Adam Smith, Book 1, Ch. 2, Truck and Barter

Now, let's consider the very famous
Book 1, Chapter 2 of "Wealth of Nations"

on mankind's propensity
for truck, barter, and exchange.

This chapter, by the way, is called

Of the Principle which gives
Occasion to the Division of Labour,

and that principle, of course,
is going to be trade and exchange.

Indeed, the ability to make deals,
to consummate binding agreements,

to exchange goods and services

is portrayed by Smith
as a fundamental characteristic of mankind

and one which is going to drive
a lot of economic reasoning.

In a famous passage, Smith compares
human beings to most other animals

and notes that he's never seen
one dog trade a bone to another dog

for something in return.

So for Smith, what sets
man apart from the animals

is not necessarily some notion
of an immortal soul,

as in the theology of his time,

but rather the ability to engage
in market exchange.

The self-interested desire
for other goods and services

obtained through the medium of trade
drives a lot of human behavior.

There's a very famous quotation
in this chapter and it reads as follows,

quote:

In a key part of this very busy
and very profound chapter,

Smith is going to tie together
two key themes of the book

and that is trade and division of labor,

and Smith notes it's the desire to trade
which gives rise to specialization

and the division of labor.

After all, if you want
other goods and services,

what's the best way to get them?

Well, you should produce
what you are best at and specialize,

and then use what
you have produced and trade it

in return for other goods and services.

We again see this key idea of
trade specialization and division of labor

as being part of some
self-reinforcing dynamic

which will arise with economic growth
and also help drive that growth.

At the end of this chapter,
there's also an interesting observation

on differences and observed talents.

Smith notes that individuals
have very abilities,

but a lot of these are not inborn
but rather they come from

custom habit and experience.

So, here, Smith is asserting
one kind of vision

of a general or broad natural
quality of mankind.

Overall, this really is one
of the most important

and most interesting chapters
in the entirety of Wealth of Nations.