America’s independence isn’t the only 250th celebration this year: Adam Smith’s ‘The Wealth of Nations’ marks same milestone

The Declaration of Independence wasn’t the only writing that changed the world in 1776.

Earlier the same year, another impactful work was published: “An Inquiry into the Nature and Causes of The Wealth of Nations,” by Adam Smith.

The first edition sold out in six months, to the publisher’s surprise, and translations soon showed up. The ongoing interpretation and application of Smith’s ideas have led to its treatment as an authority on free market principles.

Professor Craig Smith, an expert on Adam Smith (but no relation) at the University of Glasgow, says “it is not a coincidence that the ‘Wealth of Nations’ appeared at the same time as the Declaration … (he) was fascinated by the political economy of … Britain and her colonies.”

It’s hazardous to oversimplify the concepts in Smith’s 900-page tome, but here goes: The wealth of a nation arises from the productive efforts of its people. As individuals pursue their own interests and freely exchange labor, goods and capital, the division of labor spurs greater productivity. Open competition and voluntary exchange create more prosperity than systems that rely on extensive government control or protected monopolies.

In Smith’s words, “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.”

Taken in isolated form to extreme, these notions may strike some as damaging aspects of capitalism. Context matters. In the interactions of Britain and the colonies, Smith observed that commerce and economic opportunity were constrained by monopolies, trade restrictions and favoritism. He wrote in criticism of mercantilism, the dominant economic system of the time, a view of trade as a zero-sum competition among nations that relied on government protectionism, trade restrictions and colonial control. Economic grievances voiced by American colonists arose in that setting.

“The Wealth of Nations” followed publication of his first book (albeit by 17 years), “The Theory of Moral Sentiments.” In his earlier book, Smith emphasized that people have natural empathy toward each other, and a conscience that leads us to desire to be worthy of others’ empathy. “Man naturally desires not only to be loved, but to be lovely, or to be that thing which is the natural and proper object of love” he wrote.

Smith’s most-referenced phrase is likely the “invisible hand,” used once in each book. The phrase is a metaphor for the observation that self-interest can benefit others, even unintentionally. Later thinkers elevated and expanded on the phrase into a broader theory that free markets will operate perfectly well if simply left alone.

Smith nevertheless recognized roles for government in justice, defense, public works, education and preventing abuses of concentrated economic power. He noted “People of the same trade seldom meet together … but that the conversation ends in a conspiracy against the public.” And: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.” Smith was enquiring on the wealth of nations, not necessarily that of individuals.

What does this have to do with the Declaration? Even before “Wealth” was published, founders were familiar with Smith. In fact, Benjamin Franklin met Smith in Scotland and likely became familiar with his developing ideas before publication.

The index of “The Wealth of Nations” includes over 200 entries under “America.” While Smith expressed moral and utilitarian objections to Britain’s colonial efforts, he viewed the conflict in practical terms, within his critique of mercantilism.

Smith’s solution: “Great Britain should voluntarily give up all authority over her colonies, and leave them to elect their own magistrates, to enact their own laws, and to make peace and war as they might think proper.” His alternative was a full integration of the colonies into parliamentary representation. Needless to say, his advice was ignored.

“Wealth” and the Declaration both emerged from the Enlightenment’s emphasis on reason, liberty and a critical examination of established institutions. Smith’s work continued to impact the founders’ thinking after independence.

As Eamonn Butler, the director of the Adam Smith Institute said in an interview, “Smith’s book came too late to influence the Declaration itself, but Jefferson later called it “the best book extant” about political economy. It influenced Alexander Hamilton’s economic vision and James Madison’s ideas on commerce and extended republics. And it fueled broader debates on banking, manufacture and commercial society – reinforcing America’s preference for open enterprise over mercantilist restrictions.”

Author and Georgetown University Professor Glory Liu calls “Wealth” “the most sophisticated … analysis of what it means to be at the helm of a nation that cares about national wealth.” She continued: “It’s natural that you have the founders … reading ‘The Wealth of Nations’ to understand a way of thinking of national wealth.”

Craig Smith emphasizes that the book “had a huge impact on the American Founders.” As to the Revolution, Smith was a pragmatic observer. From “The Wealth of Nations”: “The persons who now govern the resolutions of what they call their continental congress, feel in themselves at this moment a degree of importance which, perhaps the greatest subjects in Europe scarce feel. From shopkeepers, tradesmen, and attornies, they are become statesmen and legislators, and are employed in contriving a new form of government.”

Later, in a memo he wrote during the war, Smith noted, “In their present elevation of spirits, the ulcerated minds of the Americans are not likely to consent to any union even upon terms the most advantageous to themselves.”

“The Wealth of Nations” is still a source of ideas (as well as quotes that can be applied at cross purposes). Few people, however, including Eamonn Butler, recommend reading it: “I wouldn’t read the book at all because it’s enormous … it’s in this 18th-century language, and it’s really just impenetrable.” Economist Russ Roberts, the author of “How Adam Smith Can Change Your Life,” demurs, calling Smith’s book “delightful and engaging prose from the get-go.”

There are alternatives, including Butler’s own condensed version of “Wealth” (as well as a new graphic novel version). P.J. O’Rourke’s “On The Wealth of Nations” is insightful and funny, among many other sources.

Smith’s wisdom is still instructive. As he noted in an early lecture, a nation’s progress requires “little else … but peace, easy taxes and a tolerable administration of justice.” Simple to say.