Adam Smith made very clear that the direct causes of the wealth of nations are free trade, infrastructure improvements, labor specialization, and economies of scale and scope. Those things, alone or in concert, increase efficiency and real per capita aggregate output. None of those things simply comes about, however. Each must be funded, mostly through borrowing. Borrowing and lending is far from a simple process. Problems of information asymmetry, namely adverse selection, moral hazard, and the principal-agent problem, collude to limit effective lending. The riskiest borrowers seek loans most eagerly. Once a loan is made, the borrower must be monitored to reduce fraud or risky behavior. Owners too must monitor their agents and employees lest defalcations occur. Reducing information asymmetry is not cheap, so large, specialized firms or transparent markets best undertake it. Only when the financial system is sufficiently advanced to reduce information asymmetry can significant numbers of major, wealth-creating projects be profitably undertaken.

Can those findings, however, really be considered a rediscovery of the beliefs of Adam Smith, the founder of modern economics? After all, Smith was extremely careful to differentiate the substance from the fluff, the wheat from the chaff, the real from the merely nominal. He rightly considered interest on money “always a derivative revenue.” He also rightly noted that, “though the wages of the workman are commonly paid to him in money, his real revenue, like that of all other men, consists, not in money, but in the money's worth; not in the metal pieces, but in what can be got for them.