Abstract

This essay explores how economic theory and historical inquiry were brought together for one of the first times in modern political thought in Books II and III of Adam Smith's Wealth of Nations. It shows how the theory of capital found in Book II provides a perspective for thinking about historical development and political institutions that is in sharp contrast with the historical record traced out in Book III. Smith's solution to the problem of reconciling economic theory and history lies in a complex understanding of the nature of rational economic behaviour and how it has been affected by uncertainty and institutional development in human history. Embedded in Smith's political economy is not only a new theory of economic life, but a new political understanding of the importance of history to contemporary political life.