Making wealth

Adam Smith begins his exploration of the Nature and Causes of the Wealth of Nations by posing a question. What makes some nations poor and others wealthy, some savage and some civilized? Smith tends to equate wealthy with civilized and refers to wealthy society as civilized society. Civilization is an important concept in political economy, although it seldom appears in modern writings. Civilized society provides its members with opportunities not otherwise available; but it also confronts them with dangers. This mix of risk and opportunity characterizes the economic system Smith links to the state of being “civilized.”

For Smith, making wealth means producing wealth, and production means labor. The classical economists emphasized, more than we do today, labor's contribution to the production of wealth. Today, although labor remains important, we are also likely to emphasize the amount of capital stock (plant and equipment) and technical know-how. I will begin, however, with Smith's way of viewing the problem, which remains relevant.

Smith notices that some laboring produces wealth and some does not. We can work very hard and have little or much to show for it. If we think of work as expenditure of energy, we can expend the same amount of energy and produce no wealth, some wealth, or a great deal of wealth. What decides the matter? Two attributes of our labor determine how much wealth, if any, we produce. One is whether we are trying to produce wealth.