In the fourth book of The Wealth of Nations—published, remember, in 1776—Smith told Great Britain that its American colonies were not worth the cost of keeping.

Smith vehemently opposed Mercantilism—the practice of artificially maintaining a trade surplus on the erroneous belief that doing so increased wealth. The primary advantage of trade, he argued, was that it opened up new markets for surplus goods and also provided some commodities from abroad at a lower cost than at home. With that, Smith launched a succession of free-trade economists and paved the way for David Ricardo’s and John Stuart Mill’s theories of comparative advantage a generation later.

Adam Smith has sometimes been caricatured as someone who saw no role for government in economic life. In fact, he believed that government had an important role to play. Smith believed that the government should enforce contracts and grant patents and copyrights to encourage inventions and new ideas. He also thought that the government should provide public works, such as roads and bridges, that, he assumed, would not be worthwhile for individuals to provide. Interestingly, though, he wanted the users of such public works to pay in proportion to their use.

B. Say true or false.

1. Adam Smith was born in Cambridge and attended King’s College, Cambridge.

2. Adam Smith is widely acknowledged as the father of economics.

3. According to Adam Smith, capitalism contained the seeds of its own destruction. 

4. Smith is known for his explanation of how rational self-interest and competition can lead to economic well-being and prosperity.

5. He argued for a volunteer army, freely floating exchange rates, abolition of licensing of doctors, a negative income tax, and education vouchers.

6. His work helped to create the modern academic discipline of economics and provided one of the best-known rationales for free trade and capitalism.

7. Much of his trailblazing work was done on price theory—the theory that explains how prices are determined in individual markets.

8. The Wealth of Nations has become a classic manifesto against Mercantilism (the theory that large reserves of bullion are essential for economic success).

9. The Wealth of Nations also rejects the Physiocratic school’s emphasis on the importance of land; instead, Smith believed labour was paramount, and that a division of labour would affect a great increase in production.

10. Smith vigourously attacked government restrictions which he thought were hindering inductrial expansion.

11. He attaked most forms of government interference in the economic process, including tariffs, arguing that this creates inefficiency and high prices in the long run.

12. Adam Smith died in London in 1790 in somewhat impoverished surroundings.

C. Match the words to make phrases. Look through the text to check your answers. Translate the phrases. Then use the phrases to make up your own sentences.

A	B
key	practice
intellectual	knowledge
usual	figure
extensive	against smugglers
bring	movement
enforce	contempt
laws	activity
enduring	into contact
legitime	laws

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