The Wealth of Nations

An agio is the premium for bank money over coin. read analysis of Agio

The agricultural system is the theory of political economy proposed by the French physiocrats, who view agricultural rude produce as the basis for society’s revenue and wealth. The agricultural system promotes land improvement and free… read analysis of Agricultural System

A nation’s annual produce is the total amount of goods and services that all of its inhabitants generate in a year. read analysis of Annual Produce

In Europe’s traditional system of guilds (or corporations), apprentices are young artisans who spend several years working for master artisans, without pay, in order to learn the master’s trade. read analysis of Apprentice

Bank money is the generic term for all forms of currency issued by a bank instead of the government. Usually, banks would issue credit backed by their bullion reserves. Banks’ trustworthiness made bank money at… read analysis of Bank Money

Banknotes, the most common kind of bank money, are paper bills on which a bank promises to pay the bearer a specified amount of money. Modern paper currency actually just consists of banknotes issued… read analysis of Banknote

A bill of exchange (or just “bill”) is a document on which one party promises to pay another party a certain amount of money. read analysis of Bill of Exchange

Bounties (or subsidies) are payments that the government makes to producers or merchants in order to promote their business, usually because it is deemed to benefit the national interest. read analysis of Bounties

Bullion is precious metal that is melted down—most commonly in the form of gold and silver bars—and valued by weight. read analysis of Bullion

Capital stock is an accumulated reserve of wealth that can be invested for profit, lent out at interest, or used to meet the owner’s subsistence needs. Large-scale investment in both fixed and circulating… read analysis of Capital Stock

Capitation taxes, also called poll taxes, are taxes periodically levied on everyone in society. Today, the term generally implies that everyone pays the same amount, but in Smith’s time, yearly taxes proportioned to wealth, rank… read analysis of Capitation Taxes

The carrying trade is trade between two foreign countries, in which the merchant only uses their home country as a base of operations and/or transit point for goods. read analysis of Carrying Trade

In Smith’s time, a cash account was a financial tool similar to a modern credit card. Scottish banks would issue cash accounts to wealthy customers, who would use those accounts to buy goods and services… read analysis of Cash Account

Circulating capital is the portion of capital stock that goes to buying goods to be sold for a profit, or the materials of manufacture needed to produce such goods. Unlike fixed capital, which… read analysis of Circulating Capital

Coin debasing is the practice of mixing cheaper metals into currency at the mint in order to reduce amount of precious metals in them (like gold, silver, and copper). This decreases coins’ real value… read analysis of Coin Debasing

A company monopoly is a trade system in which the government grants a single company exclusive rights over a certain branch of commerce. They were common in the colonial trade, which was often so unprofitable… read analysis of Company Monopoly

For Adam Smith, “corn” is any kind of unrefined grain. read analysis of Corn

In Smith’s time, “corporations” were professional associations or guilds that regulated particular trades, often by restricting entry into them. read analysis of Corporations

Customs duties are taxes on importing and exporting goods. read analysis of Customs Duties

“Dear” means “expensive.” read analysis of Dear

The division of labor, the central concept in Book I, is the system of economic specialization that drives long-term growth. As Smith’s famous pin factory example illustrates, specialists are more productive than generalists because focusing… read analysis of Division of Labor

Drawbacks are rebates for taxes that have already been paid. To promote the carrying trade, governments commonly offer drawbacks on import taxes for goods that are re-exported. read analysis of Drawbacks

Effectual demand is the demand for a good, service, or commodity from people who are actually willing and able to pay for it. The relationship between supply and effectual demand determines market prices. Over… read analysis of Effectual Demand

An endowment is a fund created to support an institution (like a university, church, or charitable organization). read analysis of Endowment

Smith criticizes the archaic tax system that England still used in his era. England taxed each property at exactly the same amount from year to year, regardless of whether rents increased or improvement made the… read analysis of English Land Tax

Excise duties are taxes on rude produce and manufactured goods destined for domestic sale and consumption. read analysis of Excise Duties

An exclusive trade monopoly is a system in which a dependent territory is only allowed to trade with the country that rules it. This was typical of European colonies in the Americas, which were only… read analysis of Exclusive Trade Monopoly

Fixed capital is the capital stock that gets invested in long-term upgrades to production processes. Fixed capital includes machines, buildings, land improvement, and even education. read analysis of Fixed Capital

The general revenue, or public revenue, is the total amount that the government earns from taxes and other funding mechanisms in a year.It should not be confused with the national revenue. read analysis of General Revenue

Ground rent is the portion of rent that covers the cost of the land itself (as opposed to house rent, or the rent paid to cover the cost of the buildings on that land). read analysis of Ground Rent

Improved land is land that people have modified, either to make agriculture possible or to boost agricultural productivity. Smith argues that land improvement offers the highest profit rate of any capital investment, so all countries… read analysis of Improved Land

Instruments of trade are the tools and machines that manufacturers use to produce goods, and which outlast the production process. The term is roughly synonymous with fixed capital, and it contrasts with the materials… read analysis of Instruments of Trade

Interest is the profit that creditors earn from lending capital, or the cost that debtors pay for borrowing it. Usually, interest rates are expressed as an annual percentage of the original loan (or principal). read analysis of Interest

Joint-stock companies are companies that allow anyone to purchase ownership shares in exchange for contributions to the company’s total pool of capital stock. The joint-stock model is the foundation for all modern publicly-traded corporations… read analysis of Joint-Stock Company

Luxuries are all goods that are not necessities. read analysis of Luxuries

Malt is grain (usually barley) that has been soaked, sprouted, dried, and cleaned for use in brewing or distilling. Since malting requires centralized warehouses, it is difficult to hide, so Smith views taxing it as… read analysis of Malt

The market price of a good, service, or commodity is the price that people actually pay for it at a specific time and place. Market prices gravitate toward natural prices over time, but often diverge… read analysis of Market Price

Materials of manufacture are the inputs that get destroyed, transformed, or otherwise used up in the production process. The term is roughly equivalent to circulating capital, and it contrasts with instruments of trade. read analysis of Materials of Manufacture

The mercantile system, also known as the commercial system or mercantilism, is a theory of political economy that defines national wealth as the amount of resources (particularly gold and silver) that a country accumulates within… read analysis of Mercantile System

A monopoly is any situation in which a single actor controls a specific market. With only one firm able to supply a good or service, there is no competition, so prices rise well above the… read analysis of Monopoly

A monopoly price is the highest price that buyers will accept. Since they face no competition, monopolies naturally raise prices to this level. read analysis of Monopoly Price

National revenue is the total revenue earned in a nation over the course of a year. It should not be confused with the general revenue. read analysis of National Revenue

National wealth is the total wealth owned by all of a country’s people and institutions. Smith wrote this book in large part to show that the mercantile system is wrong to equate national wealth with… read analysis of National Wealth

The natural price is the price of a good or service in a perfectly free market, or the minimum price for which it is worth supplying the good or service. It is equal to the… read analysis of Natural Price

Smith defines neat revenue (or net revenue in today’s language) as amount of revenue that a person, firm, or society actually earns after subtracting the cost of the capital used up in production—including the cost… read analysis of Neat Revenue

Necessities—or as Smith calls them, necessaries—are goods like food, water, shelter, and clothing that people need to achieve a basic standard of living. read analysis of Necessities (Necessaries)

A commodity’s nominal price is its price in terms of money. These prices can fluctuate wildly over time—for instance, after the Spanish began mining silver in South America, the supply of silver in Europe massively… read analysis of Nominal Price

Smith observes that investors’ profit margins gravitate toward a standard rate in any given time and place, just like the market price of any good tends to gravitate toward its natural price. On the… read analysis of Ordinary Rate of Profit

Smith defines political economy as the science of how countries can achieve prosperity. Originally a branch of moral philosophy, political economy gave birth to modern economics around 1900 and is now generally considered an interdisciplinary… read analysis of Political Economy

Productive labor is work that adds value to the economy by yielding a finished product that is worth more than the capital spent creating it. There are four kinds of productive laborers: farmers, manufacturers… read analysis of Productive Labor

Profit is the return that investors earn on their investments, or the compensation that they earn for supplying and risking their capital. Along with wages and rent, profit is the third component that… read analysis of Profit

A commodity’s real price is its price in terms of what can be exchanged for it. Specifically, Smith argues that all commodities come from human labor, so the true measure of a commodity’s price is… read analysis of Real Price

Registration fees are usually paid to enter property ownership transfers in a public register. This gives security to all parties involved in the transaction. Smith supports collecting taxes through stamp-duties and registration fees. read analysis of Registration Fees

Regulated companies are merchant associations that allow anyone to join for a fee. They generally hold company monopolies over certain kinds of international trade. read analysis of Regulated Company

Rent is a payment made in exchange for temporarily using or occupying property that belongs to someone else. Rents make up part of the cost of all goods and the national revenue, alongside wages … read analysis of Rent

“Rude produce” is Smith’s term for raw materials that humans get directly from nature (such as the food we farm, animal furs, lumber, minerals, and so on). read analysis of Rude Produce

Seigniorage is the fee the mint charges in exchange for coining money out of bullion. Governments can use seigniorage to raise the value of state money above the value of bullion and/or compensate for… read analysis of Seigniorage

Smuggling means illegally transporting goods in secret to avoid regulations (usually customs duties). read analysis of Smuggling

The sovereign is the person or institution with supreme power over a nation. In most cases, Smith simply uses this term to refer to the government. read analysis of Sovereign

Stamp-duties are taxes historically paid through required government stamps on certain documents and products. Smith supports using stamp-duties and registration fees on property transfers to raise government revenue. read analysis of Stamp-Duties

Subsistence is the level consumption needed to meet basic survival needs, with no luxury goods or economic surplus. read analysis of Subsistence

Tithes are taxes (or rents) that churches collect from their parishioners. Traditionally, tithes are one-tenth of income. read analysis of Tithe

Unimproved land is land that humans have not modified to make suitable for agriculture. read analysis of Unimproved Land

For Smith, unproductive labor is work that does not add value to the economy because it does not create goods worth more than the initial capital investment (wages and supplies). Rather, it simply uses… read analysis of Unproductive Labor

Wages are the compensation that employers pay workers in exchange for their labor. They form one part of the cost of goods and the national revenue, along with rents and profits. While wages… read analysis of Wages