When the market is left to itself and exchanges are free, both sides benefit. Indeed, no one would enter into an exchange that comes at a loss to them. In foreign commerce, this means that imports and exports can both be very valuable to a society. One society's wealth does not have to come at the expense of another society. A society has more to gain if its trading partners are wealthy.
Gross National Product
The wealth of nations does not consist in the amount of gold and silver in its vaults, as mercantilists believed, but rather in the sum total of its annual production and its commerce. In making this observation, Smith articulates the concept of gross national product. This observation also allows him to make the argument that wealth is increased not by exports alone, but by commerce in general.
Economic Regulations are Counter-Productive
Governmental regulations of commerce are generally counterproductive and sometimes dangerous. The internal, organic wisdom of the market is the most effective regulator. This idea lines up with Smith's ontological views. Smith sees nature as being fundamentally ordered, and human society has a similar order, so long as it is free from interference.
Investments should be centered on improving the methods of production, and capital should be directed toward such investments, rather than consumed directly. This ensures a constant growth in the level of wealth of a society and an increase in income over time.
Governments Should Have Limited Powers
Prosperity grows in an open, competitive marketplace, where exchange is free of government interference. The role of government is to defend citizens and property, to ensure justice, and to establish the rule of law. These are the activities to which government should ultimately limit itself.
The Invisible Hand
Freedom in the market and self-interest on the part of individuals do not lead to chaos and disorder. On the contrary, they produce order and concord. This is what Adam Smith referred to as the “invisible hand” that guides society toward stability and harmony, while each individual pursues his or her own best interests.
Beware of Special Interests
When a certain group within society is allowed to exert undue pressure on government, convincing it to be swayed by its interests, the entire society suffers. Vested interests are always harmful, and government should therefore not involve itself in regulation at the behest of a certain social or economic group.
The Wealth of Nations Questions and Answers
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