To comprehend fully why Smith's Wealth of Nations was a revolutionary book, one must know something of the economy and living conditions in England in 1776. The nation was entering the second of three stages of capitalism.
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The first stage, known as commercial capitalism, occurred between 1450 and 1750. It was brought about by the five factors which produced the Economic Revolution and was affected by geographic discoveries, colonization, and increase in overseas trade. The early capitalists were protected by government control, subsidies, and monopolies and made their profits from transporting goods.
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The second stage began about 1750 and was made possible by new sources of energy, primarily the steam engine. This invention enabled the factory system to develop through the use of machines for manufacturing and resulted in the rapid growth of wealth. This stage, known as industrial capitalism, which reached its height during the 1850s, resulted as capitalists profited from manufacturing.
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The third stage of capitalism began in the last quarter of the nineteenth century. Because of the control and direction of industry by financiers, this stage is known as financial capitalism, with profits coming from investing.
Wealth of Nations appeared in England just as the Industrial Revolution was beginning, a fact unknown to Adam Smith and the capitalistic class of his day. In England, the government controlled practically every sector of the economy, including prices, wages, hours of work, production, and foreign trade. The House of Lords represented the noble families, or landed aristocracy, which controlled the vote as well as public office. Only 3 percent of the population affected the election of members to the less static House of Commons.
