Adam Smith: The Wealth of Nations, Bk. 2, Ch.III,Of Accumulation of Capital, or of productive and unproductive labour

Term Paper (Advanced seminar), 2004

9 Pages, Grade: 1.0 (A)


Adam Smith was a key figure in the Scottish Enlightenment and tied to the French and American Enlightenments which were crucial chapters in the story of modernity. Smith's standing and influence were established early on. The publication of "The Theory of Moral Sentiments" in 1759 quickly made him famous. Smith's only other published book, "An Inquiry into the Nature and Causes of the Wealth of Nations" (published in 1776), was similarly received and won the careful scrutiny of Bentham, Hegel, and Marx, among the others. "The Wealth of Nations" clearly influenced thinkers in the American Founding and has served as a touchstone in scholarly discussions about the workings and protection of liberal economic arrangements.

"The Wealth of Nations" has among its chief aims the just and effective pursuit of wealth. Smith's book is undoubtedly the most famous and enduring Enlightenment contribution on this subject. The Enlightenment is closely tied to the liberation of the desire for wealth, and so to commerce and the free market which are, according to Smith, the most effective means to the satisfaction of that desire.

This desire to live better can be found earlier in Hobbes' works. Charles L.Griswold, Jr.[1] in his book "Adam Smith and the Virtues of Enlightenment" gives some quotations from Hobbes' Leviathan and emphasises that a person is nothing without what Hobbes calls "perpetual tranquillity of mind". In other words, life is ceaselessly driven by desire, anxiety, and fear; it is eternally filled with disturbance and disquiet. Without any disturbances and misfortunes we could not possess real "felicity of mind".

Reformulating Hobbes's point about our eagerness for "continual prospering", Smith sees people as naturally inclined to "better our condition" by accumulating the goods of fortune, or external goods, as well as wealth, reputation, and power. The "desire of bettering our condition … comes with us from the womb, and never leaves us till we go into the grave". Between birth and death man is never "so perfectly and completely satisfied with his condition, as to be without any wish of alteration or improvement", and "augmentation of fortune is the means by which the great part of men propose and wish to better their condition".

But in contrast to Hobbes, Smith specifies that neither the pursuit nor the possession of wealth actually produces tranquillity; on the contrary, both jeopardise it. Smith describes this picture vividly, and it is even bound to upset us. How can we agree with a social structure, that is built specially to maximise the "wealth of nations", when the pursuit of wealth is so deeply misleading? Smith seems to argue that the conditions of our material prosperity are tied to those of our spiritual poverty. Smith claims that in order to conceal our poverty we experience an intense desire to pursue and show off our wealth. What makes wealth so attractive is not that it grants physical pleasure or necessary material goods, but that it gives the psychic pleasure of being sympathised with, on account of the possessor's presumed happiness and joy: "When a man of fortune spends his revenue chiefly in hospitality, he shares the greater part of it with his friends and companions…". Smith even emphasises that in order to be sympathised with and to be appreciated in the society, one shouldn't be egoistic, because "purchasing such durable commodities, he often spends the whole upon his own person, and gives nothing to any body without an equivalent. The latter species of expense … are not only a trifling, but a base and selfish disposition".

It is crucial to see that "The Wealth of Nations" and the world of wealth promote striving for happiness. Here we have a fundamental part of the framework within which human life in modernity is to be understood, as conceived in Smith's Enlightenment project.

It is not necessary to accept Smith's moral theory to understand his theory of resource allocation. However, it is important to recognise Smith's morals if we are to understand his theory of economic growth, because economic growth was derived from the higher virtues. The laws of justice facilitate the division of labour, but economic growth doesn't depend on it entirely. It is limited primarily by the accumulation of capital, without which the division of labour can't proceed.

Individuals don't save unless they possess a certain degree of prudence, or the self-perspective to foresee themselves in the future, as well as the present, situation. Smith claims that "parsimony, and not industry, is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates; but whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater".

Economic growth depends on capital accumulation, and capital is accumulated when there is respect for the virtues of prudence and self-command, because "capitals are increased by parsimony, and diminished by prodigality and misconduct". To Adam Smith's point of view "… every prodigal appears to be a public enemy and every frugal man a public benefactor". Smith believes that economic growth presupposes a compatible culture, and that this culture has to be rooted in moral notions.

The following assumption about prosperity through misfortunes can be rather misleading, if it were not confirmed by the facts taken from the history of England. "The fire and the plague of London, the two Dutch wars, the disorders of the revolution, the war in Ireland, the four expensive French wars of 1688, 1701, 1742, and 1756, together with the two rebellions of 1715 and 1745" brought England in great debts. And exactly the debts were the reason for parsimony and industry. In "The Wealth of Nations" we read: "The proportion between capital and revenue, therefore, seems everywhere to regulate the proportion between industry and idleness. Wherever capital predominates, industry prevails; wherever revenue, idleness". This assumption can be supported with some facts from the book "Economic History of England"[2]. For example, speculating about consequences of Black Death in England after 1349, the author writes: "After the Black Death new conditions gradually appeared. The amount of money in circulation gradually increased, partly through the decrease of population, and partly through the plunder of France…The Black Death probably helped to influence the character of demesne farming…" that obviously effected the corn market. As the far-going consequences of Black Death the author states growth of industry, especially woollen industry, and future development of industrial capitalism.


[1] Charles L.Griswold, JR., Adam Smith and the Virtues of Enlightenment, Cambridge University Press, 1999, p. 219

[2] Briggs, Milton, and Jordan, Percy, Economic History of England, the 9th edition, University Tutorial Press Ltd, Foxton, 1960, p. 63-65.

Excerpt out of 9 pages


Adam Smith: The Wealth of Nations, Bk. 2, Ch.III,Of Accumulation of Capital, or of productive and unproductive labour
Otto-von-Guericke-University Magdeburg
The Scottish Enlightenment in its European Context
1.0 (A)
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ISBN (eBook)
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481 KB
Adam, Smith, Wealth, Nations, Accumulation, Capital, Scottish, Enlightenment, European, Context
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Nataliya Gudz (Author), 2004, Adam Smith: The Wealth of Nations, Bk. 2, Ch.III,Of Accumulation of Capital, or of productive and unproductive labour, Munich, GRIN Verlag,


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