Adam Smith on Growth and Economic Development

Abstract

This paper is a contribution to the ‘Symposium: Perspectives on Adam Smith’, held at the University of Sydney on 26 May 2023 to mark the Tercentenary of Adam Smith’s birth. The paper provides a concise account of Smith’s analysis of growth and economic development in the Wealth of Nations. It shows that whilst the driving force of growth in Smith’s analysis is saving-cum-investment out of the net income of society, critical to achieving his policy objective of ‘universal opulence’, requiring higher wages for ‘common labour’, is technical progress and higher labour productivity stemming from the division of labour. From the perspective of the demand-led theory of growth, the paper identifies key insights from Smith’s analysis for understanding economic development in modern history, the most important being his notion that the division of labour is ‘limited by the extent of the market’.