it usually begins with adam smith adam
smith published his wealth of nations in
1776 back then all economics was
development economics because all the
countries of the world were poor this
book helped give birth to economics as a
modern science but it's still the most
important book on development economics
which has been written it's hard to get
a handle on smith's book because it's so
wide-ranging and so much of the
economics we know has come from that
book either directly or indirectly so
rather than try to cover everything
which is in there which would take a
course of its own let's look at just a
few highlights the best way to learn
about Adam Smith is to read some Adam
Smith fortunately the wealth of nations
is online for free and you can google to
it very easily if you're interested in
development economics there are three
sections in particular I think you
should read the first of those is book 1
chapter 1 of the division of labor this
is famous discussion of the pin Factory
and he puts forward his well-known Maxim
division of labor is limited by the
extent of the market as the size of a
market grows larger individuals can
specialize more they become more
productive production becomes more
diverse and this increase in
productivity Spurs economic growth which
in turn makes the size of the market yet
bigger which in turn leads to further
division of labor and specialization
this is a key idea behind a lot of
modern theories of development including
increasing returns to scale and the big
push the second section I would like to
recommend is titled how the Commerce of
the town's contributed to the
improvement of the country book 3
chapter 4 if you read that chapter of
Smith and then you read modern
development economics a circa nineteen
fifteen nineteen sixty its striking
actually how much more advanced and
sophisticated Smith's discussion is the
profession in say in nineteen sixty was
still struggling to catch up to the
insights embedded in wealth of nations
perhaps my favorite section of wealth of
nations is booked for chapter five part
two that's called digression concern
earning the corn trade and corn laws and
this is all about the price system it's
about how prices allocate resources it's
about how prices limit famine it's about
how speculators encourage corn and food
more generally to be allocated to the
times of the greatest need it's probably
the most important and most seminal
description of the price system that any
economist has written when alex and i
wrote a price is a signal wrapped up in
an incentive and our principles text we
were really drawing upon the section
from adam smith do go read those
sections but there's really much much
more in the book there's a wonderful
discussion of how wages are determined
by productivity of how nutrition is an
investment in human capital of capital
accumulation and how capital
accumulation bids up wages smith
pioneered the idea of rent seeking
behavior in this context the notion that
businessman go to government to get
monopoly privileges smith understood
that exports per se are not the source
of wealth that importing more money or
species into a country as mercantilism
has suggested is not a source of wealth
the book is remarkable for how much time
into votes to China India and the new
world all of course back in the
eighteenth century Smith had a marvelous
analysis of public debt he understood
quite well the notion of public goods
the effects of taxation on economic
growth the importance of urbanization
the benefits of trade the value of
infrastructure in his case roads
Turnpike's and canals for a growing
economy the possible costs of civil
conflict on economic growth the
relevance of education once again headed
back to human capital and overall he had
a wise pragmatic perspective on a wide
array of economic issues in each case
really looking at the evidence and the
theory taken together to see when the
sphere of the market was appropriate and
when government intervention might be
wiser overall what's so wonderful about
Smith's book is not just its coverage of
all these topics but his vision of how
they added up to an integrated hall
which became economics and also
development economics and the way in
which he analyzes economic issues on a
variety of different levels so the
balance between history and theory
in the book the balance between the
general statement and the particular
statement overall show a fantastic
wisdom which to this day I think
economists are still struggling to
retain so if you're going to read only a
few economics books in your lifetime
Smith should be one of them and I
recommend that you start with the
sections outlined in this video