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Adam Smith is regarded as the father of modern economics and considered still one of the greatest minds in economics today. This is greatly due to his groundbreaking classic work; The Wealth of Nations. Smith addresses two main concepts that contribute to the wealth of nation. This essay will reflect Smith’s understands of the division of labour and exchange and how these two concepts relate to the wealth of nations. By trying to understand these concepts it is important to recognize the consequences of these phenomenon in the eighteenth century. Smith therefore acknowledges the difficulties that arise out of these concepts and suggest solutions therefore. Smith’s (1776: xxiv) observations of society led to the conclusion that two different types of society exist. Societies whereby families’ main means of production is to hunt and fish in order to provide were classified as ‘savage’ societies, according to Smith (1776:xxiv). Such societies were often very poor and disease- ridden. On the contrary, Smith (1776: xxiv) classifies modern, thriving nations as ‘civilized’. Such societies produce a much greater amount than the demand therefore and often result in a surplus of products. However, among the civilized there are a large amount of people that do not labour or produce at all yet gave rise to decupled consumption. Furthermore, Smith (1776: xxiv) examines society in order to understand the cause of the difference in the above two societies. Smith (1776: xxiii) concludes that this difference is the direct result of the “annual labour of every nation” or described today as productivity. Hence, productivity improves or declines; firstly, according to the number of skilled labour and secondly, the efficiency at which employed labour produce to compensate for unemployed labour. These two circumstances will either create savage or civilized societies, according to Smith (1776: xxiv).
In elaborating his argument, Smith (1776: xxiv) further deepens his understanding