The Wealth of Nations · Chapter
II: Inequalities Occasioned by the Policy of Europe explained
This chapter examines how European policies create significant inequalities in the advantages and disadvantages of different employments of labor and stock, beyond those that would naturally occur under perfect liberty.
What happens
This chapter examines how European policies create significant inequalities in the advantages and disadvantages of different employments of labor and stock, beyond those that would naturally occur under perfect liberty. Smith identifies three main ways this happens: restraining competition in some employments (e.g., through corporation privileges and apprenticeship requirements), increasing competition in others beyond natural levels, and obstructing the free circulation of labor and stock between employments and places. He discusses the effects of exclusive corporation privileges, apprenticeship statutes, and the resulting advantages of towns over the countryside, noting that town industries are more profitable and attract more labor and capital, while country industries like farming require greater skill and judgment yet are less rewarded.
Themes in this chapter
Social Class and Inequality
Smith highlights how European policies create inequalities between town and country, and between different trades, favoring some classes over others.
Role of Government
The chapter critiques government policies that restrict competition and obstruct the free circulation of labor and stock.
Free Trade and Market Competition
Smith argues that perfect liberty would lead to natural advantages, but European policies distort competition through exclusive privileges and apprenticeship laws.
Characters to notice
- Adam Smith
Author and narrator of the chapter, analyzing the inequalities caused by European policies.
- The Masters
Masters in incorporated trades who regulate apprenticeships and restrict competition.
- A Workman
Workmen affected by apprenticeship requirements and corporation restrictions.
- The Employer
Employers in towns who benefit from the advantages of incorporated trades.
- The Proprietors
Proprietors in the countryside whose industry is less advantageous compared to towns.
- The Servants
Servants and laborers in the countryside, whose work requires more skill but is less rewarded.
Key passages
“But the policy of Europe, by not leaving things at perfect liberty, occasions other inequalities of much greater importance.”
European policies, by interfering with free markets, create even larger disparities than those that would naturally occur.
Smith introduces the main argument that government intervention causes significant inequalities.
“The exclusive privileges of corporations are the principal means it makes use of for this purpose.”
Corporations use exclusive rights as the main tool to restrict competition.
Smith identifies corporate privileges as a key mechanism for limiting market entry.
“In every country of Europe we find, at least, a hundred people who have acquired great fortunes from small beginnings by trade and manufactures, the industry which properly belongs to towns, for one who has done so by that which properly belongs to the country.”
Across Europe, far more people become wealthy through town-based trade and manufacturing than through country-based agriculture.
Smith observes the disproportionate success of urban industries over rural ones.