Economists these days are ten a penny. You can’t open a web page, newspaper or turn on the TV or radio without one pontificating at you. Keynesians, Austrians, Marxists, Anarchists… there are as many different schools as there are days in the year.
In the 18th century, however, things were different. The dominant force was mercantilism. Trade was strictly controlled, with high tariffs and taxes. Wealth was measured in how big your pile of stuff was.
The fiercest critic of this system was the man known as the “father of modern economics”, Adam Smith. And his hugely influential book, An Enquiry into the Nature and Causes of the Wealth of Nations was published on this day in 1776.
(It ran to 950 pages, and even the Adam Smith Institute admits it is “almost impenetrable” to the modern reader, written as it was in “flowery” language, and containing numerous lengthy digressions.)
In it, Smith argued that free trade and market competition were fundamental to economic prosperity; trade benefits the buyer just as much as the seller; and wealth isn’t necessarily money, it is labour – or the amount of it you can buy or command.
It was revolutionary stuff. Once accepted, the idea of free trade drove massive economic expansion and growth in prosperity. Smith has been an influence on virtually every one of the world’s economic systems ever since. Everyone finds something to build on. Even Karl Marx took Smith’s idea that labour was wealth and ran with it, though perhaps a little too far for his and many other people’s own good.
Government’s job, said Smith, was to stay out of commerce, and provide the things a free market is unable to: defence, justice, public works including infrastructure and education, and “supporting the dignity of the monarch”.
It is ironic, then, that just two years after publishing The Wealth of Nations, he was appointed as commissioner of customs in Scotland, upholding the very tariffs he argued so eloquently against.
Also on this day
Barbie turns 56 today. Over 800 million dolls have been sold since she was unveiled at the American Toy Fair in 1959. Read more here.