“Adam Smith’s Work as it Applies to Modern Society”
By Mour
August 25, 2011

Referenced Book: Wealth of Nations by Adam Smith

Adam Smith was a visionary; He described the issue of the Wealth of Nations in

twofold, why a society driven by self-interest can exist on the other hand, describes how

the “System of natural liberty” appeared and how it works.

Book 1 – Of the Division of Labor

The World as today

The wealth of an industrial nation is the power of labor and the division thereof in

order to increase the input of all type of production. Smith explained “The division

of the Labor” does not originate itself from human wisdom or of a plan, but is the

consequence "of a certain leaning natural one to all the men, that the door to do business

and exchanges something to another. And the motivation of this tendency to the

exchange is not the benevolence, but the personal interest, that is to say the desire to

improve his living condition for the better.

Smith concept of wages of labor is a fundamental metrics to satisfy the effort

required to produce goods and manufacture a product. The profit (return on sales or

investment such as rental properties, commercial building and equipment), buy or sale

stocks are conceptual means of increasing an owner’s return on investment. Smith

demonstrated that the division of labor will add more efficient methods of doing different

things and performing various tasks.

My personal view of how the division of labor is successful is discovering how

unique they are as they perform. People are hired (education plus training) to do one

specific job and spend much of their working career doing the same job. Companies and

1 government hired them to do the job and accomplish that task faster than anyone else

because they’re expert on that subject matter. For example, an carpenter can only do

carpeting, he wouldn’t be able to install plumping in the house as fast as a plumber.

A second example to why the division of labor is successful, is the loss of time it

takes to switch from one task to another. A laborer who switch from doing one task

specifically to get an entirely new task (job) has to make mental adjustment and asking

himself can he do it or can the switch will be easy. From a manufacturing perspective,

such an ice cream company, time spent switching to make different flavors, the machine

or tools need to be stopped or ceased for cleaning, after turned on for another flavor.

Using previous example of the carpenter and the plumber, we can’t assume that is

impossible for the carpenter to do the two jobs, installing carpet and putting plumbing in

the house. More so, the concept that a carpenter may be contracted to do one or the other,

but it may take some time to adjust mentally to the new job. This might mean that the

carpenter is required to go through training and some supplemental education courses so

that the laborer can be qualified at the new job.

Lastly, Smith establish to why the division of labor works perfectly, if employees are doing one task, their only focus on that job will help them finding newer and

better ways of accomplishing it. The observation made by Smith while doing a tour into a

factory, the machine invention had helped workers to make significant improvement in

order to save time and physical labor. For example, the plumber might use a small

machine tool or tool to help him complete his job with effectiveness and accuracy

reducing time and money.

2 Smith observation on a country that flourishes with well produced goods is wealthier

as a whole. The difference between humans and animals, humans tend to negotiate all the

time. The concept of the division of labor is the exchange for value, self satisfaction and

own interest. Therefore, a society start showing a division in the work place, meaning

that everyone is divided by what they are, what type of skills they hold. For example, a

chart in factory from the CEO, secretary to worker, each hold a skills and job position

different than other.

Smith illustrate that the location and population density is very important for

having a large demand for products and services. A small town in the mid west, where we

have a small population, they’re will be less demand for a specific services comparing at

large town in East or West coast where the demand (needs) is greater; for example, a

farmer will use his farm to harvest crops, versus a city that has factory and multiple

industries producing product and service (e.g., transportation, nuclear power producing

electricity, refineries producing gasoline, etc). Smith founding that those who live in a

small town where transportation is limited have a limited potential of generating wealth.

Efficient roads, highway and railroads between towns and city will provide a greater

potential for development and increasing profit.

In today society, traded goods and services for value are not exclusive to exchange

of one good to another, observation by Smith that, in order to trade for a product or good

of equal value, each side of the exchange must have something that no one have or could

refuse, Currency. Today currency is used for all transactions, buy, sell or exchange, it

3

evolve coins and paper money which is governed by states or countries ( Dollar, Euro,

Yen).

2011 year of smart phones, tablets and androids, people are managing their

life through the internet with automated virtual money transfer such as bill pay, online

purchase or any payment system that required to use credit or debit card with financing

options (loans and mortgage), those easy to use system had made the society consuming

more, in the mean time put the society at risk of inflation where the rate continue to

increase. When the economy is slowing, people stop spending, job loss, and lack of

opportunities, the result can be devastating, people live less comfy and a lot of debt,

especially for those using credit and financing plans (loans).

As Smith describe three categories, those who earn profit by renting (land and

properties); those who earn money by working (laborer, farmer, plumber); and those who

earn money with profit (investment, buy/sell stocks)

Smith stated” In rude state of society stock is unnecessary, Division of labor

makes it necessary”

Book 2 – Analytical Discussion of Money as it applies to Modern Society

First book, Adam Smith describe the division of labor to introduce stock and the

accumulation of stock in order to maintain stability in his life. By expanding their market

share consisting of products/services and division of labor, stock should be compounded

and accumulated with enough value to pay for wages and technology improvement.

4 Capital is not a expense rather it intended to use it to buy/sell durable goods or for

the marketing techniques used to increase companies market share and keep their

customer awareness of the product and services, also, capital can be used to buy new

machines or up-grade to new tools, and keep the company running and doing business

day-to-day operations The proper method used to calculate the value of money is associated with the

products and service that one can purchase with it, today wealthier person can brag with

how much money they’re making (salary) or the type of cars are driving (Mercedes,

BMW), they’re referring to the equivalent purchasing power of that person rather that the

Amount of revenue they’re making annually. In the past century, they used gold and metal for all buy and sell, and exchanges

between people, states and countries. Currency was discovered and money is the gold

standard. The trade was flourishing, expenditures and consumptions are increasing, the

industrial nations and family owned factory are becoming wealthier. As money for

purchase goods was replaced by paper money, it provided a cheaper, convenient method

of trade. Banks started issuing promissory notes with up of the amount of metals used in

the past to purchase goods and services.

Today gold value had increase significantly; nations buy gold metal and stockpile,

when too much paper money is issued daily, it’s undervalued than gold. In the last three

years a lot of paper money is printed, the purchasing power of gold had increased over

200% since 2008. Smith says, when banks are regulated at higher standard across the

world (nations), the better it is for the people as a whole.

5 Adam Smith, Wealth of Nations final chapter of book 2, he discussed the two

different types of labor; Productive Labor and Unproductive Labor. Those types of labor

produce a capital in our modern society, it can be costly for unproductive versus

profitable when used productively in division of labor, but don’t assume that

unproductive labor is useless form, it provide someone with a service but don’t add value

to it (e.g., government employees, fire fighters and soldiers, they’re performing a duty

without selling anything), versus productive labor is where a worker, laborer produce

something of value to be sold (consumer goods) as to benefit another person or entity.

Company uses it own capital to employ labor, it used to maintain productive labor. Smith

made a observation about wealthier nations are more likely to have increased amount of

unproductive labor categories than the less fortunate countries, In modern society, the

observation still exist where the wealthy nations had control of the wealth of poor

countries (e.g., big oil and mining companies). Smith explained that government does support unproductive labor (court system,

religions, etc), still government make a great deal of crafting, build policies and

regulations that limit how people spend their money. The legal barrier for import/export

policies of foreign products, can stop a society ability for going globally. Government

can be a danger to the wealth of nations.

The meltdown of the global economy since 2008, millions people lost their jobs,

trillion dollars to bail the same companies, banks or hedge funds who put us in this

situation. Nations and government need to learn from their mistakes, the coming

generation need to capitalize on the funding principles observed by Adam Smith work,

6

Wealth of Nations. His contribution for the humanity done by first thinking, can a

personal action or inaction makes difference or affect others. Those whom are not

contributing to the society illustrate how their inaction has an impact on society, but

an action made by someone, purchase of small things can generate a value for the seller,

manufacturing company and for himself.

I can concluded, what is best for a person, is also best for the wealth of the nation, and then if it is useful for that person, it’s good for the society

7