Literature Study GuidesThe Wealth Of NationsVolume 1 Book 4 Chapter 1 Summary

The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 1, Book 4, Chapter 1 : Of the Principle of the Commercial or Mercantile System | Summary

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Summary

Here, Smith reviews the main axioms of mercantilism and the main arguments advanced in its favor. According to the mercantile system, "wealth consists in money, or in gold and silver." Thus, mercantile policies aim to "heap up gold and silver" in a country. This, Smith says, is a naïve way of thinking, even if precious metals are assumed to be the proper measure of wealth—sometimes, one must spend money to make money. He offers the analogy of a farmer sowing a field with seeds. In the short run, it looks like he is simply throwing away resources. In the long run, however, the seeds germinate into a harvest, and the farmer winds up with much more grain than he had to begin with.

Smith almost disdains to explain why the mercantile system is flawed, claiming, "it would be too ridiculous to go about seriously to prove that wealth does not consist in money or in gold and silver." His counterargument—when he eventually does supply it—rests on the usefulness of all other goods when compared to precious metals. Goods, he says, "serve many other purposes besides purchasing money, but money can serve no other purpose besides purchasing goods." He then boldly asserts, "It is not by the importation of gold and silver that the discovery of America has enriched Europe." In fact, he maintains, the increased importation of precious metals has produced only a "trifling ... conveniency" by making gold- and silver-plated utensils more affordable. What did enrich Europe, he argues, was the creation of a new market for European goods and the importation of goods—such as New World crops—previously unknown in Europe.

Analysis

In this chapter, Smith's contempt for the mercantile system bursts forth. Having set himself the task of explaining why the mercantilists believed what they did, he nearly declines the challenge as beneath him. "To attempt to increase the wealth of any country" by hoarding metals, he mockingly declares, "is as absurd as ... to attempt to increase the good cheer of private families, by obliging them to keep an unnecessary number of kitchen utensils." Similar jabs recur throughout Book 4.

Because of this dismissive tone, scholars have sometimes suspected Smith of addressing a mercantile "straw man"—a naïve and oversimplified version of mercantilism, rather than a view actually held by his contemporaries. This suspicion is voiced, for example, in an article by R.V. Eagly in the Scottish Journal of Political Economy, later republished in Adam Smith: Critical Assessments, Volume 3 (1984). There, Eagly describes Smith's "fundamental proposition that 'money is not wealth'" as a view advanced against an imaginary opponent.

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