The Essence of Adam Smith's Wealth of Nations

From: Introduction - Why We All Need to Read Adam Smith

There are many myths about Adam Smith. Best selling economist John Kenneth Galbraith claimed that Smith was “the first economist,” 1 and thus in effect the inventor of economics. This is certainly wrong. Smith was not even the inventor of modern free market economics. That accolade would be shared by Richard Cantillon, Anne-Robert-Jacques Turgot, David Hume, and to a lesser degree Francois Quesnay, among others.

Famed economist Joseph Schumpeter concluded rightly that “The Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776.” A journal article has even been devoted to the question of whether Smith was a plagiarist, although the charge remains unproven, and probably applies today’s standard to the past in an inappropriate way.

It is closer to the truth, but still incorrect, to say that The Wealth of Nations is the “bible” of free market capitalism. As we shall see, Smith made too many errors for this to be the case. A very prominent free market economist, Murray Rothbard, regarded Smith, in Rothbard colleague David Gordon’s telling phrase, as almost the “gravedigger,” not the founder of free market

economics.

If Rothbard were entirely right, we could stop right here, close this introduction, and not bother to read Smith himself. To reach this conclusion, however, would be an error. There are reasons not only to read Smith, but also to study and value his work highly. In this introduction at least, we have come not to bury Smith for his undeniable faults but to praise him.

No one disputes that Smith is one of the most influential economists, and indeed thinkers, of world history. Economist Mark Skousen wrote a book describing the “big three” of economics as Smith, Marx, and Keynes. These three have clearly been the most influential, and Smith the most lastingly influential of the three. Has any single book had a greater impact on world history than The Wealth of Nations? The only possible competitor is Charles Darwin’s Origin of the Species, which ignited the evolution controversy.

Is then Smith, the uber-famous economist, simply overblown, a case of earning a reputation that he does not deserve? No, not at all. Whatever his failings, he has more than earned his fame as the most profound and persuasive critic of an economic system traditionally referred to as mercantilism, but more recently (and quite appropriately) called “crony capitalism.” Smith’s critique is always relevant, because crony capitalism is the dominant economic system of world history. It is especially relevant today, when this type of capitalism is especially strong, both in the developed and the developing world.

Book One, Chapter Two: Of the Principle Which Gives Occasion to the Division of Labor

This division of labor, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature . . . to truck, barter, and exchange one thing for another.

. . . In civilized society [an individual] stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. . . . It is in vain for him to expect . . . [assistance] . . . from [the] benevolence [of others] only. He will be more likely to prevail if he can interest their self-love in his favor, and show them that it is for their own advantage to do for him what he requires of them. . . .

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages. . . .