Nhung Nguyen

1. Economic efficiency and the factors of productions

The book I of Wealth of Nations three main factor of production, including labor, capital, and land. Labor is the most important factor of production. This lead to the idea of decent wage for labors.  Besides, she identified almost all of the most important concepts of economic, such as money, value, supply and demand, price and cost, capital and profit, and wage. Moreover, he took into considerations almost all the factors that effect to the change of the concepts and the relationships among such concepts. For example, he indicated the three factors explaining the economic efficiency by specialization, so-called labor division, including increasing skills of the labors, lessening the wasted time, and the use of dedicated machinery.

Besides, he analyzed how material exchange benefits “mutual gain” to the division of labor.  He also examined the factors of production cost, including the rent of the landlord, the wages of labors and the profit of employers. The market price, according to him, belongs to the supply and demand. However, there are other specific factors affecting the price, such as manufacturing secret and special circumstance. He also took into considerations the factors affecting the market wage rate, the profit rates, and self-interest of different factors.

In the book, Smith showed his concern on free market and the role of labors in the production. He appreciated the role of the labor, who can take resources and make them into finished production. Moreover, the division of labor and material exchange work in a free market, which can lead to the prosperity of the society. These are the two most magnificent insights of the book.

2. The accumulation of capital:

First, Adam Smith indicated that there is two main division of capital, regardless of the part is expected to produce future income and the part supplies immediate consumption. Particularly, capital can be used in four different means, such as immediate consumption, preparing for raw material consumption, transporting or manufactured products, and retailing.

Secondly, according to the author, money have no intrinsic value, but value of exchange. Besides, the real measure of the exchangeable value of all commodities is the labor put into their production. Therefore, trading is the way people exchange the value of labor. Capital, on the other hand, had to be accumulated, then thereby, feed the economic growth.

However, in the book, Smith indicate the two different categories of labors: productive and unproductive ones. According to Smith, only labor producing material commodities, which can be exchanged, is productive labor. However, this classification can not be appropriately applied in many particular cases.

3. The progress of economic growth

Adam Smith pointed out the allocation of the capital between countryside and the towns in economic growth. Although the towns are the primary area acquiring the wealth of the country, the people in the countryside need tools making in the towns, and the towns need markets for their products.

On the one hand, land is the first priority for investment. On the other hand, the rise of the towns resulting in the three main aftermaths, such as the larger market for the production, the improvement of land by the investment of rich people, and the promotion of order and good government in the towns.

Indicating the tenancy law and agricultural efficiency, Adam Smith emphasize the role of public policy on national product and its allocation. This can be a valuable reference for the urbanization process in many countries.

4. Economic theory and policy

The author analyzed a number of economic policy, such as the mercantile system, the trade restrictions, justified and unjustified trade barriers, colonial trade restriction, the agricultural system and drawbacks, bounties, piece control and trade preferences.

Most importantly, the author criticized the barriers of the trade system. To him, it should not be any barrier for the development of free market. This ideal free market is still such a target for the development of international trade. There are many way of technical and commercial barriers of nations, regions, or economies to protect the production and compete with other counterparts.

5. The role of government

There are a number of roles taken by the government, regardless of defense expenditure, justice, public works, education of the young, religious education, funding state expenditures, the principle of taxation, tax on land, taxes on capital and profits, taxes on wages and individual and goods, and public debt.

It seems to me that, one of the most significant insights of the book is the principle of taxes, which are: (1) people ought to contribute, as far as possible, in proportion to the income that they derive under the protection of the state, (2) taxes ought to be certain, and not arbitrary, (3) taxes should belevied at a convenient time, and (4) taxes should cost no more than necessary.

Although, taxes is managed and imposed by the government, Adam Smith laid emphasis on the convenience and voluntary of tax for people, which also roots in the pleasure of labor, the most important force of economic growth.

The incredibly condensed Theory of Moral Sentiments

The book is divided into six main parts with respects to (1) natural empathy of the basis virtue, in which people share emotion and opinion, and even suffering , (2) reward, punishment and society, indicated reward as the encouraging the social passions, punishment as the discouraging the unsocial passion and the aims to prevent people harming people, so-called justice, which is the fundamental condition for the existence of society, (3) conscience examine the need of judging our own alongside judging others, (4) morality and money, (5) virtue and the good society, and (6) self-command, meaning the way to go over violence and passion, another aspect of virtuous.

In this volume, Adam Smith laid out the foundation of the systematic science of man regarding understanding natural and social being of human and how human operating society, especially the arise of morality and how it governs our actions. The book proposes that the way humans relate socially is a better guide than reason to understanding how morals develop. This led to his opinion on how justice and prudence are social values, as are altruism and charity. Particularly, Smith explain the act of human by self-interest. However, self-interest, according to Smith, is broad. He also argued that the people need to constraint their selfish to live together in the society. Therefore, the government system should protect the people, provide rules and enforcement of rules to uphold the system of justice.