The Malaysian Economy

Summary of The Wealth of Nations

by Adam Smith

Instructor:

Dr. Mario Arturo Ruiz Estrada

Name:

Ida Nur Izaty binti Ikhwan Goh

Matric no:

EGE 160027

Chapter 1: Of the Division of Labour

Division of labor is one of the main reasons for a country to be wealthy. It is defined as the
specialization of tasks by concentrating people into different jobs so that they can be more skilled in
particular task and the process become more productive.
One of the examples used is the creation of pin. An amateur in pin-making can probably make
one decent pin in a day. But if the procedure of making pin is divided into stretching a wire, cutting
the wire and other tasks, then we can make much more pins in a day. This is an increase in
productivity and quality of work done.
By dividing labors into simpler tasks and roles, we will have more oppurtunity to invent new
technology and machines that can do certain tasks such as robots that weld metal onto cars

Besides that, Smith believes that even the lower classes of developed countries are
still better off than the richest people in some less developed ones due to the division of labor.

Chapter 2: Of the Principle Which Gives Occasion to the Division of Labour

For Chapter 2, Smith explains about the other factor that is more important than division
of labor to create a wealthy nation. This is by having open trade with other people and other
countries which is the main factor for the success of modern capitalism.
Open trade is vital since a person that creates one thing requires other things to survive
life. An example given in the book is a shirt-maker needs more to survive than just shirts. So
he has to make more shirts than he needs and trade some of them for food, money, or
housing.
Different people as they grow up, they realize their potential in different jobs and
specializations. Therefore, they utilize the product or service they create to exchange for other
stuff they need. Smith also makes a point that all of the least developed countries are the ones
who are most closed policy of trading with other countries.

Chapter 3: That the Division of Labour is Limited by the Extent of the Market

For Chapter 3, Smith realizes that there are limit to the division of labor and free trade. This
limit is called as "the extent of the market." This is the basis of supply and demand, in which

people can only exchange products and services if other people want them.
Most people have limitation of jobs prospect depending on what kind of town they
live in. For example, an skilful plower of land most probably will live in countryside where
there is enough land to plow instead of living in a bustling city
Smith also says that people can transport goods more easily if they live near water.
This can be shown that most of todays big cities have large docks nearby so that it is easier
for shipping.

Chapter 4: Of the Origin and Use of Money

In Chapter 4, Smith discuss about why the use of money is important and how it exist.
This is because different people want to trade their stuff with different things; its not always
a simple barter system between two people. Therefore, we need to sell our stuff to someone
else to buy other stuff from another people.
This is where Smith walks us through how shells, metals, and other little objects have
been used as a form of currency in various societies.But of all the different things used as
money, most people prefer to use metal because it's not easy to find and for its durability.

Chapter 5: Of the Real and Nominal Price of Commodities, or of Their Price in

Labour, and Their Price in Money

In Chapter 5, Smith begins by explaining that money or currency itself doesn't have
any value. Wealthiness are depending on how much stuff and labor they can afford to buy.
When barter system ceases, and money has become the common tools of trade, some
particular commodity is seen to be more frequently exchanged for money that other type of

commodity. All values of stuff are depending on the other stuff that we're willing to exchange
for.
Smith explains about a distinction between the "real" and "nominal" price of things.
The nominal price is the amount of money you pay for it. But the real price of something is
the amount of necessary things (like food and shelter) that you can get for it. Smith calls this
"real" value because it's dependent on the real needs of human life, while nominal value can
change over time.