Literature Study GuidesThe Wealth Of NationsVolume 2 Book 5 Chapter 1 Summary

The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 2, Book 5, Chapter 1 : Of the Expenses of the Sovereign or Commonwealth | Summary



Smith begins his book on the national budget by analyzing the cost of defense. At each stage of the advancement of civilization, he argues, defense becomes more expensive and more specialized. Itinerant tribesmen are essentially soldiers ready for deployment, but most people in a modern commercial society are utterly unfit for military duty. Consequently, the sovereign must spend a great deal of money to maintain a standing army and to procure firearms and other materials. Smith is more optimistic regarding the costs of administering justice, which he argues can reasonably be defrayed by court fees. He cautions, however, that these fees should be standardized to prevent judges from being bribed.

Next, Smith turns his attention to "public works and institutions for facilitating the commerce of the society." This category includes bridges, canals, and other things a modern reader might think of as "infrastructure." Works benefitting the whole of society, he argues, might justly be funded by a tax on the entire population, but it would be fairer to charge the people who actually use the roads and bridges, for example, by charging a toll. These tolls will generally serve their purpose best if they are collected and spent locally, without the intervention of the national treasury. Works that aid "particular branches of commerce"—for example, forts that protect a specific group of traders from pirates—should, in Smith's view, be subsidized by those groups who benefit directly from them.

The expense of education, Smith maintains, should be underwritten by the public to prevent the common people from becoming "stupid and ignorant." He proposes public funding not merely as an act of charity to help the poor, but as a means of making the commoners more civil and better-behaved, thus less likely to engage in rioting. Publicly endowed universities, he suggests, are a corrupted and ineffective form of education, monopolistic in a similar way to merchant companies and trade guilds. Private teachers, who have stronger incentives to excel, are preferable from his point of view. Segueing into the area of religious instruction, Smith warns against the dangers of having an established, or state religion, since a powerful and deeply entrenched clergy can interfere with the operation of the state. A multitude of small sects, prevented by the sovereign from harassing one another, is much more manageable.


Readers familiar with Smith's own career at the University of Glasgow may find it unusual that he takes such a dour tone regarding publicly endowed universities. As first a student, later a professor and dean, and eventually a rector of the University, Smith was familiar with the institution's inner workings. His letters suggest he was a devoted teacher who enjoyed his work a great deal, but evidently this was the exception rather than the rule. Lackluster and unmotivated instructors seem, in Smith's judgment, to have been even more concentrated at Oxford, where he says "the greater part of the public professors have ... given up altogether even the pretense of teaching." Amusing as this little jab might be, Smith's objections to publicly funded universities stem from the same source as many of his other social criticisms—a belief in the efficiency of the free market. Salaried professors, in Smith's view, have no incentive to compete, and thus they will never work as hard as private teachers, who must win their students by referrals and keep them through high-quality instruction. His argument is strikingly similar to those used to promote the abolition of tenure in modern universities and the promotion of charter schools in K-12 education.

Smith's prescriptions for elementary education and religious freedom, in contrast, are based more on a desire for social stability rather than on free-market principles. His main concern in urging the education of the poor is not to improve their lives, but to prevent "dreadful disorders" from arising. "An instructed and intelligent people," he reasons, "are always more decent and orderly than an ignorant and stupid one"—and, for that matter, more likely to respect the authority of the government. Similarly, Smith views a state church as a veritable factory of potential rebellions, maintained at the expense of the kingdom. Having an established church, from his perspective, is a lot like sponsoring the expeditions of an extremely powerful merchant company with its own bureaucracy and armed forces. Sooner or later, the clergy will grow so powerful as to demand, rather than request, favors from the sovereign. Such churches are, if anything, more dangerous, since people will give their lives much more willingly for a religious cause than they will to preserve the wealth of a rich merchant.

Ultimately, this chapter offers little concrete guidance on the means of offsetting public expenses. Reviewing the major categories of expenditure—defense, public works, justice, education, and religion—at the chapter's end, Smith essentially argues that a broad-based public tax is good enough in most cases. The next chapter, which deals specifically with taxation, will offer a veritable catalog of ways in which such a tax might be implemented.

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