The first volume of Smith's 1776 work contains Books One through Three, covering the division of labour, the origin and use of money, prices and their components, wages, profit, rent, the accumulation of capital, and the historical development of European economies.
Smith opens with the pin factory, showing that dividing a task among specialists multiplies output enormously, and argues that the division of labour is limited by the extent of the market, which connects productivity directly to trade and transport. He distinguishes market price, which fluctuates with supply and demand, from natural price, around which market price gravitates and which equals the cost of the labour, capital and land required. He decomposes the price of any commodity into wages, profit and rent, which is the foundation of classical distribution theory.
The passage on self-interest producing public benefit is here, and it is more qualified than its reputation suggests: Smith is describing a mechanism in specific competitive conditions, and elsewhere in the same volume he is severe about merchants combining against the public interest and about the tendency of any trade to conspire toward higher prices.
Book Three examines why European development took the course it did, arguing that the natural progression from agriculture to manufacture to foreign trade was inverted by feudal institutions, primogeniture and the political position of towns.
The volume is long, digressive and written in eighteenth-century prose. The labour theory of value it develops was superseded. Its arguments about specialisation, market extent and competitive price formation remain foundational.
Readers who want the foundational arguments about specialisation, market extent and price formation in Smith's own words.
Scottish moral philosopher at the University of Glasgow who founded modern economics with The Wealth of Nations in 1776.
The Wealth of Nations set out how division of labour, self-interest and competitive prices coordinate production without central direction, and it supplies the vocabulary economics still argues in: specialisation, capital accumulation, natural and market price. The Theory of Moral Sentiments supplies the other half, placing exchange inside a system of sympathy and judgement.
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