DAVIS, Calif. — Modern economists have turned Adam Smith into a prophet, just as communist regimes once deified Karl Marx. The central tenet they attribute to Smith — that good incentives, regardless of culture, produce good results — has become the great commandment of economics. Yet that view is a mistaken interpretation of history (and probably a mistaken reading of Smith).
Modern growth came not from better incentives, but from the creation of a new economic culture in societies like England and Scotland. To get poor societies to grow, we need to change their cultures, not just their institutions and associated incentives, and that requires exposing more people in these societies to life in advanced economies.
Despite the almost universal belief by economists in the primacy of incentives, three features of world history demonstrate the dominance of culture.