the determination of value).
Labor rates in the North American colonies were much higher than they were in Britain (Smith, 1776, 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. High labor wages and high interest rates existed simultaneously in the American colonies (Smith, pp. 194-195). This situation arose because new British colonies were typically understocked in both labor and money.
Adam Smith (p. 173) held that the most "decisive mark of prosperity of any country is the increase in the number of its inhabitants." It was to this reason that he ascribed the different economic growth rates in the North American colonies (where both population and economic growth were high), and in Britain itself (where both population and economic growth were much slower). To this reason, Smith also attributed the higher birth rates in the North American colonies, as opposed to the much lower birth rates in Britain. Population growth worked hand-in-hand with liberal labor wages, according to Smith, because liberal labor rates created economic growth, which, in turn, created an increased demand for labor. Liberal labor rates also made it possible for couples to support more children (p. 183).
Smith (p. 172) observed that prices in the North American colonies were lower than prices in Britain, although wage rates were just the opposite. He attributed this apparent anomaly to the fact that higher wage rates increased demand, which in turn increased supply, which, in turn, led to lower unit costs (p. 173).
Smith (p. 176) contended that a major reason why Britain's western hemisphere colonies prospered, while those in the eastern hemisphere did not as due to the fact that British constitutional protection was extended to those in the western hemisphere, while it wa...