2026 commemorates the 250th anniversary of Adam Smith’s great work An Inquiry into the Nature and Causes of the Wealth of Nations. This book has probably been read more than any other economics book. It has been foundational for the discipline of political economy, and then later the evolving field of economics. Adam Smith was one of the most profound modern thinkers not only because of his contribution to economics, but also because of his contributions in moral theory.
I’ll be taking a deep dive into the Wealth of Nations (WN) this year with twelve monthly essays overviewing the book. I’ll supplement that with twelve review essays of papers written about Smith by Nobel Prize-winning economists. This month that will include Smith’s three-step plan for prosperity and a review of Ronald Coase’s “Adam Smith’s View of Man.”
In this essay, I want to explain why the Wealth of Nations was so important, why it matters today, and what we can glean both from it and from Smith’s legacy as moral philosopher, political economist, and one of the more important thinkers in the last 300 years.
Although many consider Adam Smith the “father of economics,” there are some detractors. Joseph Schumpeter, for example, once said that “The fact is that the Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776.” And “His very limitations made for success. Had he been more brilliant, he would not have been taken so seriously. Had he dug more deeply… he would not have been understood.”
Not particularly charitable words.
Rothbard had an even more scathing assessment: “The problem is that [Smith] originated nothing that was true, and that whatever he originated was wrong.” That’s just a less clever way of saying: “Your book is both good and original; but the part that is good is not original and the part that is original is not good.”
I happen to think Schumpeter and Rothbard stretch credulity in their criticisms of Smith. Sure, he had some mistaken views about the labor theory of value, among other things. Smith drew on a legacy of existing ideas and material for the Wealth of Nations. He read many different thinkers. In his day, there was plenty of conversation about just-price theory, specialization of labor, trade and markets, tax policy, and the like.
Smith collated and organized all of this information in a coherent system of political economy. While that might sound like a simple clerical job, there was a great deal of intellectual work and imagination required to bring all these different elements together. And Smith did have original contributions of his own – most especially the idea of spontaneous order or what he described as an “invisible hand.”
The Wealth of Nations explains how economies form organically to serve people’s needs. They consist of a huge network of decentralized contributors pursuing their self-interest, yet serving others. This whole system is, to use Adam Ferguson’s phrase, “the result of human action but not of human design.” Smith points out that: “In civilized society [man] 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.” And that “without the assistance and cooperation of many thousands, even the very meanest person in a civilized country could not be provided” for.
What’s more, the “division of labour…is not originally the effect of any human wisdom….It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility.”
Smith’s political economy created a powerful and novel framework. His work has similarities to the periodic table. Many elements had been discovered over the centuries, but it wasn’t until Dmitri Mendeleev noticed similarities and patterns among these elements, and then organized them in the periodic table, that modern chemistry took off.
The power of the periodic table, and what I think is similarly powerful about WN, is that it related already known elements in a new way; in a way that both countered some existing beliefs about the world while also predicting or suggesting future discoveries.
Mendeleev’s original periodic table was very incomplete. Yet it allowed him to predict where new elements would fit; elements that hadn’t been discovered. He also suggested that some of the current beliefs about existing elements in terms of their atomic weight were actually wrong based on his table. Subsequent research validated the periodic table on both counts – revealing the power of Mendeleev’s theory.
Scientists discovered new elements that fit into his table where he said they would. And there were adjustments to the elements that he said were incorrect in their weights. Later measurements and experiments showed that he was largely right. This meant that the periodic table, as a theoretical organization of reality, had incredible power to describe and explain the world and to relate all of its different elements (pun intended).
Smith does something similar in the Wealth of Nations. He relates the division of labor, the size of the market, tax policy, trade policy, competition, how the capital stock grows over time, the way labor is compensated, and the different kinds of incentives and innovations that come about in a commercial society. He talks about the role of money and banking in promoting trade and commerce, as well as what the effects of increasing commerce will be for the average person.
While not exactly creating a grand unifying theory, Smith remains one of the most important economists of all time for his work. Smith had profound insight into where the world was going. His theoretical framing of the economy predicted how the modern world would develop, how industrial economies would grow, and which kinds of countries would be successful, as well as the kinds of policies that would make them successful.
All of this is there in the Wealth of Nations. I would be remiss, however, if I didn’t mention that not everything Smith talked about was correct. Mendeleev, too, had a few errors in his work. Smith famously subscribed to the labor theory of value, though not exactly in the way Marx would later describe the labor theory of value. Smith describes labor as a measure of value rather than as the sole source of value.
Yet the labor theory of value turns out to be quite incorrect. The marginal revolution in the 1870s demonstrated that utility was subjective and that economic phenomena should be assessed on the margin. One does not simply “value” pizza or water or diamonds. We value an additional piece of pizza, an additional cup of water, and an additional diamond relative to what we already have. Prices are determined on the margin through the forces of supply and demand.
An important part of Smith’s legacy has been contested recently. Smith famously criticized the mercantilist systems of his time. Mercantilists thought wealth consisted of large stocks of precious metals gained through running a trade surplus with other countries. That mercantilist thinking has been resurgent in the United States in recent years. Advocates of American protectionism argue that Smith, and later David Ricardo, and economists in general, have gotten the issue of trade completely wrong.
Part of the significance of this 250th anniversary of the Wealth of Nations will be thinking through whether Smith’s theory — his periodic table of political economy, if you will — was wrong or right. Will we see the implications of his theory continue to describe or predict what we see manifest in the economy? Will we find that the advocates of protectionism turn out to be wrong because they contradict the organizing principles of the Wealth of Nations?
I think the answers are “yes,” but subsequent work and analysis at AIER and elsewhere will show this to be the case (or not) over the coming months and years.
I’m not the first or the best to comment on Adam Smith’s ideas and his legacy. Here is a list of famous economists and articles they wrote about Adam Smith:
- Ronald Coase – “Adam Smith’s View of Man” (1976)
- Friedrich Hayek: “Adam Smith’s Message in Today’s Language” (1976)
- James M. Buchanan – “The Justice of Natural Liberty” (1976)
- Jacob Viner – “Adam Smith and Laissez Faire” (1927)
- Milton Friedman – “Adam Smith’s Relevance for 1976” (1976)
- George Stigler – “The Successes and Failures of Professor Smith” (1976)
- George Stigler – “Smith’s Travels on the Ship of State” (1971)
- Ronald Coase – “The Wealth of Nations” (1977)
- Paul Samuelson – “A Modern Theorist’s Vindication of Adam Smith” (1977)
- Joseph Stiglitz – “The Invisible Hand and Modern Welfare Economics” (1991)
- Vernon L. Smith – “The Two Faces of Adam Smith” (1998)
- Amartya Sen – “Adam Smith and the Contemporary World” (2010)
- Angus Deaton – “Insights from Adam Smith” (2023)
- Daron Acemoglu – “The Wealth and Poverty of Nations” (2024 Nobel Lecture)
If you would like to read more of my work on Adam Smith, you can check out a set of columns I wrote or some of my academic articles.
Columns:
- Was Adam Smith a Libertarian?
- The Orthodox Classical Liberal Interpretation of Smith
- Adam Smith’s Presumption of Liberty
- Exceptions to Liberty in Adam Smith’s Works
- Adam Smith’s Criticism of Government: Knowledge
- Adam Smith’s Criticism of Government: Faction
- Adam Smith’s Criticism of Government: Hubris
- Adam Smith’s Ethics: The Ethics of a Free Society
- Adam Smith’s Ethics: Sympathy
- Adam Smith’s Ethics: Propriety and Social Censure
- Adam Smith’s Ethics: Justice vs. Virtue
- Adam Smith’s Ethics: Happiness
- Adam Smith on Public Policy: Education
- Adam Smith on Public Policy: Teacher Compensation
- Adam Smith on Public Policy: Occupational Licensing
- Adam Smith on Public Policy: Four Maxims of Taxation
Academic Articles
- Adam Smith’s Impartial Spectator, Econ Journal Watch, 2016, 13(2): 312-318
- Adam Smith’s Views on Consumption and Happiness, Adam Smith Review, 2014, Volume 8, 277-289
- Adam Smith, Politics, and Natural Liberty, Journal of Private Enterprise, 2014, 29(3), 119-134
Adam Smith on moral judgment: Why people tend to make better judgments within liberal institutions, Journal of Economic Behavior & Organization, 2021
