SOCIAL ECONOMICS OF ADAM SMITH || SMITH AND UNDEVELOPED NATIONS

SMITH AND UNDEVELOPED NATIONSAuthor(s): Manuel AvilaSource: Review of Social Economy, Vol. 34, No. 3, SOCIAL ECONOMICS OF ADAM SMITH(December, 1976), pp. 345-358Published by: Taylor & Francis, Ltd.Stable URL: http://www.jstor.org/stable/29768836 .

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SMITH AND UNDEVELOPED NATIONS

By Manuel Avila

Villanova University

Adam Smith's The Wealth of Nations is such a rich and generative work that in its study one is certain to find something to capture one's interests. The purpose of this paper is to show that Smith abounds with propositions that even today are applicable to the

problems of the developing countries. He is the source of seminal ideas that have become full-blown theories at the hands of latter-day economists. In presenting them it is hoped that the author will not incur Cannan's reproach of using Smith as a mere clothesline on which to hang his own editorial opinions. [Cannan, p. xxi] The

emphasis is positive; the time to take Smith to task for shortcomings which may seem obvious after the benefit of two-hundred years of

experience should be postponed for another day. It seems somewhat unfair to use modern economic theory retroactively, that is, to test

the goodness of fit of ideas that precede the mold used for the test, but this is particularly so in this year of the Wealth's Bicentennial.

I. Smith's Europe As An Underdeveloped Area

The relevance of Adam Smith to the developing nations is not dif?

ficult to justify. The Wealth of Nations, after all, is an inquiry into

the nature and causes of economic development. What additional

relevance could one require? Yet, it can be maintained that the

Europe of Smith's time was not the Fourth World, or even the Third World of today. On this point one can agree with Kuznets that in

the eighteenth century the developed countries of today were already heading the parade; that between the Renaissance and the Age of

Enlightment they had cemented into place a geographical, political, and cultural foundation upon which the Industrial Revolution was

to build the economic superstructure. [Kuznets] This notwithstand?

ing, there were regions in Europe with the economic characteristics

of the underdeveloped countries of today. Scotland is an example. Bauer and Yamey call attention to the imperfect division of labor

in underdeveloped countries. [Bauer and Yamey, Ch. II] Labor movements are fluid, a worker readily changing from one occupation to another; from farming to trade, from trade to small scale trans

345



346 REVIEW OF SOCIAL ECONOMY

port, from the latter to construction, porterage, hunting, etc. But this is what Smith notes about the Highlands of Scotland, where

markets were too small for full-time occupations: . .

every farmer

must be butcher, baker and brewer for his own family . . . The scat? tered families that live at eight or ten miles distance from the nearest of them, must learn to perform themselves a great number of little

pieces of work, for which, in more populous countries they would call in the assistance of those workmen." [Smith Wealth, pp. 17, 18, 117 ]1 He also notes that "Instances of people living by one employ?

ment, and at the same time deriving some little advantage from an?

other, occur chiefly in poor countries." [Smith Wealth, p. 117] "Though in a rude society

? he explains ? there is a good deal of

variety in the occupations of every individual, there is not a great deal in those of the whole society. Every man does, or is capable of doing almost every thing which any other man does, or is capable of doing. Every man has a considerable degree of knowledge, ingenuity, and

invention; but scarce any man has a great degree." [Smith, Wealth,

p. 735] Furthermore, we know that the current North-South polariza? tion of Hirschman and Myrdal was then very much in evidence.

Glasgow and Edinburgh prospered but the Highlands were plagued by lack of natural resources and had ". . . feudal patterns of land tenure and of landlords' rights and obligations, and . . . relative ab? sence of regional government with staff, financial resources, and

authority to meet the distinctive needs of the area." [Viner, p. 88] The Highlands had no roads or towns, no capital, no educational

facilities, no harbors, no postal services, no ". . . initiative and ambi?

tion on the part of the mass of the population. The inflow of guid? ance, financial assistance, enterprise, from outside the area, was min?

imal in extent, and the home supply of talent had already begun its

flight to greener pastures in the Lowlands, in England, and overseas."

[Viner, pp. 90, 91] But even England was in a state of economic

underdevelopment. Cliffe Leslie writes that Smith lived in a very

early industrial world. The period of marked technological change was yet to come. "The foreign trade of the kingdom?Leslie notes was so small that he [Smith] computed the annual importation of corn at only 23 000 quarters." [Leslie, p. 38] The emergence of the

industrial state was not too far on the horizon but for the most part it was antedated by The Wealth of Nations.

1 All references to The Wealth of Nations are given as Smith, Wealth.



undeveloped nations 347

II. A Few Lessons

What are the lessons that the underdeveloped countries can still learn from Smith? Obviously, a detailed study of his writings cannot

be compressed to fit the length of this paper but some selective propo? sitions can illustrate the profitability of the task. In the last few years

much interest has been centered on the question of the relative con?

tribution of various factors to economic growth. We have been told that technological change, more than capital and labor inputs, has been the causal factor. Smith sheds light on this issue by in effect

demonstrating that for underdeveloped countries the question of whether capital or labor is the crucial factor is not very important. In his famous description of pin making the increase in productivity is

attained through the division of labor, labor being aided by machinery "... which facilitate and abridge labour, and enable one man to do the work of many/' [Smith, Wealth, pp. Iviii, 4-7, 260, 268, 326] He

makes clear that the number of those employed is proportional to

the amount of capital used in production. Thus the issue is not one

of one factor being more important than another but of all of them

being used jointly to produce a larger output. The effectiveness of a

given factor depends on the supply of the other (cooperant) factors.2 In the Lectures on Justice, Police, Revenue and Arms one reads:

"Two men and three horses will do more in a day with the plough than twenty men without it. The miller and his servant will do more

with the water miln than a dozen with the hand miln, though it, too, be a machine." [Smith, Lectures, 1964, p. 167] Smith goes on to ex?

plain how machinery is improved by the inventions of those who use

it, thus giving recognition to the role of technological change. Hence, no one would quarrel that capital is necessary. At the

present time, however, some economists attribute to capital the key role in economic growth, ignoring not only that other factors are

equally necessary but also capital's side effects. Smith, on the other

hand, was careful to point these out. He emphasized the indispensa

bility of capital but he also detected a danger in its use. Capital

abridges labor, which means that capital eliminates jobs. Capital in?

creases productivity but it also creates unemployment. A nation can

have much capital and also masses of incomeless workers, particularly when the capital embodies misfit technology. It is regrettable that

many underdeveloped countries have been allured by the glitter of

2 For a discussion of this issue in a modern context see Bauer and Yamey, Ch. IV.




fancy but inappropriate capital, forgetting that job creation should be an overriding aim of economic development. But capital and

labor, positive economics would insist, are both factors of production to be used in the generation of more production. True, but they are no more on the same level of significance than men and machines.

Capital has no feelings, aspirations, or obligations, but labor does. "The intention of capital is to increase the productive powers of labor, or to enable the same number of labourers to perform a much greater quantity of work." [Smith, Wealth, p. 271] He does not say that the intention of capital is to take away from the worker the means of subsistence. "The most advantageous employment of any capital to the country to which it belongs, is that which maintains there the

greatest quantity of productive labour, and increases the most the annual produce of the land and labour of that country." [Smith, Wealth, p. 566] A judicious combination of both factors may be

required in production but not the expendability of labor for the sake of the preservation of capital; such course confers supremacy not to the ends but to the means.3 An analysis of the problem of interregional inequality, which in

the last few years has aroused concern among economists and regional scientists, can be found in Smith. He explains that the towns (which today would be referred to as the modern sector) are the great gainers in their dealings with the country (today's traditional sector), ". . . and in these . . . dealings consists the whole trade which supports and enriches every town." [Smith, Wealth, p. 124] He thought that regu? lations enhancing the wages and profits of craftsmen and merchants in the towns gave them an advantage over landlords and peasants, there?

by hampering the tendency toward equality which trade would bring about without such advantage. [Smith, Wealth, p. 125]

Gunnar Myrdal explains the widening of the interregional income

gap by the "backwash effects" of trade and of the movements of capital and labor. [Myrdal, Ch. 3] Trade confers most of the benefits to the modern sector; capital, instead of flowing to the traditional sector as

3 Ruskin had the following to say concerning capital: "... the true home question, to every capitalist and to every nation, is not, 'how many plows have you?' but, 'where are your furrows?' not?'how quickly will this capital reproduce itself?'?but, 'what will it do during reproduction?' What substance will it furnish, good for

life? what wTork construct, protective of life? if none, its own reproduction is useless?if worse than none?(for capital may destroy life as well as support it), its own reproduction is worse than useless. . .not a profit by any means." [Ruskin,

p. 99]



UNDEVELOPED NATIONS 349

investment moves in fact from the traditional to the modern sector; and labor, by selective emigration of the young people of the rural areas (who are also the ones better educated and more ambitious) to the progressive centers, cannot but help to perpetuate the inequality between town and country. Smith says this much; he notes how more fortunes are made in the town than in the country, and ". . . stock

and labour naturally seek the most advantageous employment. They naturally, therefore, resort as much as they can to the town, and desert the country." [Smith, Wealth, pp. 125, 126]

The benefits that the country can derive from its dealings with the

town?Myrdal's "spread effects"?are also analyzed by Smith. Accord?

ing to Myrdal, the concentration of capital in the town eventually has an adverse effect on profits and, therefore, capital is forced to seek outlets in the country. Smith discusses this as follows: . . capital then spreads itself, if I may say so, over the face of the land, and by being employed in agriculture is in part restored to the country, at the expense of which, in a great measure, it had originally been accumu?

lated in the town." [Smith, Wealth, p. 128] In Myrdal the backwash effects are strong, the spread effects are weak, and something similar is found in Smith. Concerning the movement of capital from town to country he has this so say: ". . . though some countries have by this course attained to a considerable degree of opulence, it is in itself

necessarily slow, uncertain, liable to be disturbed and interrupted by innumerable accidents, and in every respect contrary to the order of nature and of reason." [Smith, Wealth, p. 128]

The rise of towns, or of centers of wealth, is explained by Hicks as

due to ". . . geographical advantages, proximity to minerals or sources

of power, or to areas particularly suitable for specialized crops; al?

ternatively they may have naturally good communications, so that

though their sources of supply are at a distance, they can be supplied from many sources rather easily." [Hicks, p. 163] Smith explains it

in the following terms: "As by means of water-carriage a more ex?

tensive market is opened to every sort of industry than what land

carriage alone can afford it, so it is upon the sea-coast, and along the

banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself, and it is frequently not till a long time after that those improvements extend themselves to the inland

.parts of the country." [Smith, Wealth, p. 18] W. A. Lewris questions the notion that underdeveloped countries

are too poor to generate the savings needed to finance productive




investments. He remarks that these countries are not too poor to

launch wars, or build temples and monuments. "Least of all can

those nations plead poverty as an excuse for not saving, in which 40

per cent or so of the national income is squandered by the top 10 per cent of income receivers, living luxuriously on rents." [Lewis, pp. 227, 236] In his view savings are small, not because a country is too

poor to save but because its capitalistic sector?made up of users of

capital who reinvest their profits productively?is too small; the ratio of profits to national income is too low. The landed gentry enjoy high rent incomes but these are used to buy more land, to support a

large number of retainers, and, in general, for conspicuous consump? tion.4 Economic development cannot be expected from landlords because they, along with the other dominant classes, lack the spirit of

enterprise. This is a lesson that could have been learned from Smith. He

called attention to the wasteful expenditures of the country gentlemen and to their lack of initiative. He said that great proprietors of land are not great improvers, that it is the merchants who are ambitious

and bold undertakers. A landlord pays more attention to . . orna?

ment which pleases his fancy, than to profit for which he has so little

occasion ... A merchant is accustomed to employ his money chiefly in profitable projects; whereas a mere country gentleman is accustomed to employ it chiefly in expense ... If his surplus produce is sufficient to maintain a hundred or a thousand men, he can make use of it in no other way than by maintaining a hundred or a thousand men. He is at all times, therefore, surrounded with a multitude of retainers

and dependants . . ." [Smith, Wealth, pp. 317, 324, 331, 347, 363, 364,

384, 385, 391 ] He deplored the barrenness of expenditures on festivals

and 'profuse hospitality.' The realization that one could not expect the landed gentry to provide the leadership needed to increase the

wealth of the nation was clear to Smith; today his observations still

contain a profitable message. To lift a state from the lowest barbarism to the highest degree of

opulence "Little else is requisite . . . but peace, easy taxes, and a

tolerable administration of justice; all the rest being brought about

by the natural course of things."5 Again, here is a lesson with a hand

4 The Theory of the Leisure Class, in which Vehlen expounds his famous thesis

of conspicuous consumption has a striking and detailed precedent in Rae. [1964, Ch. XI]

5 Quoted by Edwin Cannan in "Editor's Introduction." [Smith, Wealth, p. xliii]




some reward. For how can one expect economic improvement in a

country rent by social turmoil or political upheaval? How can invest? ments be forthcoming under conditions of insecurity and arbitrariness?

Yet, if heed were paid to this counsel many countries would be in a

much better situation. It may be objected that there are examples of

unstable countries where a measure of economic growth has taken

place. This is granted, but it would be more notable if the requisites discussed by Smith were met.

Smith has some comments about China which are relevant because

they are still applicable to various parts of the world. He says, "In a

country too, where, though the rich or the owners of large capitals

enjoy a good deal of security, the poor or the owners of small capitals

enjoy scarce any, but are liable, under the pretence of justice, to be

pillaged and plundered at any time by the inferior mandarines, the

quantity of stock employed in all the different branches of business

transacted within it, can never be equal to what the nature and

extent of that business might admit." [Smith, Wealth, p. 95] He

remarks that where there is tolerable security a man must be 'per?

fectly crazy' who does not employ all his stock profitably. On the

other hand, "In those unfortunate countries, indeed, where men are

continously afraid of the violence of their superiors, they frequently

bury and conceal a great part of their stock, in order to have it always at hand to carry with them to some place of safety, in case of their

being threatened with any of those disasters to which they consider

themselves as at all times exposed." [Smith, Wealth, p. 268] He adds

that this seems to have been a common practice even in England under feudalism. But in his time "That security which the laws in

Great Britain give to every man that he shall enjoy the fruits of his

own labor is alone sufficient to make any country flourish . . . The

natural effort of every individual to better his own condition when

suffered to exert itself with freedom and security, is so powerful a

principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human

laws too often encumbers its operations; though the effect of these

obstructions is alwrays more or less either to encroach upon its free?

dom, or to diminish its security."6 [Smith, Wealth, pp. 327, 508, 576] Smith's observations on the conduct of the guilds presage what de?

veloped and underdeveloped countries alike have witnessed concern?

ing the ascendancy of organized labor. He noticed the ease with which




craftsmen could combine together in a town. Their penchant for

secrecy, not to mention their 'jealousy of strangers,' led them to take few apprentices, something which insured the demand for their labor,

placed a given industry at the mercy of their whims, and allowed them to set their wages at a level higher than that warranted by the nature of the work. [Smith, Wealth, p. 126] Even in his time the unionization of labor seemed to result in poor workmanship. Security in employment meant that a worker could, without fear of reprisal, perform his job well or poorly. "It is upon this account?he wrote?that in many large incorporated towns no tolerable workmen are to be

found, even in some of the most necessary trades. If you would have

your work tolerably executed, it must be done in the suburbs, where the workmen, having no exclusive privilege, have nothing but their

character to depend upon, and you must then smuggle it into the town as well as you can." [Smith, Wealth, p. 129]

Smith thought that labor, as well as capital, could be benefitted

by increased mobility, not only in the geographical sense of labor

moving from places of unemployment, and low wages, to places of

employment, and higher wages, but in an occupational sense, that is,

by changing from occupations with surplus labor to those with surplus

employment; the latter mobility not presenting unsurmountable diffi?

culties since in many trades the occupations have a high degree of

similarity. [Smith, Wealth, pp. 134, 135, 140] Once more, here is

useful advice to fight the twin problems of unemployment and under?

employment, particularly when one considers that, as stated above, a

measure of occupational mobility already characterizes developing countries.

He states that the labor of some of the most respectable members

of society is unproductive. He includes in this group the members of

the armed forces. Given that underdeveloped countries maintain

armies, it may be of some interest to explore means of making them

economically productive. One suggestion advanced by him was the

employment of soldiers for the maintenance of turnpikes, . . by

6 In 1779, in a letter which Smith wrote to the head of the Board of Trade on

the question of free trade for Ireland, he notes that the latter lacks coal and wood, "... two articles essentially necessary to the progress of manufactures. . then

he adds that it also lacks "... order, police and a regular administration of justice . . . articles more essential to the progress of industry than both coal and wood put

together. See Rae. [1965, p. 351] For a modern statement of the same proposition see Bauer and Yamey, p. 132.




employing the soldiers, who would work for a very small addition to their pay they could keep the roads in good order at much less ex?

pense than it can be done by trustees . . ." [Smith, Wealth, pp. 315,

685] One would agree that this labor pool, accustomed to certain

degree of discipline, could effectively be used for development work

say in building social overhead capital. This, in fact, has been done in Peru, where soldiers have been used to colonize the sparsely popu? lated areas of the interior.

In Smith's view, the maintenance of the armed forces and other similar expenditures represented too large a portion of the public revenue. "Great nations?he said?are never

impoverished by private,

though they sometimes are by public prodigality and misconduct."

[Smith, Wealth, pp. 325-27] He saw kings and ministers as . . the

greatest spendthrifts in the society ... If their own extravagance does not ruin the state, that of their own subjects never will." [Smith, Wealth, p. 329] It is deplorable that today his comment still rings true. Several names of heads of state come to mind, who, after insur?

ing their private gain, left their countries in bankruptcy and ruin. The effects can be equally damnable whether they arise out of mis? conduct or out of ignorance: unsound economic policies, whether for one reason or the other, will take their toll. One is, therefore, in?

clined to believe that no nation, but especially no poor nation, can

afford a head of state who is a dishonest economic illiterate. The view is commonly held, particularly by proponents of laissez

faire, that Smith favored a limited intervention of government in eco?

nomic life, that he saw the sphere of government restricted to: the administration of justice, the provision of internal and external se?

curity, and the construction and maintenance of public works. This view has achieved wide currency but it is not entirely correct. He

certainly acknowledges the aforementioned duties of government but the administration of justice includes something that some convenient?

ly forget, . . the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it." [Smith, Wealth, p. 651] He witnessed only too clearly that unbridled economic activity means that profits lead to the acquisition and misuse of power. With government out of the picture it is the merchants and manufacturers who reap the greatest benefits, both by widening the markets and by narrowing the competition. He thought that the rapacity of the merchant class always made necessary to exam?

ine its pronouncements scrupulously for they come . . from an order




of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the

public, and who accordingly have, upon many occasions, both deceived and oppressed it. [Smith, Wealth, pp. 248-50, 460] Hence he con? cluded that "... those exertions of the natural liberty of a few in?

dividuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical." [Smith, Wealth,

p. 308] As mentioned above, the significance of capital as the key factor in

economic growth has played a prominent role in the economics of

development. At the policy level, capital has received as much atten? tion. In many countries "steel mill" economics has exerted powerful influence; massive capital formation is associated with the rise of

industry.7 Inevitably, this has occasioned a neglect and belittlement of agriculture. Smith had something to say on this subject. As the

Physiocrats before him, he saw in agriculture the source of an obvious

life-giving bounty, food. "Countries are populous, not in proportion to the number of people whom their produce can clothe and lodge, but in proportion to that of those whom it can feed. When food is

provided, it is easy to find the necessary clothing and lodging . . .

Food not only constitutes the principal part of the riches of the world, but it is the abundance of which gives the principal part of their value to many other sorts of riches." [Smith, Wealth, pp. 163, 174, 241] From this follows that since sustenance comes first, the development of agriculture should receive top priority. Smith expressed this idea as follows: "The cultivation and improvement of the country, there?

fore, which affords subsistence, must, necessarily, be prior to the increase of the town, which furnishes only the means of convenience and luxury. It is the surplus of the country only, or what is over and

above the maintenance of the cultivators, that constitutes the sub?

sistence of the town, which can therefore increase only with the in? crease of the surplus produce." [Smith, Wealth, pp. 347, 357]

Attention to agriculture is also warranted for another reason. If

capital is scarce, its allocation to agriculture will make it highly pro? ductive and it will employ a large number of workers, something which industry will not do, particularly when it is incompatible with

7 Bauer and Yamey [p. 141] explain this obsession as a desire for conspicuous and spectacular investment.




the resources available.8 The advantage lies, of course, in the genera? tive power of the soil. In agriculture a lot of the work is done by nature. "The labourers and labouring cattle, therefore, employed in

agriculture, not only occasion, like the workmen in manufactures, the

reproduction of a value equal to their own consumption, or to the

capital which employs them, together with its own profits; but of a

much greater value." [Smith, Wealth, pp. 222, 344-48] Smith ex?

plains that the allocation of capital to agriculture was the main cause

of the growth and wealth of the American colonies. Similarly, he believed that England had achieved a higher degree of opulence than

France, agriculture in the latter being inferior. [Smith, Wealth, pp. 392-95] Furthermore, in his view capital formation consisted of in? vestments of a rather modest nature, which today seem well within the reach of poor countries. It was a case, he thought, of directing rather than increasing the fertility of the soil. Thus, the use of cattle, or the use of the plough instead of the spade, clearing, draining, en?

closing, manuring, etc., could make agriculture more productive.

[Smith, Wealth, pp. 78, 265] He also has a message for those who have been impressed by

Schumacher's book concerning the attractiveness of small scale opera?

tions: "A small proprietor . . . who knows every part of his little terri?

tory, who views it all with the affection which property, especially small property, naturally inspires, and who upon that account takes

pleasure not only in cultivating but in adorning it, is generally of all

improvers the most industrious, the most intelligent, and the most

successful." [Smith, Wealth, p. 392, Schumacher, pp. 21, 36] In? vestments in agriculture, he thought, had a degree of permanence not

possessed by those in commerce or manufacturing. "The ordinary revolutions of war and government easily dry up the sources of that

wealth which arises from commerce only. That which arises from the more solid improvements of agriculture, is much more durable, and cannot be destroyed but by those more violent convulsions occasioned

by the depradations of hostile and barbarous nations continued for a

century or two together . . ." [Smith, Wealth, pp. 395, 396] It should not be understood that he was opposed to manufacturing; he thought that no large country could subsist without it, even if it only consisted

of the manufacture of clothing and household furniture. In fact, he saw that agriculture and manufacturing could develop together to

8 The writer is aware that agribusiness can be a destroyer of jobs but agribusiness does not represent an inevitable method of cultivation.



356 review of social economy

their mutual advantage and that of the country. [Smith, Wealth, pp. 381-83] Hence, what is being emphasized here is simply that the

neglect of agriculture is bad economic policy. He gave some thought to the question of land tenure. A system in

which the landlord received one-half of the product could lead to no

improvements of the land. In such situation, even under conditions of peace and security, the farmer faced such hardships and lack of incentives that few, if any, improvements could be made. [Smith,

Wealth, pp. 367-71] Unduly high rents ultimately work to the dis?

advantage of landlords, but this is something that the latter, then as

now, failed to see.

III. Other Relevant Themes

Enough has been said to show that Smith has many valuable lessons for the underdeveloped nations. In addition to the specific subjects discussed, he has something to say on issues such as: the importance of good roads and other means of transportation to expand markets; the destruction of crops for the purpose of maintaining high prices; the fruitfulness and benefits of investments in human beings in the form of education; the fact that consumption is the end of production and not vice versag that ". . . the interest of the producer ought to

be attended to, only so far as it may be necessary for promoting that of the consumer." [Smith, Wealth, pp. 147, 158, 159, 265, 266] He

also discusses the disadvantages of protection of home industries, which confers upon them monopoly power; the prescription for enlarging output on the basis of an increase of the inputs, or of higher efficiency of the inputs already being used; the need of extensive markets for the development of industry, which to a large extent is the foundation of Nurkse's theory of balanced growth;10 [Nurkse, Gh. 1; Rosenstein

Rodan] the businessman's detachment from national boundaries or

loyalty to a flag, which today could be a description of the multi?

national corporations; the stultifying and arresting effect that the division of labor has on the intelligence of the worker, caused by the

9 This is an observation that merits much thought for lately the order has been

reversed. Growth comes first, welfare second; the game is growthmanship and not

necessarily human betterment. The emphasis is on output, in the absence of

which, we are told, we cannot cure unemployment, inequality in the distribution of income, etc., etc.

10 Incidentally, Smith even includes the famous example of the shoe factory of

Nurkse and Rosenstein-Rodan.



undeveloped nations 357

monotony and simplicity of the work; the contrasting effect which

agriculture has on the farmer by allowing him the exercise of judge? ment and reason as he goes from one task to another. [Smith, Wealth,

pp. 127, 267, 326, 345, 346, 395, 424, 425, 625, 626, 640, 641, 646, 734]

IV. Conclusion

The Wealth of Nations indeed offers greater gain to developing countries than some of the unconvincing elaborations that pass for

modern economic theory. It has more that is useful than transplanted models that will probably be cranked with unreliable data. To those who would discard old ideas because they are old the warning is: exercise care. Neoclassical theory has booby traps which may be fatal,

e.g., comparative advantage, factor price equalization, second best,

Pareto optimality, general equilibrium, Phillips curve, microeconomics, etc. The developing countries can derive great benefit from the ex?

perience of the developed countries, not only by adapting those policies which may seem worthy of adaptation but by avoiding those that are

obviously wrong: growth for the sake of growth, growth without

equity in the distribution of income, growth with unemployment or

regional inequalities, growth branded with the wastes of a ravaged world, growth for the pursuit of narrow national interests, growth without reckoning of the human costs, growth without any notion that the riches of the earth were placed there by the Creator for the com?

mon use of all his creatures, and so on and so forth. The conscientious reader will find that Smith's classical masterpiece aids in attaining a sane

perspective.

References

Bauer, Peter T. and Yamey, Basil S. The Economics of Under-developed Countries.

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SOCIAL ECONOMICS OF ADAM SMITH || SMITH AND UNDEVELOPED NATIONS