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The genius of Adam Smith

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Courtesy of Amazon.com

(Read caption) Adam Smith's 'An Inquiry into the Nature and Causes of the Wealth of Nations,' better known as 'Wealth of Nations,' has entered into the public domain, and is thus available for free as an e-book, from Amazon Kindle, Google Books, and Project Gutenberg. What would the father of economics have thought of that?

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On my new Amazon Kindle, I naturally started by looking at the top 100 free books. I am (half) Scots, after all. I see that Adam Smith's The Wealth of Nations is there, just two places behind Karl Marx's The Communist Manifesto, which I reckon is pretty good going. Do your bit and download it, so we overtake the bad guys.

Anyway, I started reading...

THE annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

Can you believe that? In the very first sentence, Smith has invented the idea of Gross National Product – the basic tool of macroeconomic analysis today. Impressive, or what? But it continues...

According therefore as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion.

Wow! In just the second sentence, he has identified the concept of GNP per capita! As if that is not enough...

But this proportion must in every nation be regulated by two different circumstances; first, by the skill, dexterity, and judgment with which its labour is generally applied;

Crumbs! He has pinpointed the idea of productivity and productive efficiency. And...

secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed.

There, he has worked out the importance of the dependency ratio, the ratio between those in work and those living off them. He explores this for a while, but then, a few sentences on, we read:

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