ABSTRACT
Adam Smith’s seminal contribution to political economy, The Wealth of Nations (1788), has provided us with both a profound statement of the nature of the science of political economy as well as some magisterial insights into the source and impact of wealth generation. The principle objectives of political economy, according to Smith, are “to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves” as well as to “supply the state or commonwealth with a revenue sufficient for the public services”. Together, these objectives seek “to enrich both the people and the sovereign” (Smith 1788: Book IV, 1, 332). Smith challenges the mercantile perspective that precious metals are of prime importance by arguing that the relative productivity of labor is the critical source of the wealth of nations. Stephen Parente and Edward Prescott (1993: 1) assume from this that Smith’s analysis “leads naturally to per-capita gross domestic product (GDP) as the appropriate measure of wealth”.1
