, Volume 16, Issue 1, pp 137-145

Adam Smith’s theory of economic development: “Of the natural progress of opulence”

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Abstract

Adam Smith’s theory of economic development contained within Chapter I, Book III, of theWealth 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.