THE WEALTH OF NATIONS

Author: Adam Smith
Year: 2000 (1776)
Publisher: The Modern Library
Language: English

    “Whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject.”

    “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

    “Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little”

    “With the great part of rich people, the chief enjoyment of riches consists in the parade of riches”

    “A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers all the goods with which these could supply them”

All of the above are quotes from the same pivotal work on economic philosophy. Who might be the author? Karl Marx? Jürgen Habermas, perhaps? Maybe John Maynard Keynes, then? It certainly couldn’t be any of the books that are frequently held up as the intellectual cornerstones of unchecked modern-day capitalism, could it?

The quotes are, in fact, collected from the most often referred to but least often read classical work on economic philosophy, “The Wealth of Nations” by Scotsman Adam Smith, which this year celebrates its 250^th birthday. It was published only a few months after the battles of Lexington and Concord (which Smith dismisses in the book as “the recent disturbances”) and a few months before Colonel John Nixon read the declaration of independence to the public in Philadelphia.

This monumental work of over 1,000 pages changed economic theory forever, but not necessarily in the way Smith intended. For the phenomenon of individuals claiming familiarity with “The Wealth of Nations” without having read it is well-documented and has historical precedence. Even in Smith’s own era, misinterpretations of his work were common, prompting Smith to address them with a mix of openness to substantive feedback when warranted and well-placed disdain when necessary. This trend persists today, with many commentators and economists invoking their imaginary ideas of Smith’s thought without engaging with the actual text.

A pervasive misconception is that Adam Smith advocated for completely unregulated markets. This error is not merely anecdotal but reflects a broader cultural tendency to oversimplify complex works, reducing them to slogans or isolated concepts. The misinterpretation is largely based on the metaphor of the “invisible hand”. The “invisible hand,” is often cherry-picked and misconstrued as a universal law of market harmony. The popular understanding is that a free market will self-regulate and always lead to the best outcome for all. It is used to support the argument that government should under no circumstances intervene in a market economy, that greed is good, and that markets somehow operate in a naturally provided steady-state acting as the blood vessels that support life in the societal organism. This misinterpretation (or deception) serves ideological agendas, particularly among hardcore capitalists who advocate for unregulated markets, despite Smith’s explicit and consistent critiques of such positions.

A closer look reveals that Smith used the term three times across all his writing, and each time to illustrate an altogether different concept. In “The Wealth of Nations” specifically, it appears in Book IV Chapter II which is titled “On Restraints upon the Importation from foreign Countries of such Goods as can be Produced at Home”. Contrary to common belief, Smith here meditates on how merchants, when given the choice between investing domestically or internationally, will commonly invest in their own country which would be perceived as safer, thus contributing inadvertently to the local economy. The invisible hand is merely a visualisation of public benefit being a side effect, as opposite to the objective, of local investment by domestic merchants and industrialists.

While Smith undeniably did champion free markets where all suppliers are price takers, he was perceptive enough to realise that markets left to their own devices are bound to render themselves unfree given enough time by gradually forming price setters and in the end monopolies. He was a staunch critic of The East India Company, the dominant international corporation at the time, and argued vehemently against monopolies and oligopolies. He would with every certainty be aghast at the multinational conglomerates that control every niche and every market in the world in the 21^st century. In fact, Smith used the word “greed” only once in “The Wealth of Nations” and that was to criticise governments’ greed for power. In the same work, he accused The East India Company of largely acting like a government more than a company. From there, putting the pieces together appears to be a rather straightforward exercise. A free market, as Smith seems to have understood it, is a market that is free to leave and enter. Not a market where a few dominant companies make sure that no one else is allowed to compete for their profits. US anti-trust laws, such as the Sherman Act of 1890 or the Clayton Act of 1914, or the European Union TFEU articles 101 and 102 (and maybe even more so articles 107-109) might possibly be criticised by Smith for being crude and heavy-handed, but essentially recognised as necessary to ensure competition and functioning markets.  

Much has been written about “The Wealth of Nations” by analysts far more capable than I, and even the thoughts of This Banker, limited as they may seem, go far beyond what can be reduced to a blog post. It would make an interesting counterfactual thought experiment to image what our world would look like if Smith’s warnings had been taken seriously.

Given how ignorance has distorted the public understanding of one of the Enlightenment’s greatest works, I can only conclude that the world would be a far more interesting place if people spoke less and read more.