This page contains discussion notes for Immanual Kant and a few links that will provide you with some background information about Adam Smith.

http://econ161.berkeley.edu/Economists/smith.html

http://www.ecn.bris.ac.uk/het/smith/index.htm

http://www.econ.jhu.edu/People/Fonseca/het/SMITH.HTM

The main sections of the text are:

1. The division of labor.
   Smith thought that the division of labor was the source of the wealth of
   nations (see E-4). Here he describes its advantages. Trade is what makes
   the division of labor possible.
   
   
2. Wages.
   Smith discusses why workers don't receive the entire output. He also
   observes that wages are determined by a power struggle between workers and
   employers in which employers have most of the power.
   
   
3. Free trade.
   Here Smith notes that private interests coincide with public interests, and
   argues for free trade. Smith supports free trade because it allows us to buy goods more cheaply.
   It is only common sense that we should buy goods wherever we can get them
   most cheaply. Smith stresses that protectionism will not increase the
   total output of the country, but will merely divert its energies from more
   productive to less productive industries. Smith admits to exceptions to
   the principle of free trade. 1. Industries necessary for defense, such as
   shipping. 2. If a good is taxed domestically, imports should have the
   same level of tax.
   
   
4. Education.
   Smith notes the need for education, and suggests that the government
   promote education.

Questions you might ask

• Why is the division of labor important?
• Why do diamonds cost more than water? In what sense do prices reflect the
  "value" of goods?
• Is it true that we can do the most good for society by pursuing our own
  interests? When it this not true?
• Smith is famous for advocating laissez-faire. Does he think that the
  government should do nothing at all? From the passages that we have read,
  what does Smith think the government should do?
• What is Smith's view of human nature?
• In what way is Smith part of the Enlightenment?

Comments and Questions on Particular Passages

Book I

• Ch. I
  • What are the advantages of the division of labor?
  • Compare this passage to Plato.
  • Smith claims that the difference in consumption between the rich and the
    poor in Europe is smaller than the difference between the European poor and
    the African king. Was he exaggerating? If he was right, what implications
    does this have?
    
• Ch. II
  • Is it true that humans have a natural propensity to trade?
  • Evidence suggests that men have traded as long as they have had
    language.
    
• Ch. III
  • What does it mean that the division of labor is limited by the extent of
    the market?
  • The market gets bigger if transportation costs fall. (Ex: When the Erie Canal was finished, the market for midwestern grains was extended
    to include the East coast.)
  • A larger market size allows more specialization.
  • If changes in technology have made world-wide communication faster and
    have reduced the costs of transportation, what outcome would we predict?
    
• Ch. IV
  • Why does money exist?
  • What is the difference between value in use and value in exchange? Name
    a good (other than water) which for you has a higher value in use than
    value in exchange (your toothbrush). Name a good (other than diamonds)
    which for you has a lower value in use than value in exchange.
    
• Ch. VIII
  • Why doesn't the laborer receive the whole value of the output as his wages?
  • Because the laborer doesn't own the land and materials he uses.
  • According to this passage, how are wages determined? Are they fair? How
    do the laws affect wages?
  • What does Smith claim is the lowest possible wage? Why are lower wages
    not possible?
  • In this passage, Smith describes the determination of wages as a power
    struggle between employers and workers. The outcome simply depends on who
    has more power. A timely analogy is the struggle between basketball
    players and owners.

Book IV

• Ch. II
  • Smith claims that what is good for the individual is also good for
    society. Is this always true? Can you think of a counter-example? Is it
    usually true?
  • Is it true that the individual can judge better than the government which
    industries to pursue?
  • Japan's success is often attributed to the fact that the government
    took and active role in promoting industries.
  • Why does Smith disapprove of protectionism (giving the monopoly of the
    home-market to the produce of domestick industry)?
  • A country will have higher consumption with trade than without trade.
    This is simply true. The criticisms of trade focus on dynamic effects. One
    common argument for protectionism is the infant industry argument - by
    protecting an industry, a country can learn that industry and acquire an
    advantage over other countries. Smith anticipates this argument (a
    particular manufacture may sometimes be acquired sooner than it could have
    been otherwise), but remains that skeptical that promoting an industry can
    really make the country better off.
  • What are the two exceptions to free trade that Smith admits? Defense and a tax on imports to equal a tax on domestic production.
  • Did Smith approve of the Navigation Acts?
  • Why don't we have free trade? Because private parties who benefit from the monopolies granted by
    protectionism oppose free trade. Why does the US have a sugar quota? Because a handful of
    sugar-growers benefit enormously and oppose free trade.
  • What would Smith think of NAFTA? Do you agree with him?
    
• Ch. VII
  • This passage is not very long. You could ask what costs and benefits
    colonies had.

Book V

• Ch. 1
  • Does the division of labor make people stupid?
  • What policies for promoting education does Smith suggest?