I agree with everything you say here. But you left out an important factor -- the explanation of which may be Adam Smith's most important contribution to our understanding of how an economy prospers. That factor is specialization.
For example, if every family had to make their own shoes, we'd all be the poorer, due to the lack of specialization. We'd spend maybe a quarter or more of our time making shoes.
Therefore, we all are led by the invisible hand of the market to specialize at what we do best, and we buy our shoes from somebody else.
Ditto for every product and service. And ditto for international trade. All trade, whether domestic or international, is about specialization -- a factor that in the long run will make everybody and every country more prosperous than they would otherwise be.
To MJP —
Here’s an addendum to my post no. 22:
I should have acknowledged that you did mention “division of labor,” which indeed is one type of specialization. My apology.
On the other hand, there’s a lot more to specialization than just the division of labor, as analyzed so well by Adam Smith.
In particular, trade between/among regions and countries will increase overall productivity thanks to various “non-labor” differences among trading partners, such as varying natural resource endowments; climatic differences; cultural differences in regard to the propensities to work, save and consume; different legal and political systems; inequalities in accrued capital stock; education, health, and skill of the labor force; and so forth.
Anyway, while Adam Smith didn’t analyze each of these factors the way he analyzed the division of labor, I’m confident he’d appreciate all of them!