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Knowledge and the Wealth of Nations: A Story of Economic Discovery 1st Edition

4.2 out of 5 stars 42 customer reviews
ISBN-13: 978-0393059960
ISBN-10: 0393059960
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Editorial Reviews

From Publishers Weekly

Starred Review.In this shrewd piece of intellectual history, former Boston Globe columnist Warsh shows how two contradictory concepts of Adam Smith-the invisible hand and the division of labor (famously, at a pin factory)-took on lives of their own after their 1776 publication in The Wealth of Nations, and then finally converged in the work of late 20th century economist Paul Romer. In the first half of this book, Warsh gives an entertaining and precise history of economic thought from Smith forward, through the lens of what have come to be two of his key constructs. Warsh's treatment of difficult economic concepts like value is brief but clear and accurate, and he gives equal weight to personalities, institutions and broader social forces. In the second half of the book, Warsh advances the claim that in the 1970s and 80s, when Romer divided economics into people, ideas and things, instead of labor, capital and land, he touched off a revolution in the field, one that is still playing out in now-dominant "New Growth Theory" economics. Warsh does not focus narrowly on Romer's work, but describes the social and institutional framework of modern professional economics: how ideas percolate, how papers are published, how careers advance and how meetings and societies are organized. The book brings sophisticated ideas into a complex story without losing the thread, or the reader's interest.
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.

From Booklist

Warsh, who had a long-running economics column in theBoston Globe, here journeys through the discipline's history en route to an analysis of an influential 1990 technical paper. Written by Paul Romer, "Endogenous Technological Change" is described by Warsh as mathematically formidable, which is the way modern economists like their fare, begging the question of why its story would be of general interest. First, hundreds of thousands annually enroll in university-level economics courses; second, Romer's paper, pertinent to the information revolution that is our zeitgeist, is clearly explained by Warsh; and third, Warsh reveals the occupation of economics to the benefit of those who aspire to it. After historical exegesis of Adam Smith and his successors, Warsh depicts post-1945 schools of thought, biographically summarizing figures such as monetarist Milton Friedman and Keynesian Robert Solow, and those of Romer's generation now in their career primes. Appraising the intellectual lineage and gestation of Romer's paper, Warsh imparts in a comprehensible way the engagement many have with economic thought. Gilbert Taylor
Copyright © American Library Association. All rights reserved

Product Details

  • Hardcover: 320 pages
  • Publisher: W. W. Norton; 1 edition (May 1, 2006)
  • Language: English
  • ISBN-10: 0393059960
  • ISBN-13: 978-0393059960
  • Product Dimensions: 9.4 x 6.6 x 1.4 inches
  • Shipping Weight: 1.7 pounds
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (42 customer reviews)
  • Amazon Best Sellers Rank: #454,527 in Books (See Top 100 in Books)

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Format: Hardcover Verified Purchase
David Warsh has written a lively history of economic thought from the time of Adam Smith to the present. His narrative begins in 1776 with the publication of "The Wealth of Nations" and the central contradiction that has puzzled economists for centuries: namely, the parable of the pin factory and the invisible hand.

According to Smith, the pin factory demonstrated how economies of scale produced increasing returns by lowering the costs of production. What Smith didn't follow up on was that increasing returns enabled a few players or a single player to drive smaller firms out of business and create oligopolies or monopolies. Smith's other theorem, which ran counter to the example of the pin factory was the theorem of the invisible hand. The invisible hand required that many players compete in the marketplace in order for the market to function properly so that no one firm or group of firms could become dominant.

Economists since then have favored the theorem of the invisible hand over the pin factory, not only because it was ideologically correct, but that it lent itself more readily to economic modelling. Yet things were happening economically that indicated that the invisible hand - which argued that rising costs and diminishing returns were inevitable - was no longer adequate in describing what was has been taking place over the last thirty years.

In 1990, a young economist named Paul Romer published a paper entitled "Endogenous Technological Change." Romer noticed that economic growth was accelerating in rich countries where the standard of living was diverging rapidly from poorer countries. This was contradicting the law of diminishing returns and, indeed, indicated increasing returns.
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Format: Hardcover
Most of the reviewers of this book apparently found it to be impressive. Sadly I did not.

Too little time is devoted to offering adequate clear explanations of the economic ideas and theories being addressed, too much time is devoted to irrelevant social asides. The non-economist reader seeking to understand the economics as opposed to learning a great amount of academic gossip and politics will probably be disappointed. I wanted to understand growth theory. I did not and do not care that the reason why Paul Romer left Chicago for the Bay Area was that his wife had a disagreement with her lab manager or that Paul Romer has developed software to teach economics. I found such digressions to be unnecessary and distracting.

To cite just two of the book's specific limitations:

(1) The book lacks referential footnotes and a bibliography. Readers not already familiar with the subject wishing to pursue a topic further will be at a loss.

(2) The book lacks a glossary. Throughout the book numerous technical terms are introduced and, at best, briefly described. It would have been nice to have all of these key terms explained in one place for easy reference.

Small efforts on the part of the author would have remedied both of these deficiencies.
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Format: Hardcover
Adam Smith's Wealth of Nations supposedly explains the effects of two opposing economic forces, one being the force of the famous "invisible hand" (the economy of diminishing returns) and the other behind the success of the "Pin factory" model (the economy of increasing returns, or, growth theory). The book is a history of economic thought from the time of Smith to the present from the vantage point of this growth theory. The economist Paul Romer is the hero of the story. Romer is the one who was finally able to explain growth by correctly incorporating knowledge into his economic/mathematical model, according to Warsh.

Technicalities aside, the book is a fascinating depiction of intellectual history. The author deftly manages to capture the entire economics "scene" in impressive details -- from economics' major academic journals and institutions, its division of schools and universities, the major players, their work and personalities, and even to the happenings at important conferences. Warsh's depiction is so lively as to give one the impression that he had been present through all the historical events, engaging personally with all the economists described.

Students in economics will benefit from this book for the perspective it provides. Readers interested in economics culture in general, or those who seek to catch up on the trends of economic thought leading up to the last decade also won't be disappointed. One would be hard pressed to find an account of recent intellectual history as rich as this for any academic discipline.
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Format: Hardcover
Since Adam Smith first published the Wealth of Nations more than 200 years ago, there has been an episodic tension in the dismal science between the concepts of deceasing returns to scale embodied in the image of the invisible hand and increasing returns to scale due to specialization and the division of labor in the pin factory. Generally, most of us are more steeped in the views of competition, supply and demand and creative destruction arising from a view of the traditional factors of production of capital, labor and land. Only in fits and starts has the economics profession turned its attention to the importance of knowledge and readily observed increases in wealth.

David Warsh attempts to bring Adam Smith's story back into balance. Using Paul Romer's seminal paper, "Endogenous Technological Change," published in the Journal of Political Economy in 1990 as the centerpiece, Warsh first weaves a story of economic growth theories since Smith. Warsh argues that the early dominance of the decreasing returns of the invisible hand is partially due to the general sense of scarcity as embodied in early thinkers like Malthus and because its analysis and maths are more tractable. It thus required the mathematical maturation of the profession for the question of the pin factory and increasing returns (and declining costs) to find a resolution. Yet even as the theories and the profession itself become more mathematical in the 20th century, Warsh sticks to a literal and easy-to-read narrative. His story covers virtually every major economist from Smith and Ricardo in the early years to the Nobel laureates Arrow to Solow prior to Romer. He traces the eras of neglect with the slow discoveries as to the factors leading to growth.
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