HomeLiterature Study GuidesThe Wealth Of NationsVolume 1 Book 2 Chapter 3 Summary

The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 1, Book 2, Chapter 3 : Of the Accumulation of Capital, or of Productive and Unproductive Labor | Summary

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Summary

Smith now returns to the conceptual framework developed in Chapter 1, where he divided assets into those used for "immediate consumption," and those employed as capital. He makes a corresponding distinction between productive and unproductive labor, with the former being labor that replaces capital by generating goods that can be traded. Unproductive labor, a category including such disparate lines of work as opera singing and surgery, is labor that produces no commodities. It must thus be maintained out of the revenue generated by productive labor.

These two kinds of labor, Smith continues, are supported by two different kinds of funds, although sometimes by the same individuals. Productive labor is supported by capital, which is invested in a profit-earning enterprise, while unproductive labor is supported by revenue, which is spent rather than reinvested. Thus, for Smith, saving and investing count as a kind of job creation and contribute to the overall economic growth of a country, while spending—even on hospitality or charity—leads to a decline of the national wealth.

Analysis

Apart from his rather harsh words concerning mercantilism, Smith doesn't usually get too moralistic in The Wealth of Nations. Calling certain kinds of labor productive and other kinds unproductive might sound like a moral judgment, but it isn't meant to be. Smith merely means that some kinds of workers (the unproductive ones) must be supported by the goods produced by others, without supplying physical goods of their own in exchange. His examples of these workers include "some ... of the gravest and most important" professions, such as law, medicine, and education. In fact, Smith was by his own definition an "unproductive" worker, since he lectured and wrote for a living. Modern economists usually describe these jobs as belonging to the service sector or tertiary sector.

In other parts of the chapter, however, Smith is happy to get a bit judgmental. He makes several barbed remarks about "prodigals," who waste their money on unproductive labor rather than investing it. Smith takes specific aim at the idle rich, who hire retinues of servants and entertainers when they could be employing honest workmen, though he does not hesitate to call a prodigal of any social rank a "public enemy," who "by feeding the idle with the bread of the industrious, would tend not only to beggar himself, but to impoverish his country." It is worth noting, as editor Edwin Cannan did, that Smith's arguments on this topic on this topic are a little shaky in places—in particular, the division between productive and unproductive labor is not as ironclad or essential as it might seem. "A man may and often does grow poor," Cannan pointed out, "by employing people to make [goods] for his own consumption, and an innkeeper may and often does grow rich by employing menial servants."

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