Why and how countries get rich? Adam Smith explained it clearly. In terms of supply and demand but also in terms of the ability for a nation to produce quality output that would be demanded by others.
The metaphor can be applied to your personal financial situation and is obvious if you can also create things that are original and compelling people will demand it and you will prosper.
This is what Wealth of Nations by Adam Smith is about. It is basically a book about value.
Adam Smith basically says that production (supply) should outpace consumption (demand).
The annual labor 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
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.
Adam Smith said the supply of a nation’s output is determined by:
- Working smart and creating valuable production
- Percentage of people contributing to the economy
But this proportion must in every nation be regulated by two different
circumstances: first, by the skill, dexterity, and judgment with which
its labor is generally applied; and, secondly, by the proportion
between the number of those who are employed in useful labor, and
that of those who are not so employed. Whatever be the soil, climate,
or extent of territory of any particular nation, the abundance or
the scantiness of its annual supply must, in that particular situation,
depend upon those two circumstances.
Working smart is the most important
The abundance or scantiness of this supply, too, seems to depend more
upon the former of those two circumstances than upon the latter.
Take away from Adam Smith’s Wealth of Nations
A country or a household will get rich is they can work smart. This does not mean applying your talents in an efficient way. And in my opinion not working for corporate America. It is developing your talents and skills in a way that people will demand it. Making sure that your economics value is connected to what will satisfy a need for others.
This argument is slightly different from the Austrian economist’s ideas of what is of value. The Austrian economists like Mises and Hayek believe value was determined in a relative and personal way and only in the aggregate do we see a demand and supply curve.
For Smith it was more about objective value, that is it was obvious certain trades or economic production was more valuable than others.
Adam Smith believed actually manufacturing was more important than services. The Austrian school of economics believe that services were an extension of the production process and a nation could get rich in a service economy.
If you want to read more about this argument read this post on the US position in the world and wealth related to the US losing its manufacturing base.