The organisation, which campaigns for more free-market policies throughout the world, has demanded that more development should be allowed in the green belt.
In a new report - Land Economyby Mischa Balen - the think-tank outlines changes to rural land use that should be encouraged in the countryside.
The report calls for more housing and more forestry to be replanted. It argues that the British economy ought to buy more of its food from abroad, freeing up the countryside for other uses.
'Planning policy in Britain is out of date,' the report says. 'It is overly bureaucratic and too unwieldy to deliver efficient results; it is too prone to politicisation and it serves to protect the countryside at the expense of development.
'The countryside is not the beautiful and tranquil place it used to be; all too often it is a monoculture of intensively farmed crops, which harms biodiversity and employs relatively few people.
'London is becoming densely populated to an unsustainable level. Expanding housing around the capital would ease this pressure.
'Converting just 3 per cent of our farms by building houses on 5 per cent of their land would create almost a million new homes over 10 years.
'Sympathetic development would create jobs and opportunities in rural areas and by increasing supply would help to lower house prices, thereby ensuring that everyone can afford to become a stakeholder,' the report concludes.
However, the document has not been universally welcomed by those campaigning for green-belt reform.
The Royal Town Planning Institute's head of policy and practice Rynd Smith said of the report: 'The Adam Smith Institute, by suggesting that we create homes in isolation, misses out on the wider spatial issues of modernising green-belt policy addressed by the RTPI.
'They are namely: ensuring that such development demonstrates that it is a more sustainable option than equivalent forms of housing; that it makes the best use of existing infrastructure and access corridors; that new developments have a sufficient number of households to make public transport viable; and finally, that such development does not become a 'suburban agglomeration'.'