Rescuing Adam Smith from Free-Market Mythology
This week marks the 250th anniversary of the publication of Adam Smith's seminal work, An Inquiry Into the Nature and Causes of the Wealth of Nations, a book that fundamentally shaped the field of economics. The occasion has sparked renewed debate, academic conferences, and fresh publications examining Smith's true intellectual legacy. Contrast this with the 1976 bicentenary, which largely cemented Smith's reputation as the father of free-market economics, a narrative that gained traction during the economic turmoil of the 1970s as a symbolic figure for market revival. However, contemporary scholarship reveals a far more complex and nuanced thinker than the simplistic icon often invoked by political right-wing movements.
The Neoliberal Appropriation of Smith
Milton Friedman, the Nobel laureate economist, played a pivotal role in recruiting Adam Smith as the patron saint of neoliberal economics through his 1980 book and television series, Free to Choose. This work, which anticipated the Reagan era in the United States, reduced Smith's philosophy to two core claims: that voluntary exchange benefits all parties and that self-interest is guided by an "invisible hand" to promote public good. In essence, this interpretation suggested that greed could be beneficial. Yet, this portrayal is a significant oversimplification. Smith used the term "invisible hand" only once in The Wealth of Nations, specifically to describe merchants' decisions about domestic versus foreign investment, not as a broad theory of market dynamics as Friedman asserted.
Many academics, including Nobel laureate Amartya Sen, have argued that the figure championed by free-market advocates is little more than a caricature. Smith's earlier work, The Theory of Moral Sentiments, opens with a clear rebuttal of purely self-seeking behaviour, 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 inherent human empathy and moral sentiments, challenging the notion of unbridled self-interest.
Smith's Nuanced Views on Economy and Society
While figures like Margaret Thatcher correctly cited Smith to argue that "wealth is not generated by government" but by individual enterprise, this represents an incomplete picture of his philosophy. Smith clearly understood that economic life depended heavily on social justice and robust institutions. He was no doctrinaire advocate of laissez-faire economics; instead, he supported public education and legal caps on interest rates, recognising the role of state intervention in fostering a fair society.
Cambridge historian Emma Rothschild, in her book Economic Sentiments, argues that Smith warned against an 18th-century commercial system and colonial policies driven by mercantile interests rather than national welfare. These concerns remain strikingly relevant today, echoing in debates about corporate power and global trade. Nicholas Kaldor, a prominent Keynesian economist, credited Smith with a modern insight: that economic development hinges on market expansion and specialisation, a principle evidenced by the rise of economies like China and India.
Radical Elements in Smith's Thought
Few economists rival Adam Smith in intellectual stature, with Karl Marx being a notable counterpart. However, Smith was far more radical than his free-market iconography suggests. He wrote critically about civil government defending "the rich against the poor," warned that excessive property ownership breeds inequality, and decried the greed of the "masters of mankind" who sought to monopolise resources, leaving "nothing for other people." He even hinted at a form of capitalist conspiracy, noting that employers often work in a "tacit" combination against workers.
Unlike Marx, Smith believed that economic growth could gradually improve wages and living standards, offering a more optimistic view of commercial society. His great contribution was recognising the inherent tensions within capitalism that Marx later radicalised. Today, the question persists: will anyone radicalise these tensions anew, drawing on Smith's nuanced insights to address contemporary economic challenges?
As we reflect on the 250th anniversary of The Wealth of Nations, it is crucial to rescue Adam Smith from the free-market myth and appreciate his broader vision of an economy grounded in social justice, institutional integrity, and moral considerations.
