Two hundred and fifty years ago, two momentous events occurred that have changed the course of human affairs, first in what is still often referred to as the “Western” world — Europe and North America — and then in many other places around the globe. These were the publication of Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations on March 9, 1776, and a few months later, on July 4, 1776, the signing and public proclamation of the American Declaration of Independence.Our task, in celebrating the 250th anniversary of Adam Smith’s Wealth of Nations and the American Declaration of Independence, is to rededicate ourselves to that idea and ideal of a “system of natural liberty” before the collectivist tide becomes too strong to hold back and reverse.
[Click to Tweet]
Both marked a distinct call for human liberty. In the Wealth of Nations, Smith offered a critique of government regulation and control of economic affairs, both within and between nations, and a reasoned case for a “system of natural liberty,” under which every individual has the freedom to pursue his own affairs in his own way in the use of his own labor and resources in peaceful association and competition with others on the basis of mutual agreement and voluntary consent and exchange.
Government’s responsibility in such a system of natural liberty, Smith said, was to be limited to law enforcement by a judiciary to adjudicate disputes and a police power against domestic and foreign threats to the life and property of the citizenry. At the most, Smith saw a useful but limited additional function for government in supplying a variety of infrastructure and other “public works” serving the general interest of the population. But beyond these, Adam Smith believed that human affairs were best left to the free choices and voluntary interactions of the people themselves.
The American Declaration of Independence offered its own complementary conception of a system of natural liberty when it hailed that all men are created equal and endowed by their Creator with certain unalienable rights, among which were the rights to life, liberty, and the pursuit of happiness. Governments, the authors of the document said, were formed by men to secure those rights and liberties and may be abolished and replaced with new governments when they fail to protect freedom or abuse their power in the service of individual freedom.
Most of the American Declaration, after this statement of principles, offers an enumeration of the British government’s violation of the personal and economic liberty of the residents of the 13 North American colonies. Restrictions were imposed on the importing or exporting of various goods; taxes had been established without the consent of the governed; free migration of people to settle in the colonies had been restricted; a large number of government regulators and officials had been put in place to supervise and control the people’s activities in almost all aspects of life; and many basic civil liberties had been abridged or abolished by the king’s government.
By implication, the American Declaration was demanding not only independence of the 13 colonies from British rule but also a system of laws and government that would recognize, respect, and enforce principles of wide social and economic liberty in domestic and foreign affairs. Thus, together, Adam Smith’s Wealth of Nations and the American Declaration of Independence heralded a new era, indeed, a new epoch in human history, one calling for the liberation of each individual human being from the oppressive and tyrannical hands of government and those holding its political authority with the legitimized use of physical force.
Adam Smith’s challenge to government economic control
It is impossible to overestimate the significance of these two events in human affairs. Two hundred and fifty years ago, absolute monarchy was still the dominant form of government throughout most of the world. Yes, in places like Great Britain, centuries of resistance to the arbitrary rule of kings had won restraints on the monarch’s power in the form of civil and political liberties. But in most other places around the globe, kings and princes ruled with few such limits on their power and authority.
It was also taken for granted that governments controlled the economic affairs of the citizens and subjects. The heart of Adam Smith’s book was its criticisms of mercantilism, the economic system of central planning in the 1600s and 1700s. Mercantilism called for national self-sufficiency wherever possible, with production and employment at home. International trade was viewed as economic warfare among nations, with battles over countries having a positive or negative balance of trade.
Viewing money (and at that time, this meant gold or silver) as the most desirable form of wealth, the task of government-directed trade was to ensure that exports exceeded imports, so other nations, on net, owed more in gold or silver to your country than your country owed to theirs. A large stockpile of gold was seen as the best guarantee that in time of war — and wars were considered inevitable and inescapable between nations — such a hoard of gold would enable the acquisition of the goods and resources your country might need to win in military conflicts with other nations.
Smith argued that trade was not, as we would say today, a zero-sum game in which if I win, you must lose, and vice versa. By presuming so, and serving at the same time various special-interest groups wishing to limit trade with other nations, governments have brought harm and misery to their own peoples. “Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity,” lamented Smith, “The capricious ambition of kings and ministers has not, during the present and the preceding century, been more fatal to the repose of Europe, than the impertinent jealousy of merchants and manufacturers.”
Freedom of trade can bring prosperity and peace
Trade benefitted both parties, Smith said, whether it be individuals buying and selling between each other or between the citizens of different countries. All gain from participation in a division of labor in which each specializes in what they can do that a potential trading partner cannot, or which they can do less expensively in terms of time, labor, and resources than another in producing a desired product. By doing so, each can acquire from trading partners that which they would have to do without or would have to incur a greater expense in producing for oneself. Said Adam Smith:
It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers….
What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better to buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.
All such regulations and controls were not only detrimental to the economic well-being and material welfare of the citizens of any country, but they were also not needed to ensure the betterment of the human condition. All that was needed was to allow individuals to freely choose their own courses of action, guided by their own self-interested attempts to improve their personal and family circumstances.
In a system of division of labor that recognizes and protects each individual’s rights to his life, liberty, and honestly acquired property, the only way anyone can acquire what others have that they want is by offering something in trade that is valued more highly by those others than what you want to obtain from them. Thus, in pursuit of your own self-interested betterment, you must apply your knowledge, skills, talents, and resources to improve the circumstances of others in society at the same time. That is, human association through exchange is a “positive-sum game” in which both parties gain and are better off. This is what Adam Smith meant by the outcomes of a market process in which individuals are “as if” guided by an “invisible hand.” Or as Smith expressed it:
[Each individual] generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it…. By directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
Those in political power are not to be trusted
It was not only that it was unnecessary for governments and those in political authority to try to control and direct the economic activities of the citizens, it was also a power that was dangerous to place in the hands of anyone, especially those who were presumptuous enough to believe that they have the knowledge and wisdom to do it better than the individual can do for himself. Warned Smith:
The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which can safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.
Adam Smith railed against the arrogance, hubris, and hypocrisy of those in government who claimed to know what people needed or should spend their money upon, when they were spendthrifts on their own wants and desires with other people’s money in the form of taxes and borrowed sums against the promises of future taxes. Again, said Smith:
It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will…. The violence and injustice of the rulers of mankind is an ancient evil, for which I am afraid, the nature of human affairs can scarce admit of a remedy.
Adam Smith considered an especially abusive aspect of fiscal power was precisely the government’s ability to undertake debt to cover its financial extravagance in excess of taxes collected because it so often ran the risk reaching a point where the government lacked the future taxing ability to pay it back. At that point, the political authorities had no recourse but to debase the currency to pay back what had been borrowed in depreciated money, a seemingly hidden way to cheat its creditors and harm the general population through price inflation. Or as Smith put it:
When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed [an admitted] one, but always by a real one, though frequently by a pretended payment. The raising of the denomination of the coin [debasement of the currency through inflation] has been the usual expedient by which a real public bankruptcy has been disguised under the appearance of a pretended payment….
A pretended payment of this kind … occasions a general and most pernicious subversion of the fortunes of private people; enriching in most cases the idle and profuse debtor at the expense of the industrious and frugal creditor…. Almost all states, however, ancient as well as modern, when reduced to this necessity, have, upon many occasions, played this very juggling trick.
Triumph of Adam Smith’s free-trade ideas
When Adam Smith died in 1790, Great Britain was still enveloped in its network of mercantilist regulations, restrictions, and controls. In fact, in the Wealth of Nations, he was despondent in saying that the likelihood of achieving freedom of trade in Great Britain was as likely as seeing the establishment of a utopia.
And it remained so for the next quarter of a century due to the wars that soon arose between revolutionary France and the monarchies of the neighboring countries, wars that went on until 1815 with the defeat of Napoleon in the battle of Waterloo in Belgium. Even with the end to the war, trade barriers remained in effect in Great Britain, indeed, especially in agricultural products; the trade restrictions were intensified with the imposition of what were called the Corn Laws, prohibiting the importation of less-expensive wheat from the European continent as a means of protecting the economic interests of the landed aristocracy.
Under the pressure of a free-trade movement that emerged in Great Britain in the 1830s under the leadership of Richard Cobden and John Bright, Parliament finally and unilaterally abolished agricultural protectionism in June 1846 in the face of a severe crop failure throughout the country that threatened starvation and social unrest. Most other trade barriers on manufactured and other goods were also soon gone a year or two later. Thus, from the middle of the 1840s on, Great Britain established an economic regime of virtually unlimited freedom of trade within the British isles and throughout the British empire.
Celebrating the 100th anniversary of the Wealth of Nations
Thirty years after the repeal of the Corn Laws, the Political Economy Club in London, which had been founded in 1821 by advocates of economic liberty, celebrated the 100th anniversary of the publication of Adam Smith’s Wealth of Nations with a grand banquet dinner on the evening of May 31, 1876. The chairman for the evening was William Gladstone (1809–1898), former prime minister and sometime head of the British Liberal Party.
The evening began with an address by Robert Lowe (1811–1892), a chancellor of the exchequer, who praised Adam Smith’s lucidity of writing style, his ability to turn phrases that easily became commonplace summarizing chains of economic reasoning and the profound truth of free trade and the logic underlying it. Or as he said it, “The extraordinary power which Adam Smith had — a power which, I think, no man that ever lived ever had before to the same extent — of condensing truth into a few memorable words, which mankind could retain and act upon.”
An honored guest that evening was Leon Say (1826–1896), the French minister of finance and the grandson of the famous free-market, liberal economist Jean-Baptiste Say. He hailed the slow but important impact that Adam Smith’s ideas had and were having in France, in spite of the heavily protectionist sentiments there. Smith had inspired a free-trade intellectual undercurrent, especially through the impact of Jean-Baptiste Say’s writings that had been founded on Adam Smtih’s great work. Indeed, Leon Say said that in 1814, his grandfather traveled to Great Britain and while in Scotland went to Glasgow University and sat in the chair that Smith used while lecturing. Jean-Batiste Say, “buried his head in his hands, and — this was his expression — to bring back to France a spark of the master’s genius.”
The case for unilateral free trade
Both Robert Lowe and Leon Say referred to the free-trade treaty that was signed between Great Britain and France in 1860, negotiated by Richard Cobden and Michel Chevalier, that reduced or eliminated many of the trade barriers between the two countries. Both Lowe and Say, in their respective remarks, were hesitant and embarrassed in referring to it, not because either of them opposed the elimination of those trade barriers between Great Britain and France but rather because there had been a trade agreement needed at all to bring it about.
As Leon Say explained it, “It is a method obviously contrary to the principles of economic science to regulate questions of free trade by treaties.” What did this mean? It was taken for granted that economics had demonstrated that it was unnecessary and a waste of time and effort to wait to persuade another country to practice freedom of trade before your own country introduced it. If it is reasonable to give the citizens of one’s own country the liberty to buy low and sell high wherever and whenever it seemed preferable and profitable, and from whomever regardless of whether it is at home or in a market abroad, then the logical and rational policy is to simply lower your own country’s trade barriers unilaterally, regardless of what other nations may or may not do.
If any other nation decided to impose economic harm on its own citizens though trade restrictions, that was no reason for your own country to follow suit. That a trade agreement was used in 1860 to help prod France into a freer-trade direction was viewed as an expediency of the time and not the rule. The principle was that of unilateral free trade, given acceptance of the validity and truth of what someone like Adam Smith had demonstrated.
The dangers of a new political paternalism
Remarks were then delivered by William Newmarch (1820–1882), a prominent British banker, economist, and statistician. His comments were focused on what he considered a new growing danger in Great Britain, a danger contrary to the teachings of Adam Smith: an unnecessary and harmful growth in the size and scope of government. Indeed, the political economy of Adam Smith should make all followers of his insights work to “reduce the functions of government within smaller and smaller compass.” As Newmarch saw it:
One of the great dangers which now hangs over this country is that the wholesome spontaneous operation of human interests and human desires seems to be in course of rapid supersession by the erection of one government department after another, and by the whole time of Parliament being taken up in attempting to do for the nation those very things which, if the teaching of the man whose name we are celebrating tonight is to bear fruit at all, the nation can do much better for itself…. One of the most serious dangers which besets the application of the teachings of Adam Smith, is this incessant and endless interference of the Government in the affairs of the community….
There is exceeding danger in a free and vigorous country like this in the unceasing and unmitigated application of this new system of interference, supervision, inspection, repression, revision, reporting, altering, directing and recasting, which is now being applied by the whole force of Government machinery.
The free principles of the Wealth of Nations may be applied practically, in so simplifying the laws that every man and woman may be able to see and pursue their own true interest in their own way; and especially as regards the great body of the people, whose labor is practically their sole possession, that they may be taught to regard almost every function of the Government in which it is assumes to offer advice or intervention regarding the best mode of applying their labor, or cultivating the talents and faculties which give character and value to their labor — not as something to be sought and valued, but as something to be avoided and abated.
Gladstone on limiting government and the dangers of war
It then became the turn of the chair for the evening, William Gladstone, to rise and make his remarks. He quickly made a point of saying that he was very much in agreement with William Newmarch’s comments on “the very undue extension of the functions of government.” The role of the Political Economy Club, Gladstone said, was “the duty of propagating opinions which shall have the effect of confining government within its proper province, and preventing it from all manner of aggressions and intrusions upon the province of the free agency of the individual.” It was limited government that secured liberty and prosperity, not for a few but for all, in providing the economic freedom that had lifted multitudes out of poverty into modest material wellbeing never before known. Gladstone said:
I hold that the great glory of the science of which we may look upon him [Adam Smith] as the main founder is not that it has made a number of rich men richer than they were before, or made men rich who formerly were poor, but that it has mastered the beneficial and blessed secret of mitigating the lot of those who were in hard and biting circumstances, and of giving comfort and even reasonable abundance, not to scores, or to hundreds, or to thousands, but to millions to whom their outward life was a burthen.
Before sitting down, Gladstone emphasized one other important lesson from Adam Smith’s teachings, and that was the danger and destructiveness of war. Wars and preparations for wars were counter to the principles of the teachings of Adam Smith and the peace and prosperity that free trade and international commerce made possible. Said Gladstone:
We see that war is adverse to the propagation of sound principles of economy for many reasons. It draws off men’s minds and energies in other directions. It makes them perfectly reckless and indifferent with respect to the public expenditures….
As economists you are bound to renounce all disposition to unnecessary war, to wanton war, and to frivolous war; and what a proportion of the wars of history, I need not ask you, have been either wanton or unnecessary or frivolous. We, as a club, must desire that no such war shall hereafter stain our annals, but that the legitimate energy and power of our principles shall be vindicated as in all that which relates directly to legislation affecting commerce and wealth, so likewise in all that touches those great questions of the policy of the nation which, by giving or by withholding scope for human enterprise and industry are indirectly yet most effectually either the allies or else the deadly foes of our designs [for peace and prosperity].
By the end of the evening, anyone listening to or later reading the published proceedings would easily sense the great success, if not the triumph, of the ideas in Adam Smith’s Wealth of Nations at the time of its 100th anniversary. But there were clearly the beginnings of new collectivist and interventionist clouds on the horizon. That both William Newmarch and William Gladstone felt called upon to devote noticeable time to the dangers of these new growths in government suggested an emerging turn away from Smith’s “system of natural liberty.”
The call for a new political paternalism
Indeed, just as the evening’s proceedings were coming to a close, another Club member rose to have a say, William Edward Forster (1818–1886), a businessman and Liberal Party member in Parliament who had served in the government. Forster took issue especially with Newmarch’s laissez-faire views on the role of government in society. It was all well and good to talk about the laws of economics and negative effects from this or that government intervention. But Great Britain was in a new time, with different demands from the people. Government had to take an increasingly paternalistic hand over many in the society. Said Forster:
We have to deal with weak people; we have to deal with people who have themselves to deal with strong people, who are borne down, who are tempted, who are unfortunate in their circumstances of life, and who will say to us, and with great truth; What is your use as a Parliament if you cannot help us in our weakness and against those who are too strong for us?… Many inhabitants of the country, I am sorry to say, are very unfortunate. They are very poor; they are very needy; and they require help; and depend upon it, they expect, and the other inhabitants of the country expect, that we should do our duty to them, and that we should help them out of their weak position as we best can.
It was all very easy enough to speak of the laws of economics, Forster thought, but “You have to consider that a nation is guided by impulses and by feelings…. You have to remember the impulses and feelings as well as the duties of the people of the country to whom you are speaking.” Indeed, these impulses and feelings of people required “disobeying” the law of economics, if the government’s paternalistic helping hand was to be given.
Rededicating ourselves to the ideas of Adam Smith
Now standing not 100 but 250 years after the publication of Adam Smith’s Wealth of Nations, we can see that William Forster’s appeal to “feelings” and “impulses” that force us to override the laws of economics have been the forces behind the growth in the size and scope of government in the 20th century and now into the 21st. It has been a leading factor undermining, weakening, and almost destroying the degree to which America and some other parts of the world, like Great Britain, had lived under forms of a “system of natural liberty.”
Once economic reasoning was set aside for simple “emotion” and “feelings,” once the altruistic premise that “the people” expect others to care for them, provide for them, work for them, and sacrifice for them, the idea and ideal of rational self-interest in an institutional setting of voluntary association and freedom of trade was going to be slowly eaten away until the individualist principle and premise behind Adam Smith’s book and the American Declaration of Independence would became almost nonexistent.
Notice how today little, if any, political discourse about man, society, and the role of government even mentions the word “liberty.” Liberty was a guiding principle for Adam Smith and for the American Founding Fathers in 1776. Today, however, we are back to where they started from, with unlimited government in the form of modern “democracy,” with presumptive all powerful and unrestrained political leaders who arbitrarily intervene, prohibit, dictate, and command all that goes on in the affairs of ordinary people, inside and outside of the marketplace.
Our task, in celebrating the 250th anniversary of Adam Smith’s Wealth of Nations and the American Declaration of Independence, is to rededicate ourselves to that idea and ideal of a “system of natural liberty” before the collectivist tide becomes too strong to hold back and reverse.
This article was originally published in the March 2026 issue of Future of Freedom.
