Due to his “labor theory of value” Smith defines Total National Product – (similar but not exactly equal to today’s notion of GNP) – as being equal to total (productive) labor in the whole nation

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.

National product per capita indicates how “rich” is the country and it depends on two things:


1) on labor productivity

2) on the share of “productive” in the total labor.


as this produce, … 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.

... 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;


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

The labor productivity seems to be the more important one.


The abundance or scantiness of this supply, too, seems to

depend more upon the former of those two circumstances…

At the very low level of development almost everyone has to work and still the nation is very poor; while in the highly developed countries there is a high share of people who do not provide productive work and the whole nation is still rich.


Among the savage nations …every individual who is able to work, is more or less employed in useful labour, … Such nations, however, are … miserably poor ….

Among civilised and thriving nations, on the contrary, though a great number of people do not labour at all,…. yet the produce of the whole labour of the society is so great that all are often abundantly supplied….


Book I : what makes labor productivity to grow.


The causes of ... improvement, in the productive powers of  labour… make the subject of the first book ….

Book II : capital accumulation and its effect on the share of productive workers.



The number of useful and productive labourers, … is everywhere in proportion to the quantity of capital stock which is employed in setting them to work…. The second book, therefore, treats of the nature of capital stock, of the manner in which it is gradually accumulated…

Book III :  effects of different economic policies in different countries.



 Nations …. have followed very different plans …. those plans have not all been equally favourable to the greatness of its produce. …. Since the downfall of the Roman empire, the policy of Europe has been more favourableto arts, manufactures, and commerce, the industry of towns, than to agriculture, the industry of the country. The circumstances which seem to have introduced and established this policy are explained in the third book.

Book IV : effects of different economic theories



..those different plans ….have given occasion to very different theories of political economy; …. Those theories have had a considerable influence, not only upon the opinions of men of learning, but upon the public conduct of princes and sovereign states. I have endeavoured, in the fourth book, to explain, as fully and distinctly as I can, those different theories, and the principal effects which they have produced in different ages and nations.

Book V : the use of state budget under different types of government   


The fifth and last book treats of the revenue of the sovereign, or commonwealth. In this book I have endeavoured to show, first, what are the necessary expenses of the sovereign, or commonwealth; … secondly, what are the different methods in which the whole society may be made to contribute towards defraying the

expenses incumbent on the whole society, … thirdly and lastly, what are the reasons and causes which have induced almost all modern governments to mortgage some part of this revenue, or to contract debts, and what have been the effects of those debts upon the real wealth, the annual produce of the land and labour of the society. 


















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