source : Bob Allen

1. Adam Smith and the Commercial Model of Economic Development Bob Allen Approaches to History

2. Adam Smith propounded a theory of economic development that is still influential today. Economies will grow if they have the right kind of government.

11. “ It is not from the benevolence of the butcher, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.”

12. Smith argued that the pursuit of self-interest increased prosperity generally by making the market system work.

13. Each individual seeks “only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”

15. This flow diagram shows Smith’s model:

17. Note the similarity to Milton Friedman’s Capitalism and Freedom :

23. China gained from a large internal market but was hurt by limits on foreign trade. European ships were only allowed to trade in Canton. Here are their warehouses.

24. 18 th century liberals took a dim view of Asian emperors whom they regarded as despotic. This is a Chinese Emperor.

25. Oriental Despotism led to insecure property rights and slow growth.

27. Here’s a comparison of agricultural labour productivity that supports the revisionist view:

29. Price correlations between cities show that Chinese markets were as good as European:

32. 18 th century liberals believed that Louis XIV—another Despot--held back France: What do the data show?

33. North and Weingast develop a Smithian argument focussing on Interest Rates Were interest rates lower in representative Britain or absolutist monarchies?

37. These changes increased the efficiency of capital markets. Contrast the situation under the early Stuarts:

38. With the new situation:

39. Cheaper capital then explains the industrial revolution! But how convincing is all of this?

40. Here’s Epstein’s comparison of interest rates:

41. Testing the North/Weingast Model: Taxes Was the tax burden higher in representative Britain or absolutist France? Mathias and O’Brien have compared taxes in the two countries.

42. Tax burden as share of commodity output

43. Tax burden per head, hectolitres of wheat

45. British Labourers had a higher standard of living than their counterparts abroad.

47. Simulations show that competitiveness and imperial expansion—not representative government—were the cause of wages. NB: Factors accumulate so ‘no trade’ includes all of them, etc.