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The Development of Economic Theory

He held, however, that it could only apply to the circumstances of an "early and rude" economy, where the appropriation of private property and the accumulation of capital had not yet occurred (Barber, 1984, p. 31).

Smith held that it was not the actual level of wealth, but the rate at which wealth was increasing or decreasing which most affected labor rates (Smith, 1978, p. 172). It was for this reason, according to Smith, that the labor rates in Britain's North American colonies were so much higher than they were in Britain (Smith, p. 172). Wealth was increasing rapidly in the North American colonies, where it was increasing slowly in Britain, although the actual level of wealth in Britain was much higher than it was in the North American colonies. In the British colonies of the eastern hemisphere, particularly Bengal, the level of wealth was either stable or declining, and labor rates were also decaying (Smith, p. 175).

From the conditions described above, Smith concluded that the "liberal reward of labor . . . is the necessary effect . . ." and "the natural symptom of increasing national wealth" (Smith, 1978, p. 176). He further concluded that the "scanty maintenance of the laboring poor . . . is the natural symptom that things are at a stand, and their starving condition that they are going fast backwards" (Smith, p. 176).

Smith also concluded that high labor wages and high interest rates are things "which scarce ever go together, except in the peculiar circumstances of new colonies" (Smith, 1978, pp. 194-195). This situation arose, according to Smith, because new colonies are typically understocked in both labor and money (Smith, p. 195). When low labor rates and high interest rates develop in colonies (as they did in the British colonies in India), however, wealth begins to decline, and the economy stagnates (Smith, pp. 196-197).

Price is defined as the "quantity of money which must be exchang...

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The Development of Economic Theory. (1969, December 31). In Retrieved 11:35, August 20, 2017, from
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