Adam Smith and the Value of Connectivity 

This year marks the 250th anniversary not only of the United States but also of Adam Smith’s The Wealth of Nations. The book was first published on March 9, 1776, three months before the Declaration of Independence. Since then, Smith has often been caricatured as a proponent of cold, unbridled self-interest and the “invisible hand.” But his thought is much broader and more nuanced than simplistic portraits sometimes make it seem. He explored a mind-boggling array of interdisciplinary topics in this enormous tome, from the education economics of getting better teachers in the classroom to the wartime economics of nomadic, agricultural, and seafaring cultures. One of the recurring themes in The Wealth of Nations that is most relevant to the contemporary globalized world is the importance of connectivity, a topic about which Smith had a great deal of firsthand knowledge. 

From Glasgow to the New World

Smith had a front-row seat to the interconnectedness of global commerce when he taught at the University of Glasgow in his native Scotland from 1751 to 1764. During this time, Glasgow was a top shipping hub of the British empire, processing and repackaging colonial imports for reexport to continental Europe: sugar and rum from the Caribbean, tobacco from the American colonies, tea and spices from the East Indies, wine from Mediterranean Europe, and furs and wood from the Baltic region and Russia. Smith’s Glasgow was the global leader in the tobacco trade and on its way to becoming Britain’s leading linen exporter. Through Glasgow’s banks, its tobacco lords funded American plantations, the slave trade, and shipments of supplies to colonists. Smith’s direct observations of connectivity and its effects in Glasgow helped shape his analysis of what he called advanced “commercial society.”

One of Smith’s insights is that improving transport connectivity promotes the division of labor, which vastly increases productivity. In his time, waterways were the primary means of shipping, and he observed that when access to waterways connects a place to new markets, this encourages increased production—since goods lacking demand at home may now find it abroad. Increased production creates jobs, which attract migrants, increasing the population. This decreases the cost of labor while also creating a larger domestic market, further encouraging increased production. The larger workforce also makes it possible to break production into more specialized tasks, increasing the division of labor.  

Smith believed that as workers focus on more specific tasks, it becomes more likely that they will discover new technologies—like machines and tools—to do their jobs well. Meanwhile, the larger economy provides a greater pool of capital to invest in these technologies. In short, transport connectivity lowers labor costs and increases the division of labor, spurring faster innovation, and this leads to far greater output. As Smith put it, “By opening a more extensive market for whatever part of the produce of their labour may exceed the home consumption, it encourages them to improve its productive power, and to augment its annual produce to the utmost, and thereby to increase the real revenue and wealth of the society. These great and important services foreign trade is continually occupied in performing.” 

For Smith, transport connectivity could lead to economic prosperity. In Smith’s time, the British had transport connections with four continents, from India and British Guiana to West Africa, Quebec, Nova Scotia, and the thirteen American colonies. Smith highlights how the availability of American colonial markets impelled the British to expand and improve their own industries. “By opening a new and inexhaustible market to all the commodities of Europe, [the discovery of America] gave occasion to new divisions of labour and improvements of art, which in the narrow circle of the ancient commerce could never have taken place, for want of a market to take off the greater part of their produce.” Connecting to New World markets incentivized Old World production—and the Industrial Revolution. 

While Smith emphasizes the benefits of connectivity via waterway transport, he also explores how these benefits can diminish when multiple states along a route can restrict its use. He cites the case of the Danube River, which in his time was split between Austrian control of the Western Danube and Islamic Ottoman control of the Eastern Danube. To Smith, the river was “of very little use” to the nations along it (like Bavaria, Austria, and Hungary), because none of them had control of its course farther along. Today, this specific problem has been solved: under the 1948 Belgrade Convention, all ten countries along the Danube agreed to share the right to commercial transport along it.  

But the larger issue Smith raises, of the potential for nations to block each other’s access to waterways, still very much exists. A recent example is the Panama Canal, where decades of Chinese operation of two ports raised major U.S. security concerns that China could block canal traffic during a geopolitical conflict. This is part of the reason why, in recent years, the United States has worked to pry the operation of these ports from Chinese hands. As a result, the government of Panama finally took back control of the two ports earlier this year. 

Challenges and Triumphs of Connectivity 

After The Wealth of Nations came out (the first edition sold out in six months), within a decade, the early United States became a case study in the effects of losing connectivity when enemies block waterways. To contain America’s expansion in the wake of the Revolutionary War, Spanish Florida blocked U.S. navigation through the lower Mississippi River and the Port of New Orleans from 1784 to 1795. This crippled and outraged frontier farmers in the Ohio Valley, who found it too expensive to ship bulky farm products across the Appalachians to eastern markets. The Mississippi, flowing to the Gulf of Mexico via New Orleans, was their umbilical cord to international trade. Many of these Midwestern farmers were Revolutionary War veterans, and there was a real threat that they might either attack the Spanish, break away as an independent republic, or even ally with Britain or France to regain access to the Mississippi. When the conflict was finally resolved with the 1795 Treaty of San Lorenzo (aka Pinckney’s Treaty), the reestablishment of U.S. transport connectivity via the Mississippi led to a massive economic boom: by 1802, trade from the Ohio valley to New Orleans had grown from almost nothing to $2.6 million.

In fact, the Spanish blockade of the Mississippi focused the attention of the Framers of the Constitution on the potential for American states to block each other’s access to rivers—the same potential Smith had observed on the Danube. This concern became a major reason why the Constitution gives Congress the power to regulate interstate commerce. This power extends to the regulation of interstate waterways, as confirmed by the 1824 U.S. Supreme Court decision Gibbons v. Ogden. In the majority opinion, Chief Justice John Marshall wrote: 

The commerce of the United States with foreign nations is that of the whole United States Every district has a right to participate in it. The deep streams which penetrate our country in every direction pass through the interior of almost every state in the Union, and furnish the means of exercising this right. If Congress has the power to regulate it, that power must be exercised whenever the subject exists. 

Some might object that, as an advocate for free trade, Smith ought to oppose any government regulation in the economy. But his views on the role of government are not so black and white. He finds that governments have three primary duties: to protect society from foreign invasion, to administer justice to protect people from internal oppression, and to provide public goods that the private sector cannot profitably maintain. To fulfill the third duty, he argues that governments should invest in public works like “good roads, bridges, navigable canals, [and] harbours,” because projects like these are “beneficial to the whole society.” And Smith says infrastructure like this can be maintained through modest fees, like small tolls and port duties. (Today, some countries generate enormous wealth from charging such fees. For example, the Panama Canal brought Panama a net profit of $4.1 billion in FY 2024.) 

The Erie Canal is a classic example of the sort of government-sponsored transport connectivity that, as Smith described, can quickly boost population growth, the division of labor, and productivity. Built by New York’s state government and completed in 1825, the canal linked the Great Lakes region to New York City via the Mohawk and Hudson Rivers. Canal towns’ products could float easily to distant markets on horse-drawn barges and boats. Soon after the canal began operating, what started as tiny, remote settlements along it boomed in population and production. Syracuse ballooned from 500 people in 1825 to more than 22,000 in 1850, as it became “the Salt City,” the source of more than half of America’s salt. Over the same span, Rochester quickly became the “Flour City,” the largest flour producer in the world. Buffalo’s population octupled, making it “the Queen City,” the second-largest in New York state after the “king,” New York City. 

Buffalo’s division of labor exploded thanks to the connectivity brought by the Erie Canal. By 1850, the city had become the world’s largest grain port and the grain storage capital of North America. Just to handle and finance the relentless flow of cargo, Buffalo needed specialized grain elevator operators, millers, ropemakers to make towlines, coopers to make barrels, shipwrights, dockworkers, brokers, and forwarders. As Smith theorized, this hyper-specialization increased both production and innovation. It drastically increased the quantity of freight a single worker could process—and led to the invention of the grain elevator in Buffalo in 1842 by Joseph Dart and Robert Dunbar. Meanwhile, as the Erie Canal quickly became a highway for migrants headed to the Midwest frontier, Buffalo was the last stop and became the “Gateway to the West,” a bustling hub for travelers. This drove a massive boom in housing and hotels that created thousands of hospitality jobs. In short, the history of Buffalo’s growth following the opening of the Erie Canal is a case study in the chain of benefits that Smith thought government-sponsored connectivity could bring. 

Smith’s insights into the benefits of connectivity apply not just to waterways but to any mode of transport used for commerce, from roads to rail to airways. And they apply not just to exports but to creating domestic market access for international customers. Dubai is a good example. 

In 1960, Dubai was a fishing and trading village. Dubai International Airport opened that year with a sand runway. But the city expanded rapidly after the discovery of oil in 1961. As Smith advocated, Dubai’s government created new transport infrastructure. The Port of Jebel Ali was completed in 1979 and is now the busiest in the Middle East. In 1985, Dubai invested oil profits to start Emirates Airlines, which today ranks among the world’s top five. Continuous expansions of Dubai International Airport have helped it become the second busiest in the world. 

This hyper-accelerated transport infrastructure development over decades has brought whole new industries to Dubai, like tourism and international business administration, amid one of the world’s largest and most sustained urban construction booms. Dubai had over 19 million visitors in 2025, similar to Tokyo. It hosts the regional headquarters of companies like Microsoft, Goldman Sachs, and CNN. 

These and other industries—especially construction—have attracted migrants, causing Dubai’s population to quadruple since 2000. This has grown its internal market. And as Dubai’s division of labor has multiplied, the productivity of its workers has increased massively: in what was a society of fishermen, nomads, and pearl divers, more than 52 percent now have college degrees, tens of thousands are professional doctors, engineers, and managers, and the city is now a global leader in using AI in the workplace. 

Overall, while maritime connectivity first allowed Dubai to become wealthy by exporting oil and gas, today air connectivity brings the city far more profits—including income from its airlines themselves and the international tourism, business, and real estate sectors they make possible. Air connectivity increased the demand for space in Dubai itself, which has allowed its urban landscape to grow and diversify on a scale that it never imagined. 

Connectivity in the Digital Age 

Today, not just transport but also telecommunications connectivity can provide the sort of access to markets that Smith found encourages increased production, new industries, and the division of labor. E-commerce and videoconferencing have allowed millions to become specialized traders, tutors, freelancers, and consultants. In fact, many markets, like cryptocurrency trading platforms and eBay, are only accessible online. Connectivity to these markets in the cloud incentivizes new industries, boosts productivity, facilitates the division of labor, and creates wealth—all effects that Smith identified. 

Adam Smith’s timeless perspectives on connectivity still help make sense of the world 250 years after he first published The Wealth of Nations. Connectivity still stirs the human mind to dream of new ways to trade with distant markets, and this can fuel the growth of whole cities—sometimes nearly from scratch, as Dubai and the Erie Canal towns illustrate. Among the many other connectivity-related topics Smith explores are the nature of international finance—especially currency trading in the famous Bank of Amsterdam—and the advantages of sharing cultural connections with trading partners. Overall, Smith’s discussions of connectivity are just one example of the wide-ranging topics in the Wealth of Nations that are well worth exploring. 

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