Give the point of view of the classical economists on economic development. Explain the pros and cons. In 1776, Adam Smith ([1776] 1936) published his treatise, An Inquiry into Nature and Causes of theWealth of Nations , which was taken by many to be a theory of economic growth. Smith, however,was clearly concerned with economic development. The classical school of economic thought,predominantly modeled after Smith, is largely geared toward understanding and explaining economicdevelopment. Smith presented a supply driven model of growth, where output was related to labor,land, and capital. Thus, economic growth, which is the increase in output, was related to populationgrowth, investment, land growth, and increases in productivity. According to Smith, society wasdependent on the economy's ability to sustain its increasing workforce. Investment was dependent onthe rate of savings. Land growth was dependent on the ability to acquire more land (throughconquest) or on the increase in the productivity of existing land. He also believed in the division orspecialization of labor as a key factor in economic growth, enhanced by improved machinery andinternational trade. Smith argued that increased specialization would increase productivity andreduce per-unit costs, leading to increasing returns. However, he also thought that, in spite ofincreasing returns, such an economy would ultimately stagnate, wherein capital accumulation andpopulation growth will approach zero. Smith believed that the extension of markets was the key toeconomic growth largely through the role that market extension played in creating greaterspecialization. Smith emphasized specialization as leading to greater productivity. He also arguedthat the mercantilist system was holding back England by limiting its market and, hence, limiting thedivision of labor. The mercantilist system, while it promoted the expansion of markets beyond themore limited markets of feudalism, restricted and regulated markets in many ways that Smith foundobjectionable.

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Give the point of view of the classical economists on economic development. Explain the pros and cons.

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter17: Economic Growth: Resources, Technology, Ideas And Institutions

Section: Chapter Questions

Problem 4QP

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In 1776, Adam Smith ([1776] 1936) published his treatise, An Inquiry into Nature and Causes of the Wealth of Nations , which was taken by many to be a theory of economic growth. Smith, however, was clearly concerned with economic development. The classical school of economic thought, predominantly modeled after Smith, is largely geared toward understanding and explaining economic development. Smith presented a supply driven model of growth, where output was related to labor, land, and capital. Thus, economic growth, which is the increase in output, was related to population growth, investment, land growth, and increases in productivity. According to Smith, society was dependent on the economy’s ability to sustain its increasing workforce. Investment was dependent on the rate of savings. Land growth was dependent on the ability to acquire more land (through conquest) or on the increase in the productivity of existing land. He also believed in the division or specialization of labor as a…
In 1776, Adam Smith ([1776] 1936) published his treatise, An Inquiry into Nature and Causes of the Wealth of Nations , which was taken by many to be a theory of economic growth. Smith, however, was clearly concerned with economic development. The classical school of economic thought, predominantly modeled after Smith, is largely geared toward understanding and explaining economic development. Smith presented a supply driven model of growth, where output was related to labor, land, and capital. Thus, economic growth, which is the increase in output, was related to populationgrowth, investment, land growth, and increases in productivity. According to Smith, society was dependent on the economy’s ability to sustain its increasing workforce. Investment was dependent on the rate of savings. Land growth was dependent on the ability to acquire more land (through conquest) or on the increase in the productivity of existing land. He also believed in the division or specialization of labor as a…
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