This week marks the 250th anniversary of Adam Smith's seminal work, An Inquiry Into the Nature and Causes of the Wealth of Nations, a publication that fundamentally shaped the field of economics. Celebrated with opinion columns, new books, and academic conferences, this milestone contrasts sharply with the 1976 bicentenary, which helped cement Smith's reputation as the father of free-market economics during the turbulent 1970s. However, a closer examination reveals a more complex and nuanced thinker than the simplistic icon often invoked by political right-wing movements.
The Distortion of Smith's Ideas
Milton Friedman, a Nobel laureate, famously recruited Smith as the patron saint of neoliberal economics in his 1980 book and television series Free to Choose, which anticipated Reaganism in the United States. Friedman reduced Smith's philosophy to two core claims: that voluntary exchanges benefit both parties and that self-interest is guided by an "invisible hand" promoting the public good, effectively endorsing the notion that greed is beneficial. In reality, Smith used the phrase "invisible hand" only once in The Wealth of Nations, specifically to describe merchants' investment decisions, not as a broad theory of markets as Friedman asserted.
A Nuanced Thinker on Social Justice
Many academics, including Nobel laureate Amartya Sen, argue that the figure championed by free-market advocates is a caricature. Smith's earlier work, The Theory of Moral Sentiments, opens with a clear rebuttal of purely self-seeking behavior, stating, "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others ... though he derives nothing from it except the pleasure of seeing it." This highlights his belief in empathy and social connection as foundational to economic life.
While Margaret Thatcher correctly invoked Smith to argue that "wealth is not generated by government" but by individual enterprise, this portrayal was incomplete. Smith clearly thought economic life depended on social justice and robust institutions. He was no doctrinaire advocate of laissez-faire economics; he supported public education and legal caps on interest rates, demonstrating a commitment to fairness and regulation.
Historical Context and Modern Relevance
Emma Rothschild, a Cambridge historian, notes in her book Economic Sentiments that Smith warned against an 18th-century commercial system driven by mercantile interests rather than national welfare, a debate that remains pertinent today. Nicholas Kaldor, a prominent Keynesian economist, credited Smith with the modern insight that economic development hinges on market expansion and specialization, a principle validated by the rise of economies like China and India.
Radical Views on Inequality and Power
Few economists rival Smith in intellectual stature, with Karl Marx being a notable counterpart. Yet Smith was far more radical than his free-market iconography suggests. He wrote that civil government often defends "the rich against the poor," that excessive property leads to great inequality, and that the greed of the "masters of mankind" leaves "nothing [left] for other people." He even suggested a form of capitalist conspiracy, describing employers as working in a "tacit" combination against workers.
Unlike Marx, however, Smith believed that economic growth could gradually improve wages and living standards. His great contribution was recognizing the inherent tensions within commercial society that Marx later radicalized. Today, the question persists: will anyone radicalize these tensions anew in our contemporary economic landscape?
