Adam Smith's Theory of Economic Development: 'Of the Natural Progress of Opulence'

Bell, Joe A.
March 1992
Journal of Economics & Finance;Spring92, Vol. 16 Issue 1, p137
Academic Journal
Adam Smith's theory of economic development contained within Chapter I, Book III, of the Wealth of Nations is presented in this paper. According to Smith, the natural order of development as it proceeds from primary to secondary to tertiary activity is determined by the evaluation of the relative risk and potential profit to be earned in alternative uses of capital. The emphasis of this theory is on the behavior of economic agents facing risk, rather than the amount of capital or the size of national saving or other measurable variables as in some modern approaches. The purpose of this paper is to argue that Adam Smith had a theory of economic development contained within Chapter I, Book III of The Wealth of Nations, separate from his theory of economic growth, and that this theory is not only "modern" in nature but predates many later contributions to economic theory. The theory is similar to some modern theories, but in one respect goes beyond current theories.


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