As a follow-up to my previous two posts (see here and here), I want to pose another question to my fellow admirers and students of Adam Smith, another fundamental “Adam Smith problem,” so to speak. In Book III of The Wealth of Nations, Smith traces the progress and prosperity of Europe from the fall of the Roman Empire, and he notices a broad but inexorable historical pattern: the presence of law and liberty in urban areas and the absence of law or liberty in rural areas, or in the immortal words of Adam Smith, “Order and good government, and along with them them liberty and security of individuals, were … established in cities at a time when the occupiers of land in the country were exposed to every sort of violence.”

For Smith, in short, law and liberty combine to produce economic prosperity. Although I think this historical conclusion is correct, we must now consider a causal question in addition to the delicate line-drawing question I posed in my previous post. Simply put, what if the arrow of causality is the other way around? What if economic prosperity produces some combination of law and liberty? Or in the alternative, what if it’s another independent variable — say, something like “culture” — that is doing all the causal work?