Adam Smith

Oded Galor (Brown University)

What ignited humanity’s momentous ascent from millennia of stagnation to an era of sustained economic growth? And what are the roots of the vast disparities in the wealth of nations? These enduring mysteries, which have preoccupied scholars across generations, lie at the core of Unified Growth Theory. This encompassing framework captures the evolution of societies over the entire course of human history and identifies the universal wheels of change that governed humanity’s long journey, propelled the growth process, and shaped inequality across the globe. The theory uncovers the forces underlying the dramatic transformation in living standards over the past two centuries, emerging from an economic ice age of near stagnation, while highlighting the enduring historical roots of the immense divergence in the prosperity of nations. It suggests that forces set in motion in the distant past played a pivotal role in shaping development across the globe and remain essential for the design of effective policies that foster economic progress and mitigate inequality in the wealth of nations.

Gareth Austin (University of Cambridge)

This chapter explores the global history of economic development since Adam Smith’s The Wealth of Nations, focusing on Europe, Asia, and Africa. Three major historiographical themes are examined. The first considers economic development before the British industrial revolution, particularly in western Europe and parts of Asia — developments which helped shape the extraordinary changes of the last 250 years. The second examines how industrialization itself transformed the process of development, drawing on Alexander Gerschenkron’s insight that the industrialization of even one country altered opportunities and constraints for all others, and on Alice Amsden’s updating of that argument for the later twentieth century. The third discusses Kaoru Sugihara’s argument that different regions, faced with persistent differences in their ratios of labour, land, and capital, responded with correspondingly different institutional and technological choices, ultimately converging along distinct development ‘paths’. The complexity revealed even in this short survey defies binary analysis and mono-causal explanation.

Nancy Qian (Northwestern University)

This chapter examines how agriculture shapes the long-run wealth and poverty of nations, using Adam Smith’s The Wealth of Nations as both guide and foil. Smith saw agriculture as the strategic starting point of development: improved farming raises food output, supports population, and generates surpluses that feed cities, stimulate industry, and expand trade. Historical and empirical research largely confirms the importance of early agricultural gains, town-country linkages, and secure land institutions. Yet 250 years of experience show that there is no single ‘agriculture-first’ path. Malthusian pressures, unequal landholding, and weak states can turn productivity gains into population growth or famine. Plantation enclaves, resource-led growth, premature deindustrialization, and services-led development further break the simple sequence. Recent work also shows that agriculture can shape culture, conflict, and political institutions. The chapter concludes that agriculture remains foundational, but its effects are mediated by demography, politics, and institutions rather than mechanically determining outcomes.

Robert C. Allen (NYU Abu Dhabi)

This chapter reviews Adam Smith’s model of the division of labour between occupations and examines when it first emerged in human society, tracing its origins to the ancient Near East. Fifteen thousand years ago, our ancestors were mobile foragers with no occupational specialization. Three conditions were necessary for it to appear: the technological capability to produce more food than needed for survival; permanent settlement, enabling accumulation of possessions; and a storable, divisible food source such as grain. The first condition had long been satisfied; the second was met by 13,000 BCE; and the third by c. 9,000 BCE, when some populations began living mainly on grain. With grain domestication by 7,500 BCE, most people in the Middle East met all three conditions, and specialized crafts – plaster-working, pottery, weaving, and metal smelting – appeared shortly afterwards. Notably, none of this required Smith’s original conditions of states and efficient transport systems, which emerged only in the fifth and fourth millennia BCE. At that point, Smith’s model comes into its own.

Jane Humphries (University of Oxford and LSE)

A revised narrative has replaced the industrial revolution as a paradigm shift in Britain’s economic history. A ‘Smithian era’ of slower but sustained growth, underway after 1650, has become conventional wisdom, characterized by widening markets, new divisions of labour, accumulating human capabilities, robust self-interest and increased labour input. This chapter shows how women and children contributed to Smithian growth, supplying workers to expanding sectors and facilitating new divisions of labour. It links increased female labour force participation to Smith’s insight into how aspirational consumption drove growth. Although Smith recognized women’s caring labour as essential to social reproduction, he failed to integrate it into his account of the production and distribution of the ‘necessaries and conveniences’ of life. His emphasis on self-interest overlooks how altruism, duty and affection motivate this vital work. Without the invisible hands of homeworkers, the labour force would be unprepared and the economy would descend into chaos. Beyond the market’s metric, care faded from view, and economics missed an opportunity for a broader understanding of human development.

J. Vernon Henderson, Leigh Shaw-Taylor, and Jacques-François Thisse (LSE, Cambridge, UCLouvain)

The Wealth of Nations contains passages that foreshadow aspects of modern urban economics and the role of cities in emerging economies. In this chapter we start with a simple model of the town-countryside synergy heralded by Smith. That serves as a take-off point to discuss structural transformation, urban specialization, city sizes and the role of declining transport costs in fostering urban specialization. We then turn to data on England and Wales, primarily covering the period 1817 to 1901. We argue that two opposing forces operated: declining transport costs encouraging urban specialization and diffusion of modern innovations from points of invention and initial concentration to spread throughout the urban landscape. We examine the concentration on major manufacturing sectors versus the diffusion of newer sectors, documenting the high concentration of the major traditional manufacturing sectors. We then turn to the complement to industry concentration: urban specialization. We examine how evolving patterns of specialization vary across the urban hierarchy.

Douglas Gollin (Tufts University and University of Oxford)

Much of sub-Saharan Africa’s population remains rural and unspecialized, even 250 years after the publication of The Wealth of Nations. Rural households typically practise quasi-subsistence agriculture, selling only a fraction of their output. Urban workers, too, are often non-specialized, lacking specialized capital or skills that would enhance their productivity. This chapter discusses the role of spatial frictions in perpetuating economies in which Smithian specialization remains limited and growth remains slow. Spatial frictions in Africa appear linked to poor transportation infrastructure and high transport costs, but may also reflect insufficient competition in the transport sector. Less visible barriers may also prevent market integration; weak property rights, combined with limited social safety nets, may incentivize people to continue farming as protection against shocks. In spite of these frictions, structural change is taking place, with urbanization proceeding rapidly. The chapter reviews patterns of transformation in sub-Saharan countries and argues that observed patterns are broadly consistent with a Smithian view of the growth process.

Tim Besley and Maitreesh Ghatak (LSE)

This paper explores Smith’s idea of a commercial society, which is often seen as offering a unifying idea between The Wealth of Nations and The Theory of Moral Sentiments. While there are various discussions around what Smith really meant by a commercial society, the aim of the chapter is to interpret it through the lens of contemporary economic theory, particularly an approach that emphasizes the role played by motivated agents. We argue that even with a competitive market economy, there is an interplay between the pro-social motivations of economic agents with the pattern of market transactions, leading to an interplay between values and economic institutions. The chapter links these ideas to contemporary debates about how businesses pursue environmental and social goals. We also discuss the normative achievements of a commercial society and use this to reflect on the role of the state.

Sascha O. Becker (University of Warwick and Monash University)

This chapter explores the intersection of religion and economics on the 250^th anniversary of Adam Smith’s The Wealth of Nations, first published in 1776. While Smith is often viewed as a secular figure in economics, his work was deeply influenced by the moral philosophy of his time, which was shaped by Christian thought. I discuss how economists think about the religious themes in Smith’s work in the 21^st century and review what we know today about the connection between religion and economic outcomes.

Margarita Gatsou and Uwe Sunde (University of Munich, LMU)

We reconsider some of the central aspects in Adam Smith’s work in the light of recent advances in the literature on long-run development. The main argument is that future orientation – “patience” – represents a key unifying feature in the mechanisms of long-run development. This feature appears to have been part of Smith’s argument in various manifestations, including remarks related to longevity and institutions. We develop this argument along the lines of a simple conceptual framework and discuss the consequences of the influence of low life expectancy and institutional quality on the patience embodied in the population for the emergence of development traps. We then illustrate how a feedback from patience to improved life expectancy and institutions can initiate a process of sustained development.

Xiaodong Zhu (University of Hong Kong)

Contrary to popular belief, the rise of China over the past half century was not driven by industrial or mercantilist policies. The economy grew fastest when the government played a more passive role, allowing market forces and bottom-up initiatives from farmers, local officials, and private entrepreneurs to shape economic development. China’s vast size and extensive markets created strong incentives for entrepreneurial innovation. However, the government remained committed to preserving its political system and a dominant state sector, imposing clear limits on private sector and market development. Whenever private entrepreneurs sought to push these boundaries, the government responded forcefully. Over the last five decades, China’s economic trajectory has been shaped by the tension between these two forces.

Dani Rodrik (Harvard University)

Economics students today learn about mercantilism through Smith’s prism, as a series of logical and policy errors that Smith clarified and settled for good. But far from settled doctrine, mercantilism encapsulated a variety of pragmatic practices that survived Smith’s critique, often to good effect. It found echo in a continuous tradition of what later came to be called ‘developmentalism,’ running from Alexander Hamilton and Friedrich List’s advocacy of trade protection to Hans Singer and Raul Prebisch’s ideas on import-substitution and, more recently, to East Asian models of export-oriented industrialization. Three of its core tenets hold continued appeal: the primacy of production and jobs (and of their composition) over consumption; preference for close, collaborative relationship between business and government over an arms’ length relationship; and the need for contextual, pragmatic, and often unorthodox policies over universal remedies and ‘best-practices.’

Hans-Joachim Voth (University of Zurich)

Adam Smith wrote amid near-constant warfare, yet war plays a minor role in The Wealth of Nations. This essay examines what Smith said about war and empire, assessing his judgements against recent scholarship. Smith viewed military expenditure as waste, but recognized that defence underpins property rights – accepting trade restrictions like the Navigation Acts when they served strategic ends. Modern work on state capacity vindicates this intuition: wars built fiscal infrastructure and a complementary frame of mind, with effects persisting for centuries. Smith’s stadial theory explains why such effects travel with migrants – generations under centralized authority cultivate habits conducive to commerce. On colonies, Smith was more sceptical, seeing the mercantile system as rent-seeking. Here he may have been too pessimistic. Colonial trade drove firm selection; slave profits, arriving when Britain’s financial system failed to fund industry, flowed into textile firms, canals, and banks. War, state capacity, and colonial profits formed a single interlocking system – one Smith recognized but considered rigged. The rigging itself built modern growth.