For many Americans, the present economic circumstances feel uneasy, and the future feels worse. They direct their anxiety at other countries, which are supposedly taking advantage of us through trade, or at artificial intelligence, with its potential to upend jobs and concentrate power. Lawmakers respond by offering antitrust, industrial and trade policies. It is striking, then, that some of the clearest guidance for this moment comes from a book published 250 years ago today: “The Wealth of Nations,” by Adam Smith, who put optimism about people at the center of his economic philosophy.
Smith’s ideas are widely quoted but almost as widely misunderstood. Conservatives too often reduce them to a demand for laissez-faire above all, a warning to let the “invisible hand” of the market be the economy’s only guiding force. Liberals too often dismiss him as a highbrow spokesman for naked, antisocial greed. The truth in both cases is more interesting and more relevant to the complex issues we are navigating in the world today.
Smith’s radical idea was to show how ordinary people, pursuing ordinary lives, could steadily make societies richer, fairer and freer — if powerful institutions like governments, guilds or large businesses got out of their way.
Smith urged us to judge a nation not by the fortunes of its kings or nobility (today we might say our titans of technology and finance), but instead by whether it supplied people “with all the necessaries and conveniencies of life.” He insisted that prosperity had to be broadly shared: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”
Smith, who was born in 1723, in Kirkcaldy, Scotland, drew on the work of various continental European philosophers. Unlike those thinkers, however, he derived his ideas less by deduction from first principles than by empirical observation of history and his contemporary world.
His most famous observation was about the elaborate division of labor at a pin factory. Workers were separated into 18 different tasks, including straightening the wire, making the pin head and packaging the finished product in paper. Output per worker increased by a factor of 240 relative to what a worker doing all those different jobs himself could accomplish. And productivity growth, Smith saw, was the moral core of economic progress, because it was what made higher living standards possible.
It is tempting today to think that the right way to respond to technological change is to try to control it, through rules and regulation. Smith, however, understood that no single mind could design or direct this intricate web of specialization. The division of labor extended far beyond any one factory, linking farms to towns, nations to one another. Today a product as simple as canned soup is possible only because of the inputs of thousands or even millions of people around the world: grain farmers and truck drivers, steelworkers who make the can, engineers who design the processing equipment and retailers who place it on the shelf — none of whom may know one another, yet whose coordinated efforts deliver dinner at a price that countless working people can earn in just a few minutes. The division of labor that brings us A.I. is even harder to imagine, understand or control.
This coordination did not require benevolent planners or farsighted leaders. It emerged from individuals pursuing their own interests.
Despite the many ways Smith’s ideas have been misappropriated of late, however, this was not a simplistic celebration of greed. Before “The Wealth of Nations,” Smith wrote “The Theory of Moral Sentiments,” emphasizing sympathy, moral judgment and our desire for the approval of others. He was also, however, a realist. In the commercial sphere, he argued, policy had to be grounded in how people actually behave, not how we wish they would behave. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner,” he wrote, in “The Wealth of Nations,” “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.”
Smith was therefore distrustful of structures that keep individuals from freely pursuing their own interests — including government favoritism, the efforts of large employers to suppress wages, and restrictive institutions that limit competition. That criticism feels uncomfortably current. From occupational licensing rules that block entry into trades to regulatory barriers that limit new hospitals or housing, modern economies still shelter incumbents at the expense of consumers and workers. Today we also recognize — more clearly than Smith could — that companies themselves can generate durable monopoly power, requiring active antitrust enforcement to preserve competition rather than simply assuming it will emerge on its own.
Smith directed his strongest ire against the dominant economic philosophy of his day: mercantilism, which measured success by hoarded gold and trade surpluses, not by human well-being. It benefited special interests at the expense of the public, favoring tariffs to block imports and subsidies to promote exports. As I watch economic policymaking these days, I find myself repeating over and over again the arguments that Smith first made 250 years ago: Trade deficits are not inherently bad; imports are the source of real benefits to consumers; and trade expands the division of labor, raising productivity and living standards. The fixation on bilateral balances and industrial micromanagement, so visible again in today’s tariffs, would have struck Smith as a profound error. The result is fewer choices, higher prices and slower growth — precisely the opposite of the economic security these policies promise.
Perhaps the most neglected Smithian virtue in our current discourse is optimism. “The Wealth of Nations” cataloged policy failures and abuses, but it also marveled at the living standard of people in the Britain of his day. Even though the richest person at the time would seem impoverished by today’s standards — lacking even indoor plumbing, to say nothing of flat-screen T.V.s — Smith was still effusive about the “liberal reward of labour” that narrowed the gap between a prince and “an industrious and frugal peasant.”
Since Smith’s day, progress has accelerated dramatically: Increases in per capita income that once took a century now occur within a generation. Remembering that achievement does not mean ignoring today’s problems. It means approaching them with the confidence — and humility — that comes from knowing how much human ingenuity, properly channeled, can accomplish. If we are lucky and wise, and if we heed the lessons of “The Wealth of Nations,” progress may be even faster for the coming generations, a prospect that is both exciting and scary.
At a moment when faith in markets is fraying and faith in governments is strained, Smith’s message is neither to worship the invisible hand nor to wish it away. It is to discipline power, defend competition and keep the focus where he always insisted it belonged: on improving the lives of ordinary people.
Jason Furman, a contributing Opinion writer, was the chairman of the White House Council of Economic Advisers from 2013 to 2017.
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