The Wealth of Nations and Economic Growth

Economists are still searching for answers to the question implicit in the title of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. From the beginning of the first millennium until the middle of the sixteenth century the economic growth that we consider normal was not known. It was commonplace for children to have the same material standard of living as their parents, grandparents, and great-grandparents. With the advent of economic growth, in Western Europe from 1650 to 1800 incomes rose by about 30 percent. Through the nineteenth century Western European incomes grew by more than 150 percent. This was followed by a five and one-half fold increase in the twentieth century, despite the Great Depression. Today Europeans and Americans have a material standard of living that most people throughout history could not even imagine. However, in the U.S. and Europe there are concerns that the era of growth is at an end. Part five examines why there is such disparity in growth of income across time and across geographical and political regions, as well as the prospects for economic growth in the future.