate those contributions it makes. But there is a good reason why it doesn’t feature on every intro to macroeconomics reading list the world over. Much of it is outdated, and the same knowledge can be easier and more comprehensively gained from a well-written textbook, all of which are based in part on this foundational work.