Why Is Adam Smith Still So Popular?

The 18th-century Scottish economist Adam Smith published his most influential work, The Wealth of Nations, in 1776—a year of singular historical resonance for Americans. In the centuries since, the book has come to play a uniquely controversial role in U.S. political and economic life, claimed with almost equal fervor by the free-market right and the social-democratic left.

On the surface, Smith seems an unlikely figure to inspire more than two centuries of heated debate. Born in a small Scottish village, he was a lifelong bachelor, sometimes academic, and public servant. His fame and reputation rest principally on Wealth of Nations, which opens with a famous discussion of a pin factory able to profit off the division of labor thanks to broad markets and the freedom to pursue one’s own self-interest. This narrative seemed to view restraints to competition as obstacles to growth and has been embraced by apostles of the free market.

Yet Smith’s views were more nuanced than this narrow interpretation. In Wealth of Nations, he argues that “when the regulation … is in favor of the workmen, it is always just and equitable.” And his first published work, The Theory of Moral Sentiments—which emphasizes “sympathy” rather than “self-interest”—has surprisingly egalitarian instincts.

Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism, Glory M. Liu, Princeton University Press, 384 pp., $35, November 2022

Glory M. Liu’s Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism invites us to ponder how and why debates about Smith have raged with special passion in the United States. The book is an exhaustively researched tour of American responses to Smith over the past 250 years, from the founders to economist Milton Friedman and beyond. Liu, a lecturer in social studies at Harvard University, presents it as a work of “reception history,” a historiographical approach that focuses on how a text—in this case, Smith’s writing—is received by readers, rather than on the text itself. Liu not only emphasizes that Americans have developed their own distinct interpretations of Smith and his work but also argues that those interpretations have played an active role in creating today’s United States.

Much of Liu’s book focuses on debates over free trade and protectionism that started with the founders and continued as the principal focus of economic policy debate until the early 20th century. Alexander Hamilton, today’s favorite founder, looms large in this discussion. Smith’s writing helped Hamilton promote his vision of a cosmopolitan and manufacturing-led economy, in contest with Thomas Jefferson’s agrarian vision. But Smith’s prescription of free, unfettered trade sat less well with Hamilton, who sought instead to vigorously support U.S. industry with subsidies and tariffs. Hamilton became one of the first in a now long-running American tradition of finding in Smith’s writings evidence to support one’s preexisting convictions while faulting or ignoring elements that contradict them.

While 19th-century economic debates focused on free trade and protectionism, in the 20th century the locus of economic policy debate shifted to the domestic economy. Two world wars and the Great Depression produced a demand for greater government involvement in market regulation and the provision of goods such as health care and education. It was therefore perhaps inevitable that Smith would be drafted into service again, this time as an apostle of freedom from government interference in the economy.

The Chicago School—so called because it was developed by members of the University of Chicago’s economics department—was largely responsible for crafting this new reading of Smith. Liu insightfully tracks changes in what economists of the Chicago School chose to emphasize in Smith’s work over the past 100 years, from the moderate classical liberalism of Jacob Viner and Frank Knight in the 1930s to the strident free-market advocacy of George Stigler and Milton Friedman in the latter half of the 20th century. Friedman was an influential economist and the winner of the 1976 Nobel Memorial Prize in Economic Sciences, but his stature as a public intellectual eclipsed his purely academic work. In his political war on all types of government activism and regulation, Friedman resurrected Smith to play the father of free-market liberalism.

Liu focuses on the allusions to Smith in Friedman’s massively influential 1980 PBS series, Free to Choose. (In 2023, it is hard to imagine that a documentary series on PBS hosted by an elderly economics professor could have a significant effect on public opinion, but that was the case in the United States on the eve of Ronald Reagan’s election as president.) Liu convincingly demonstrates that Friedman’s depiction of Smith was the product of Friedman’s political agenda rather than a serious attempt to deal with Smith and his work.

For example, Friedman emphasized Smith’s metaphor of the “invisible hand,” which holds that private agents who act in their own self-interest unwittingly serve the common good. Today, perhaps as a result, almost everyone familiar with Smith still associates him with the invisible hand—despite the metaphor appearing once each in Wealth of Nations and Theory of Moral Sentiments.

With free markets on the ascent under Reagan, Liu then illustrates how Friedman and his colleagues made Smith a cultural icon. Amusingly, for example, Adam Smith neckties came to be the hottest fashion item among right-wing intellectuals and policy wonks of that era—including in the corridors of the Reagan White House.

Liu is less successful in recounting academic interpreters’ and historians’ reactions to Friedman’s depictions of Smith. Her final chapter surveys the work of a succession of earnest and worthy scholars who have together ensured that modern Smith scholarship is a rich and burgeoning field. But one might reasonably question how relevant highly scholarly responses are to Friedman’s distinctly political onslaught. It seems at least possible to argue that there is a direct line from Friedman’s focus on “freedom” conceived as freedom from government regulation to the “freedom” championed today by gun-rights supporters, anti-vaxxers, and the like.

Liu highlights the (academically) famous and engagingly named “Das Adam Smith Problem” coined by German academics. The question asks whether Wealth of Nations is best read alone or as a set with Smith’s earlier Theory of Moral Sentiments. Loosely speaking, Wealth of Nations can be caricatured as focusing on people’s “regard to their own interest” (in Smith’s words), while Moral Sentiments places “sympathy” (again, Smith) at the center of its analysis. Read alone, Wealth of Nations can seem an apologia for a particularly myopic form of capitalism; read together, the pair present a more nuanced approach to both individual morality and the role of government.

Liu focuses her work on political-academic interpretations of Smith, but almost entirely omits the insights of economics, the discipline Smith arguably founded. Although few academic economists of the past 50 years have explicitly appealed to Smith’s authority, many have grappled, at least implicitly, with Das Adam Smith Problem.

Other economists have sought to enrich the discipline beyond a pure theory of the optimality of self-interest. Liu mentions Paul Samuelson only in passing, in reference to his famous introductory economics textbook. But for academic economists, Samuelson was arguably the most influential economist of the postwar period. His 1947 treatise, Foundations of Economic Analysis, formed the bedrock of the mathematical methods that have dominated economics ever since. Like Friedman, Samuelson was taught by Viner as an undergraduate at the University of Chicago in the 1930s. Unlike Friedman, he went on to study at Harvard and teach at MIT, and, more importantly, to develop rigorous insights into government’s role in the economy.

One example is Samuelson’s theory of public goods, in which he explained why markets fail to provide certain types of good such as national defense, which instead must be provided by government. Fascinatingly, Smith anticipated this role for government, favoring a standing army maintained by the state rather than a part-time militia, an idea that was more popular at his time. More recently, many economists have grappled with theories of individual motivation that include the well-being of others rather than pure self-interest. A particularly notable example is Indian economist (and Nobel Memorial Prize winner) Amartya Sen, who has tried to formalize Smith’s idea of sympathy in modern economics.

Expecting Liu’s reception history to provide detailed analyses of economic theories that do not even mention Smith would be to ask too much. But a less cursory consideration of the development of economics as a discipline might help Liu explain an underlying problem her book never fully addresses: Why is Smith still so famous? It seems fair to say that modern economics as a discipline would possibly not have been too different had he never lived.

One reason Smith remains a first-rank intellectual celebrity after nearly 250 years may simply be that—unlike almost all other economists—his most important works are engaging and accessible to read. Moreover, Smith had a habit of maintaining ambiguity in his writing, which allows for endless reinterpretation.

Far more importantly, however—and in a way that Liu comes tantalizingly close to teasing out—Das Adam Smith Problem has identified the basic dilemma of capitalism. In a world of mostly self-interested individuals, to what extent can we rely on motives beyond self-interest to beneficially organize society? To what extent—and according to what moral calculus—should government be able to limit the economic freedom of some for the benefit of many?

Liu tends to write sympathetically about academic interpreters of Smith but to deal brusquely with politicians and public thinkers who create bastardized versions of him for their own rhetorical purposes—particularly when, as with Friedman, she disagrees with them. Nevertheless, Liu’s account of academic discussions around Smith, while at times dense, is insightful; her account of the political invocations of Smith is lively and sometimes even surprising. In bringing these two accounts together, Liu tells a compelling tale that can lend almost any reader fresh insights into Smith, capitalism, and even the act of reading itself.