An Inquiry into the Nature and Causes of the Wealth of Nations.

London: for W. Strahan and T. Cadell, 1776.

First edition, and an exceptionally fine copy, of “the first and greatest classic of modern economic thought” (PMM), containing the first major expression of the theory of free trade. “The Wealth of Nations is one of the world’s most important books. It did for economics what Newton did for physics and Darwin did for biology. It took the outdated, received wisdom about trade, commerce, and public policy, and re-stated them according to completely new principles that we still use fruitfully today. Smith outlined the concept of gross domestic product as the measurement of national wealth; he identified the huge productivity gains made possible by specialisation; he recognised that both sides benefited from trade, not just the seller; he realised that the market was an automatic mechanism that allocated resources with great efficiency; he understood the wide and fertile collaboration between different producers that this mechanism made possible. All these ideas remain part of the basic fabric of economic science, over two centuries later” (Butler, The Condensed Wealth of Nations, 2011). Smith propounds individual liberty and the accumulation of wealth, while arguing strongly for moral fairness and a duty to society: ‘Every individual … generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention’ (IV, chap. 2). He describes a system of natural liberty and justice which strives towards improvement in the living standards of the population at large, equating higher wages with a healthier and more productive workforce. He asserts that the limits to growth are political, not economic, and sets out principles to guide legislators. Smith also provides a history of economic theory, an historical analysis of the wealth of nations, including China, and forecasts for the future. The first edition was immediately acknowledged as an extraordinarily important publication, and sold out within six months of publication. In a work with few rivals in its time or after, Smith “begins with the thought that labour is the source from which a nation derives what is necessary to it. The improvement of the division of labour is the measure of productivity and in it lies the human propensity to barter and exchange … it ends with a history of economic development, a definitive onslaught on the mercantile system, and some prophetic speculations on the limits of economic control … Where the political aspects of human rights had taken two centuries to explore, Smith’s achievement was to bring the study of economic aspects to the same point in a single work” (PMM). “Book I examines the mechanism by which this productive efficiency comes to be improved. Productive employment depends on how and how much capital is in use, and Book II explores this. National product is also greatly influenced by public policy, which Book III considers. Book IV appraises different theories of economics in the light of all these considerations. Book V then identifies the proper role of government, the principles of taxation, and the impact of government on the economy” (Butler).

Provenance: Charles William Vane, third Marquess of Londonderry (1778-1854), army officer, diplomatist (bookplate).

“The time in which Adam Smith lived was bursting with the consequences of a very big new idea. The old order of church and royal prerogative was giving over to the revolutionary concept that societies existed for the people who lived within them. An Inquiry into the Nature and Causes of the Wealth of Nations appeared in 1776, the same year that Americans declared themselves free and independent citizens, with a natural right to life, liberty, and the pursuit of happiness. The leading thinkers of the Enlightenment, as this age is now called, assumed that individuals would naturally and inevitably strive to make better lives for themselves, to maximise their own satisfaction and happiness. This didn’t mean that people were selfish in every respect, or that they had no use for patriotism or religion. It meant simply that their basic motive was to improve their lot in life. It followed that a good society was one which allowed its citizens to do so.

“Adam Smith’s ideas fit perfectly with this new democratic, individualistic idea. To him, the ‘wealth’ of a nation wasn't determined by the size of its monarch’s treasure or the amount of gold and silver in its vaults, nor by the spiritual worthiness of its people in the eyes of the Church. A nation’s wealth was to be judged by the total value of all the goods its people produced for all its people to consume. To a reader at the start of the twenty-first century, this assertion may seem obvious. At the time he argued it, it was a revolutionary democratic vision.

“Smith was born in 1723, in the small Scottish port of Kirkcaldy, which sits across the Firth of Forth from Edinburgh. His father was a collector of customs—a job that literally embodied the old mercantilist philosophy that Smith would later argue against. He was educated at the University of Glasgow, whose professors passionately debated the new concepts of individualism and ethics …, and then at Oxford, whose professors didn’t debate or teach much of anything. In fact, the lassitude of Oxford’s dons prompted Smith to suggest, in The Wealth of Nations, that professors be paid according to the number of students they attract, thereby motivating them to take a more lively interest in teaching—one of Smith’s few suggestions with which today’s tenured professors of economics generally disagree.

“In 1748 Smith returned to the University of Glasgow, first as a professor of logic and then of moral philosophy, filling Francis Hutcheson’s chair. There he published The Theory of Moral Sentiments in 1759, which brought him instant fame. In it, Smith asked how a normal self-interested person is capable of making moral judgments, when the essence of morality is selflessness. It was a question that troubled many of the new thinkers of the eighteenth century, who had liberated themselves from both theology and codes of aristocratic or chivalric virtue. Smith’s answer foreshadowed Sigmund Freud’s superego: People possess within themselves an ‘impartial spectator’ who advises them about moral behavior.

“Smith resigned his professorship in 1764 to become tutor to the son of the late Duke of Buccleuch. The boy’s mother, Countess of Dalkeith, had just remarried Charles Townshend, one of Smith’s many admirers, who later became Britain’s chancellor of the exchequer, and was responsible for imposing the taxes on the American colonies that prompted some Bostonians to throw large quantities of tea into Boston Harbor. For the next two years, Smith traveled throughout the Continent, beginning work on the book that was to become The Wealth of Nations. He visited Voltaire in Geneva, and in Paris met François Quesnay, a physician in the court of Louis XV who had devised a chart of the economy—a ‘tableau économique’ he called it—showing the circulation of products and money in an economy analogous to the flow of blood through a body. Quesnay and his fellow Physiocrats believed that wealth came from a nation’s production that enlarged the flow rather than from its accumulation of gold and silver, as the prevailing mercantilists believed, and that governments should therefore remove all impediments to the flow of money and goods in order to increase production.

“Smith took these notions to heart, although he didn’t agree with everything the Physiocrats propounded (such as their view that agricultural production was the only true source of wealth). Returning to Glasgow in 1766, he spent the better part of the following decade working out his theories. Occasionally he’d travel to London to discuss them with luminaries such as the philosopher Edmund Burke, historian Edward Gibbon, Benjamin Franklin (visiting from America), and the remarkable personalities Samuel Johnson and James Boswell. Smith’s book finally appeared on March 9, 1776, in two volumes, and went through several subsequent editions. It was well received, although not an immediate sensation. Smith spent his remaining years back in Edinburgh as commissioner of customs, the same kind of mercantilist sinecure his father had held, and died in July 1790, at the age of sixty-seven.

“The Wealth of Nations is resolutely about human beings—their capacities and incentives to be productive, their overall well-being, and the connection between productivity and well-being. In the very first sentence of his Introduction, Smith takes aim at the mercantilists and declares, ‘The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life.’ And two paragraphs later he states that a nation’s wealth grows because of ‘the skill, dexterity, and judgment with which its labour is generally applied.’ Smith’s concern about all of a nation’s working people is evident. In a wealthy nation ‘a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniences of life than it is possible for any savage to acquire.’ In the rest of the book he explains why this is so.

“While The Theory of Moral Sentiments showed how normal, self-interested people could make moral judgments by consulting an internal ‘impartial spectator,’ in The Wealth of Nations Smith explains how such people will automatically contribute to the well-being of others even absent such consultations, simply by pursuing their own ends. ‘It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner,’ writes Smith, in one of the most frequently cited passages in the history of economic thought, ‘but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love.’ With several strokes of his pen, Smith thereby provided a moral justification for motives that had been morally suspect in Western thought for thousands of years.

“How can self-interested behavior—the ‘private interests and passions’ of men Smith calls them—lead to the good of the whole? By means, he says, of an ‘invisible hand’—perhaps the most famous, or infamous, bodily metaphor in all of social science. By an ‘invisible hand’ Smith does not mean a mystical force; he is referring to an unfettered market propelled both by competition among self-interested sellers and by buyers seeking the best possible deals for themselves. If sellers produce too little of something to meet buyers’ demands, for example, the price of the product will rise until other sellers step in to fill the gap. If some sellers charge too high a price to begin with, others will step in and charge a lower one.

“Unimpeded, the invisible hand will allocate goods efficiently. But the key to wealth creation, for Smith, comes in the division of labor—by which individuals specialize in doing or producing a particular thing. Smith famously illustrates this principle by reference to the making of pins within the kind of small factory that characterized the early years of the Industrial Revolution. ‘One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations,’ he explains. ‘I have seen a small manufactory of this kind where ten men only were employed . . . [who] could make among them upwards of forty-eight thousand pins a day.’ He contrasts this with the likely output of individuals who tried to make the entire pins themselves. ‘[I]f they had all wrought separately and independently . . . they certainly could not each of them have made twenty, perhaps not one pin in a day.’

“Specialization improves productivity because it allows workers to become more skilled in their specific tasks, motivates them to discover more efficient means of doing them, and saves them the time of changing over to different tasks. Here, Smith noticed something that modern managers often overlook: Innovation often begins with the workers closest to the things being worked upon. ‘A great part of the machines made use of in those manufactures in which labour is most subdivided, were originally the inventions of common workmen, who, being each of them employed in some simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it.’

“In order to reap the full benefits of specialization, the market must be sufficiently large. After all, there's little point in creating forty-eight thousand pins if there aren't enough people to buy them. The larger the market, the greater the opportunities for specialization. It follows that barriers to trade, within a nation or between nations—regulations, licenses, tariffs, quotas, and other market protections—reduce potential wealth. At the extreme, the necessity of self-sufficiency causes hardship, as in ‘the lone houses and very small villages which are scattered about in so desert a country as the Highlands of Scotland, [where] every farmer must be butcher, baker, and brewer for his own family.’

“Smith did not live to see large-scale industrialization and the scandalous conditions of urban poverty, unsafe workplaces, child labor, and pollution that scarred the nineteenth and twentieth centuries. One of the ironies in the history of ideas is that The Wealth of Nations – a book dedicated to improving the welfare of the common man rather than just the merchants or nobility – should have been used by the rising class of industrialists as theoretical justification for not seeking to remedy these and related social ills. Yet Smith did not argue against government per se. He opposed the use of government by economic interests seeking to block commerce for their own benefit. ‘People of the same trade seldom meet together, even for merriment or diversion, but the conversations ends in conspiracy against the public, or in some diversion to raise prices,’ he warned. The results were monopolies, restrictive preferences, privileges, and protections that hurt the common man while enriching vested interests with the power to ‘intimidate the legislature’ into giving them what they wanted.

“In fact, Smith was concerned about the consequences of factory work for the character of working people. Someone required to do the same simple operation repeatedly would have ‘no occasion to exert his understanding, or to exercise his invention in finding out expedients to removing difficulties … He, naturally, therefore loses the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become.’ The virtues of the labourer would decline ‘unless the government takes some pains to prevent it,’ including the provision of education. Smith railed against the English Poor Law that put unemployed people in an impossible bind – requiring them to maintain residency in one place in order to be eligible for welfare relief, and therefore not move to where work might be available. Nor was he fond of the rich, whose ‘chief enjoyment of riches consists in the parade of riches, which in their eye is never so complete as when they appear to possess the decisive marks of opulence which nobody can possess but themselves.’ Smith advocated a progressive income tax, by which citizens contributed ‘in proportion to the revenue which they respectively enjoy under the protection of the state.’

“In all these respects, Adam Smith’s thinking is as relevant to the twenty-first century as it was to the eighteenth. Globalization and technological advances are creating wondrous opportunities for the world’s people, yet also causing some economic interests to seek special advantage through monopolization, trade protection, and myriad special tax benefits and subsidies … In these times, as when Adam Smith wrote, it is important to remind ourselves of the revolutionary notion at the heart of Smith’s opus – that the wealth of a nation is measured not by its accumulated riches, but by the productivity and living standards of all its people” (Reich).

“Book I begins by showing that the greatest improvement in the productive powers of industry is due to division of labour. From division of labour it proceeds to money, because money is necessary in order to facilitate division of labour, which depends upon exchange. This naturally leads to a discussion of the terms on which exchanges are effected, or value and price. Consideration of price reveals the fact that it is divided between wages, profit and rent, and is therefore dependent on the rates of wages, profit and rent, so that it is necessary to discuss in four chapters variations in these rates.

“Book II treats first of the nature and divisions of stock, secondly of a particularly important portion of it, namely money, and the means by which that part may be economised by the operations of banking, and thirdly the accumulation of capital, which is connected with the employment of productive labour. Fourthly it considers the rise and fall of the rate of interest, and fifthly and lastly the comparative advantage of different methods of employing capital.

“Book III shows that the natural progress of opulence is to direct capital, first to agriculture, then to manufactures, and lastly to foreign commerce, but that this order has been inverted by the policy of modern European states.

“Book IV deals with two different systems of political economy: (1) the system of commerce, and (2) the system of agriculture, but the space given to the former, even in the first edition, is eight times as great as that given to the latter. The first chapter shows the absurdity of the principle of the commercial or mercantile system, that wealth is dependent on the balance of trade; the next five discuss in detail and show the futility of the various mean and malignant expedients by which the mercantilists endeavoured to secure their absurd object, namely, general protectionist duties, prohibitions and heavy duties directed against the importation of goods from particular countries with which the balance is supposed to be disadvantageous, drawbacks, bounties, and treaties of commerce. The seventh chapter, which is a long one, deals with colonies. According to the forecast at the end of chapter 1, this subject comes here because colonies were established in order to encourage exportation by means of peculiar privileges and monopolies. But in the chapter itself there is no sign of this. The history and progress of colonies is discussed for its own sake, and it is not alleged that important colonies have been founded with the object suggested in chapter 1. In the last chapter of the Book, the physiocratic system is described, and judgement is pronounced against it as well as the commercial system. The proper system is that of natural liberty, which discharges the sovereign from ‘the duty of superintending the industry of private people and of directing it towards the employments most suitable to the interest of the society’.

“Book V deals with the expenses of the sovereign in performing the duties left to him, the revenues necessary to meet those expenses and the results of expenses exceeding revenue. The discussion of expenses of defence includes discussion of different kinds of military organisation, courts of law, means of maintaining public works, education, and ecclesiastical establishments” (Cannan, Introduction).

ESTC T96668; Goldsmith 11392; Grolier, English 57; Kress 7621; PMM 221; Rothschild 1897; Sabin 82303. Cannan, An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith, edited with an Introduction, Notes, Marginal Summary and an Enlarged Index by Edwin Cannan (1904). Reich, Introduction to The Wealth of Nations by Adam Smith (Cannan, ed.), 2000.

Two vols., 4to (269 x 270 mm), pp. [xi], 510, [2, blank]; [iv], 587, [1], with the half-title in vol. II only, as issued, and with the final blank in vol. I, advertisements printed on verso of last leaf in vol. II (occasional light scattered spotting, this mainly in the first and last few leaves.). Contemporary sprinkled calf, the spines with raised bands, gilt in compartments with floral tools, red and green morocco double-lettering pieces, the sides with gilt double-fillet border, mottled turn-ins, edges red (the sides with light soiling and light scuffing). An excellent copy in a very handsome contemporary binding. Very rare in such fine and unsophisticated condition.

Item #5235

Price: $400,000.00

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