Adam Smith’s Wealth of Nations

In this chapter, our objective is to present the main contributions of Adam Smith (1723–1790) starting from his first book The Theory of Moral Sentiments (1764) and continuing with his main book, An Inquiry Into the Nature and Causes of the Wealth of Nations, which established him as the founding father of economics. The Wealth of Nations was published in 1776, the same year as the Declaration of Independence of the American Colonies. Heilbroner (1972) notes that there is a close relation between the two events, since the Declaration of Independence describes the requirements of a capitalist society, while Smith’s book lays bare the mechanisms that govern the operation of such a society. In what follows, we deal with the first effort of Smith to create what we call a theory-generating concept and then with his theory of value, his growth model and his theory of the falling rate of profit and the stationary state. A discussion on taxation and public debt follows, and finally, a summary and some remarks conclude the chapter.