Adam Smith

In Books I–IV, Smith rebuilds a new theory of wealth grounded in the division of labour expanding markets, and the freedom of individuals to exchange, specialise, and innovate. In doing so he invites us to question how we think and describe the nature of wealth, warning against thinking about a single, rigid source of wealth – such as ‘land’, stating this way of thinking is overly reductive and does not consider the complexity of economic dynamics. Instead, Smith discusses the need to understand the division of labour as bounded by the extent of the market in which the maintenance and balance of ‘natural liberty’ – that is , While he suggests that natural liberty is generally welfare-maximising, it is also subject to the state providing necessary government infrastructures around justice and security to enable society to flourish.

Smith points out that for the specialisation to work we need to invest labour and resources to produce goods in order to sell them. This leads him to explore the way in which we support the creation of wealth. Book II expands this analysis by examining the relationship between labour, saving, and investment. Smith explores how a natural tendency to save provides us with the means to re-invest in growing production. People who save create a resource that can be invested in new enterprises, which in turn raise wages and living standards by growing the market and extending the benefits of specialisation. Along the way Smith distinguishes between productive and unproductive labour and shows how different occupations contribute to the economy in different ways.