What are the main ideas of Adam Smith's The Wealth of Nations?

Many fundamental economic principles found their first, or their most elegant, expression in Smith's The Wealth of Nations. This is by no means an exhaustive list, as Smith's work is very comprehensive, but below are a few of the main ideas of the work.

• Division of labor: Using the production of pins as a sort of thought experiment, Smith showed that the best way to maximize efficiency in production was to foster specialization by dividing the production of goods into simple tasks.


• Laissez-faire: Smith did not actually use this phrase, which is nevertheless often associated with him. But Smith did accept the basic premise that government intervention in the economy was not generally for the better. Smith was writing specifically about mercantilist laws, such as protective tariffs. He thought that, left alone, businessmen would make rational decisions about how best to employ their capital, which was best for everyone involved.


• The "invisible hand": Smith argued that men were driven by self-interest, or, in economic terms, the profit motive. He did not imagine that this was a bad thing, but rather, as noted above, for the benefit of all. If people could make their own economic decisions, they would be more likely to make the decision that was best for them, and the overall economy would benefit. He said that people were guided by an "invisible hand" of self-interest to employ their capital in a way that benefited the most people.


• The labor theory of value: Smith argued that it was actually labor that gave commodities their value, and that real wealth was the ability to purchase labor to employ in the creation of commodities. "Labour," he wrote, "is the real measure of the exchangeable value of all commodities."