Adam Smith's Theory Of Economic Development

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Adam Smith believed that economic growth was determined by the size and productivity of the labor force. To Smith, an economy experienced growth when its labor force size or labor productivity grew, and thus total production grew. Smith’s theory of economic development focused on the elements involved in the production process, and it starts with man (the individual); the supplier of labor. He believed that human’s natural desire to consume more inspires us to develop systems and structures that maximize output. In his writings Smith claims that the beginning of trade and exchange, the division of labor, specialization, technological advancements, the invention of money, and all the other factors that increased labor productivity and lead to …show more content…

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As aforementioned, Smith assessment of economic growth and performance is determined by the productivity of labor, and he believes the division of labor significantly improved labor productivity. He asserts, “The greatest improvements in the productive powers of labour, and the greater part of the skill, dexterity, and judgment, … have been the effects of the division of labour”(10). Smith supports his claim by showing the relationship between an industry’s growth, and the level of specialization in the industry. He compares the agriculture and manufacturing industries. Smith argues that the reason growth in the manufacturing industry has been much greater than the growth in agriculture is because agriculture allows for less division of labor Smith goes on to identify the three circumstances that make the division of labor effective. First, specialization allows workers to concentrate on their particular trade, resulting increased dexterity in every workman. Secondly, the division of labor saves the time lost when laborers are transitioning between different fields of work that require different skill sets and tools. Finally, worker’s increased focus on one function leads to technological innovations that improve productivity. Moreover, Smith believed that in a “well-governed society” the “universal opulence” that is brought about by the division of labor

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