1776 Wasn’t Just About Independence

There is no argument that 1776 was a revolutionary year. The political ideas coming out of the American Revolution changed how people viewed government and inspired change around the world that continues to the present.

It is easy to focus on those political changes and forget that the same year also gave us “The Wealth of Nations” by Adam Smith. While this book, published on March 9, 1776, was written across the Atlantic, in many ways it has become just as important a founding document as the Declaration of Independence. In it, Smith espouses the principles of capitalism that will come to define America just as much as freedom.

Smith, the father of economics, was born in 1723 in Kirkcaldy, Scotland, and was raised by his mother after his father died before he was born. He showed strong academic ability and attended the University of Glasgow at age 14. Smith later continued his education at Balliol College, Oxford, studying philosophy and classical literature. After returning to Scotland, he began giving lectures in Edinburgh and soon became a professor at the University of Glasgow, teaching moral philosophy. In 1759, he published “The Theory of Moral Sentiments,” which brought him widespread recognition. He later traveled across Europe as a tutor, where he encountered new and revolutionary ideas. After returning to Scotland, Smith spent nearly a decade writing his most famous work.

In his very long, wordy, and sometimes boring treatise, Smith developed several key ideas in the field that would become known as political economy and eventually economics. He did not create economic vocabulary from nothing; the ideas he discussed, such as production, trade, and economic systems, had existed before him. What he did was bring many of these ideas together into a clear and systematic explanation of how an economy works. In short, he developed and popularized important economic concepts.

While Smith is responsible for several ideas, arguably the three most important are the pursuit of self-interest, the division of labor, and freedom of trade.

The concept of free trade in “The Wealth of Nations” is particularly important because it relates closely to one of the major reasons the American colonies broke away from Britain. In 1776, the British were following an economic model called mercantilism. It is such an important concept that I include a question about it on every midterm in my American Civilization class.

Mercantilist policies focused on accumulating gold and silver while tightly controlling trade through government regulations and tariffs. These policies drove European nations to colonize the Americas so they could gain access to resources, especially gold and silver, but eventually also timber, tobacco and minerals as well. Colonies also provided European powers with captive markets that were required to buy goods from their mother country. In other words, the colonies’ sole purpose was to benefit the mother country, not the colony itself.

Under mercantilism, the colonies were not allowed to trade freely with other nations because that did not benefit the mother country. As a result, many colonists became smugglers. If Smith had published his book earlier, perhaps the colonists would not have had as many issues and would have stayed loyal.

For Smith, mercantilism limited economic growth and harmed consumers by restricting competition. Instead, he advocated for free trade, believing that countries should specialize in producing goods they can make efficiently and then trade with others for what they lack. This approach allows all participating nations to benefit and increases overall prosperity. An interesting point for today is that the “father of capitalism” disagreed with tariffs. He believed they drove up prices and hurt competition.

Another key concept from “The Wealth of Nations” is the division of labor. Instead of one person making an entire product from start to finish, production is broken down into small, specialized tasks performed by different workers. By focusing on one simple task, workers become faster as they perfect their skill and do not waste time switching between tasks or tools.

Probably the most controversial and least understood of Smith’s ideas is the pursuit of self-interest. The idea here is that when a person works hard in pursuit of their own self-interest, they help others along the way. Creating an economic environment that benefits oneself also benefits others. Smith’s famous line explains this well: “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.”

To look at a modern example, employers may offer workers higher wages because it attracts better employees who will produce more profit. In the process, workers benefit as well.

Today, capitalism is often viewed as greedy, and it is one reason many people are turning away from it. However, that was not how Smith saw it. Self-interest was never meant to be a license for greed; it must apply to everyone. Workers should also be allowed to pursue their own interests, which can help lift them out of poverty. Smith was critical of those who advanced themselves at the expense of the working class, which is one reason he opposed monopolies.

Smith envisioned what might be called enlightened self-interest. If a business cares only about profit but produces poor services, behaves dishonestly, and does not care about workers, it may make money in the short term but eventually will lose its reputation, its customers, and workers in the long run.

Today, it is easy to point fingers and identify the failures of Smith’s economic system. But as we celebrate both his ideas and the birth of the nation that most put them into practice, it is important to remember that his capitalist system has created more wealth and lifted more people out of poverty than any other economic system. While it is not perfect, it is also important to remember that America’s poor live like kings compared to the poverty in many parts of the world. That does not mean we should stop trying to improve the lives of our own less fortunate, but the most proven way to do so is by following the teachings of Smith.

James Finck is a professor of American history at the University of Science and Arts of Oklahoma. He can be reached at james.finck@swoknews.com. Thanks to the Southwest Ledger and the Lawton Constitution for sharing his column.