Saving, Investment and Growth: A Smithian Perspective

The role of savings and capital accumulation in growth is widely misunderstood. The emphasis on these factors is often linked to the classical authors, particularly Adam Smith. This paper shows that emphasis on capital accumulation was only one part of the classical message. A more important part was the institutional arrangements which allow a competitive market to function so that savings are utilised in a productive way. The classical emphasis on savings or investment has to be seen in its true perspective and cannot be divorced from the market setting. In this there is much to learn for developing countries in pursuit of growth.