Capital and Labor
According to Smith, what makes labor “productive”?
It adds value to a product and results in something that can be sold or stored for future use.
What does Smith say happens when someone saves rather than spends their income?
The savings are turned into capital that can employ productive labor.
What does Smith mean by “the accumulation of capital”?
The process of saving and reinvesting profits to expand productive capacity.
Does Smith believe government workers are productive or unproductive?
Unproductive. They don’t create goods for sale, though their work may still be necessary.
In Smith’s view, what is the ultimate source of a nation’s wealth?
The productive labor of its people.
Why does Smith say some labor is “unproductive”?
It doesn’t create lasting value or goods, such as services that end when performed.
How does saving contribute to economic growth, according to Smith?
It provides funds that are invested in production, expanding the nation’s capital.
Why does capital accumulation lead to more employment?
Because more capital allows employers to hire more productive workers.
Why does Smith think a nation can’t grow rich merely by increasing government employment?
Because it doesn’t expand capital or productive labor.
What’s the relationship between capital, labor, and wealth in Smith’s theory?
Capital funds productive labor, which creates goods and expands wealth.
Give an example of a “productive” type of worker in Smith’s view.
Farmers, factory workers, or artisans because they create tangible goods.
Why does Smith criticize those who consume all their income without saving?
Because consumption alone doesn’t create new capital or support productive employment.
How does Smith connect capital accumulation to long-term national prosperity?
The more capital is accumulated, the more productive labor and wealth the nation can sustain.
Why does Smith say “parsimony” (careful spending) benefits the nation?
Because it increases savings that become productive capital.
Why is “unproductive” labor not necessarily “useless”?
It can provide valuable services, but it doesn’t add to the nation’s wealth stock.
Give an example of an “unproductive” type of worker in Smith’s view.
Servants, entertainers, or government officials because they don’t produce goods for sale.
What’s the difference between a “frugal” person and a “prodigal” person in Smith’s view?
Frugal people save and grow the nation’s capital; prodigal people waste and diminish it.
What limits the growth of capital in a society?
Excessive consumption, waste, or unproductive spending that prevents savings from becoming investments.
What danger does Smith warn about if a society values luxury over saving?
It weakens the ability to form capital and slows economic growth.
What moral or behavioral quality does Smith praise most in this chapter?
Frugality, the habit of saving and investing rather than just consuming wastefully.
Why does Smith argue that a nation’s wealth depends on its productive labor?
Because productive labor increases the stock of goods and capital, which fuels future growth.
What happens to capital when people are excessively “prodigal” (overspending)?
It gets consumed, reducing the funds available for productive investment and growth.
Why is accumulation gradual, not instant, according to Smith?
Capital grows through small, repeated acts of saving and reinvestment over time.
What might Smith say is the best way for a society to encourage long-term prosperity?
Promote saving, investment, and productive work rather than excessive consumption.
If you were to apply Smith’s argument today, what kind of spending would best promote growth?
Investment in productive sectors (like manufacturing or technology) rather than pure consumption.