Adam Smith, David Hume and the Physiocratic Crucible of Modern Economics

History holds the key to rescuing Western civilisation from economic collapse

“I am beginning to write a book in order to pass the time.” — Adam Smith, in a letter to David Hume from Toulouse, 1764

Modern economics is a discipline in the grip of a sustained intellectual fraud. Its textbooks repeat assumptions that were discredited two centuries ago. Its institutions serve the interests of monopoly capital while invoking the names of thinkers who spent their lives fighting exactly that. And at the centre of this fraud sits the Adam Smith Institute, an organisation that has taken the name of the greatest economist who ever lived and turned it into a marketing device for everything he despised. This essay is a journey back to where it all began, to eighteenth-century Paris, to candlelit rooms in Versailles and the salons of the philosophes, where two Scotsmen named David Hume and Adam Smith encountered a circle of radical French thinkers and, between them, assembled the intellectual keys to a prosperous and just economy. Those keys have been stolen. This essay intends to take them back.

Prologue: Two Scotsmen on a Continent

There is a particular kind of intellectual electricity that can only be generated by displacement, by the removal of a thinker from the comfortable grooves of home into an alien landscape where everything familiar must be re-examined, where the assumptions of one’s formation suddenly appear not as universal truths but as merely local customs. The history of ideas is full of such productive dislocations. It was in France that the foundations of what we now call economics, the science of wealth, labour, exchange, and the machinery of nations, were being hammered into shape during the 1760s by a remarkable coterie of French thinkers gathered around a royal physician named François Quesnay. And it was to France, within the space of a single extraordinary decade, that two of the greatest minds Scotland would ever produce made their separate pilgrimages: David Hume, the philosopher and historian whose brilliance had already scandalised and dazzled Europe, and Adam Smith, his younger friend and protégé, who would eventually turn the raw ore of Parisian ideas into the gold standard of classical economic thought.

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This essay asks what Smith and Hume took from France, from the salons, the academies, the long dinners at Versailles and in the houses of the great philosophes, and how the encounter with Physiocracy, that strange, systematising, quasi-mystical school of economic thought, served as the catalyst for the transformation of political philosophy into political economy. It draws upon letters, published texts, the documented movements and known associations of both men, and on the reasonable inferences that intellectual biography permits. Where the record falls silent, as it often does, this essay speculates, but does so in the spirit of honest inquiry rather than fabrication, always signalling where evidence ends and imagination begins.

What is not speculative at all, however, is the underlying claim: that the road to The Wealth of Nations ran through Paris, and that without the Physiocrats, without Quesnay, Turgot, Mirabeau, and Dupont de Nemours, the history of economics, of capitalism, and arguably of the modern world might have looked very different indeed.

Part One: Scotland Before France

The Scottish Enlightenment as Preparation

To understand what Smith and Hume were looking for when they arrived in France, we must first understand what Scotland had already given them. The Scottish Enlightenment of the mid-eighteenth century was one of the most remarkable intellectual explosions in European history, arguably more practically consequential than the more celebrated French variety, and both Smith and Hume were products of its peculiar energies.

Scotland in the 1740s and 1750s was a nation in a state of productive tension. The Acts of Union of 1707 had dissolved its Parliament but had not dissolved its intellectual institutions: its universities, its church, its legal profession, and its emerging commercial class all retained a distinct national character. Edinburgh was becoming a city of unusual density of talent: lawyers, clergymen, physicians, and professors who gathered in taverns and learned societies to argue about epistemology, aesthetics, moral philosophy, and the laws of political society. The peculiar genius of the Scottish Enlightenment was that it was simultaneously philosophical and practical. These were not pure theorists spinning webs of abstraction; they were men who looked at the real world, the trade routes, the linen mills, the cattle markets, the Glasgow merchants getting rich from colonial commerce — and asked systematic questions about how it all worked and why.

David Hume was born in Edinburgh in 1711, the younger son of a minor Berwickshire laird. He was, from his earliest youth, a prodigy of a particular and unsettling kind, a young man who read his way through the standard canon of philosophy and found it wanting, not in parts but in its foundations. By the time he published A Treatise of Human Nature in 1739 at the age of twenty-seven, Hume had already revolutionised Western epistemology, though the book famously “fell stillborn from the press”. His subsequent Essays, Moral and Political (1741 and 1742) and especially his Political Discourses (1752) showed that his restless intelligence was now turning toward the concrete questions of commerce, money, taxation, and the wealth of nations, questions that would have an extraordinary afterlife in the hands of his younger friend.

Adam Smith was born in Kirkcaldy, Fife, in 1723, the posthumous son of a customs official. The biographical detail has struck many historians as richly ironic given that his life’s work would amount to the most devastating intellectual assault ever mounted on the mercantilist customs regime. He was educated at Glasgow under Francis Hutcheson, one of the great moral philosophers of the age, who instilled in Smith the conviction that moral and social life could be subjected to the same kind of systematic analysis that Newton had applied to the physical universe. Smith then spent six unhappy years at Balliol College, Oxford, despising its torpor and intellectual decay, before returning to Scotland, where he gave public lectures in Edinburgh, caught the attention of Hume, and eventually was appointed to the Chair of Logic at Glasgow in 1751, quickly moving to the Chair of Moral Philosophy the following year.

The Friendship Between Smith and Hume

The friendship between Smith and Hume is one of the great intellectual friendships of history, and it is essential context for understanding how both men approached France. They first met, probably, in Edinburgh in the early 1750s, when Smith was giving his public lectures. They were at once drawn to each other: Hume the consummate man of the world, sociable, ironic, inexhaustible in his wit and curiosity; Smith the brilliant but reserved Glaswegian academic, famously absent-minded, intensely focused, capable of extraordinary depths of analysis but sometimes ill at ease in pure social performance. Hume was twelve years Smith’s senior, and the relationship retained something of its initial asymmetry. Hume was the established genius who had already remade philosophy; Smith was the admiring younger man who was still, in the 1750s, working out what his own contribution would be.

What they shared, aside from their Scottishness and their towering intelligence, was a deep commitment to a certain kind of moral science. Both believed that human behaviour, economic, political, and moral, was subject to regular laws that could be discovered by careful observation and systematic analysis. Both were broadly Newtonian in temperament: they sought the governing principles beneath the surface noise of particular events. And both were, in the deepest sense, sceptics, suspicious of received wisdom, hostile to dogma, committed to following argument wherever it led even when it led to uncomfortable conclusions.

When Hume read a manuscript of The Theory of Moral Sentiments before its publication in 1759, his response was characteristically warm and shrewdly encouraging. Smith returned the compliment with a letter of such sustained brilliance that it itself constitutes a work of moral analysis. Their correspondence across the years, of which a significant amount survives, reads like an ongoing seminar conducted between two men who each believed the other was probably the most intelligent person they knew. When Hume went to France in 1763, he and Smith were in regular correspondence. When Smith followed in 1764, there was a period, the extraordinary winter and spring of 1765-1766, when both men were simultaneously in Paris, both moving in the same intellectual circles, and the cross-pollination between their already remarkable minds was further enriched by the Physiocratic ferment around them.

Part Two: David Hume in Paris

The Journey to France, 1763

David Hume arrived in Paris in October 1763 as secretary to Lord Hertford, the newly appointed British Ambassador to France. He was fifty-two years old, already famous across Europe as the author of the Treatise, the Essays, and the recently completed History of England, a monument of historical literature that had brought him the financial independence his earlier philosophical work had not. He was also, in the eyes of the French philosophes, something close to a god: the greatest living representative of empiricist philosophy, the man who had more thoroughly undermined the claims of metaphysics and religious dogma than any thinker since Descartes.

The reception he received in Paris was, by any standard, extraordinary. The philosophers, the salon hostesses, the courtiers, and the intellectuals of the French capital competed for his company with an intensity that both delighted and sometimes overwhelmed him. Mme. de Boufflers, the beautiful and brilliant mistress of the Prince of Conti, became his close friend and sometime romantic correspondent. Mme. Geoffrin, whose salon in the rue Saint-Honoré was the great clearing-house of Enlightenment ideas, welcomed him eagerly. D’Alembert and Diderot, the two presiding geniuses of the Encyclopédie project, embraced him as an equal and intellectual kinsman. The Baron d’Holbach, in whose great house off the rue Saint-Jacques the most daring atheistic and materialist thinkers of the age gathered every Thursday, found in Hume a congenial spirit, though Hume’s own scepticism was, characteristically, too rigorous to endorse even atheism without qualification.

“Here I feed on ambrosia, drink nothing but nectar, breathe incense only, and walk on flowers,” Hume wrote to a friend in Scotland in the early months of his time in Paris. “Every man I meet and still more every lady, would think they were wanting in the most indispensable duty, if they did not make to me a long and elaborate harangue in my praise.” He was characteristically ironic about this adulation. He could see, with his philosopher’s clarity, that the Parisians were partly in love with the idea of him, with the symbol of the free-thinking Scottish sceptic, as much as with the man himself. But the richness of the intellectual life he encountered was real, and it would have consequences.

Hume and the Physiocratic Circle

Here is where the story becomes most historically interesting and, for purposes of this essay, most productively speculative. Hume’s time in Paris coincided almost exactly with the period of greatest Physiocratic excitement. François Quesnay had published his Tableau Économique, the extraordinary circular diagram meant to represent the complete system of how wealth moved through a nation, in 1758, just five years before Hume’s arrival. By 1763, the Physiocratic school had coalesced into a genuine intellectual movement, with Quesnay at its centre, the Marquis de Mirabeau as its most devoted propagandist, Turgot as its most brilliant and practically-minded member, and Dupont de Nemours as its tireless publicist.

The question of whether Hume had direct contact with this circle during his years in Paris (1763-1765) cannot be answered with certainty from the surviving record. What can be said is that in the small, intensely interconnected world of Parisian intellectual life, where the same names recurred across the salon circuit, where d’Holbach knew Turgot knew Quesnay knew Diderot knew d’Alembert, and where a man of Hume’s celebrity would have been welcomed everywhere, it would require an implausible series of deliberate avoidances for Hume to have remained ignorant of, or unengaged with, the Physiocratic debates.

Turgot in particular represents an almost certain point of contact. Anne-Robert-Jacques Turgot, Baron de l’Aulne, was in the early 1760s one of the most distinguished young intellectuals in Paris, a former theology student turned philosophe, a member of the Académie française, and a man whose combination of practical administrative ability and theoretical rigour made him unique among the Physiocrats. He moved in exactly the same circles as Hume. He was a regular guest at Mme. Geoffrin’s salon and at d’Holbach’s dinners. His essay Éloge de Gournay (1759), in which he outlined the economic philosophy of his mentor Vincent de Gournay, the man who had coined or at least popularised the phrase “laissez faire, laissez passer“, was widely circulated among Parisian intellectuals and would certainly have been known to a reader of Hume’s voracious appetite.

Hume’s own economic thinking, as expressed in his Political Discourses of 1752, was already moving in directions that showed remarkable convergence with Physiocratic concerns. His essays “Of Commerce,” “Of Money,” “Of Interest,” “Of the Balance of Trade,” and “Of Taxes” constituted the most rigorous analysis of commercial society yet attempted by any British thinker. In “Of the Balance of Trade,” Hume had demolished the mercantilist obsession with maintaining a favourable balance of trade through the price-specie flow mechanism, a demonstration that when a nation accumulated gold, prices would rise, exports would become less competitive, gold would flow out, and the “balance” would automatically correct itself. This was an argument that resonated powerfully with the Physiocratic critique of mercantilist intervention, though it reached its conclusions through a different theoretical path.

When Hume met Quesnay’s circle, and the balance of probability strongly suggests he did, he would not have been a student sitting at the feet of masters. He would have been a peer engaging in dialogue, and the exchange would have moved in both directions. The Physiocrats were aware of Hume’s Political Discourses, which had been translated into French in 1754 and were widely read in the circles that would become the Physiocratic school. Quesnay himself reportedly admired Hume’s analysis of money and interest. The encounter, then, if it happened as we may reasonably speculate, would have been a meeting of minds already partially converged, a recognition, across the Channel and across the language barrier, of shared intellectual territory.

What Hume Took Away

The most significant thing Hume appears to have absorbed from his French years, insofar as we can trace intellectual influence through the evolution of his published and correspondence output, was a deepened appreciation for the systemic quality of economic life. The Physiocrats, whatever their errors, were the first school of thought to treat the economy as a system, as a totality in which all the parts were connected, in which wealth moved in circular flows, in which an intervention at one point inevitably produced consequences at other points throughout the whole. Quesnay’s Tableau Économique, with all its idiosyncratic emphasis on the primacy of agriculture, was revolutionary in its ambition to represent the entire economy as a single analytical object.

Hume had already grasped something of this systemic quality in his pre-France economic essays. But his later letters to Smith, particularly those from the period after his return to Britain in 1766, show a man who is thinking with increasing sophistication about the interconnectedness of commercial phenomena. His letter to Smith in 1769, in which he comments on Smith’s progress on what would become The Wealth of Nations, demonstrates a thinker who has absorbed the Physiocratic lesson about economic systems while remaining characteristically sceptical of Physiocratic excesses.

There is also the less tangible but perhaps more important question of what France did to Hume’s feeling about economic questions, what it did to his sense of what was possible in commercial society, and what was at stake. Paris in the 1760s was a city of extraordinary luxury and extraordinary poverty existing in proximity so close as to be grotesque. The gap between the gilded world of the salons and the swarming misery of the Faubourg Saint-Antoine was impossible to ignore. The Physiocrats, who were above all else reformers believing that the tax system was strangling French agriculture, that mercantilist regulation was impoverishing the nation, and that the ancien régime’s economic arrangements were producing results disastrous for everyone, including the aristocracy, gave that observation a political and analytical urgency. Hume returned to Britain a more thoroughly convinced advocate of economic liberalisation than he had left it.

Part Three: Adam Smith in France

The Tutorship and the Road South

Adam Smith arrived in France in February 1764 as travelling tutor to Henry Scott, the third Duke of Buccleuch. The commission reflected both the esteem in which Smith was held by the Scottish nobility and the financial realities of mid-eighteenth-century academic life. The arrangement was extraordinarily generous by the standards of the day: Smith received a salary of £300 per year plus expenses, more than double his professorial stipend at Glasgow, and would continue to receive £300 per year for the rest of his life after the journey concluded. It secured him the financial independence that allowed him to write The Wealth of Nations without concern for income.

The journey took Smith first not to Paris but to Toulouse, the great legal and administrative capital of southern France, where he and the young Duke settled for eighteen months, a period that proved, by Smith’s own rueful admission, something of a trial. Toulouse in the 1760s was a prosperous provincial city but not an intellectual centre of the first rank, and Smith, whose social skills were genuine if sometimes overwhelmed by his tendency toward absent-minded intellectual absorption, found the slow pace and limited conversation dispiriting. It was from Toulouse, in the summer of 1764, that he wrote to Hume the famous letter: “I have begun to write a book in order to pass the time. You may believe I have very little to do.”

This throwaway remark, so characteristic of Smith’s tendency to understate his own ambitions, represents one of the most significant sentences in the history of economics. The book he was “beginning to write” in Toulouse would take another twelve years to complete and would be published in March 1776 as An Inquiry into the Nature and Causes of the Wealth of Nations, a work that transformed not just economics but the entire moral and political vocabulary of the modern world. That it began in a southern French city, during a period of enforced quietude that drove Smith to write simply “to pass the time,” is one of the more delightful ironies of intellectual history.

What was Smith writing in Toulouse? We cannot know for certain, since no manuscripts from this period survive. But the circumstantial evidence suggests that he was working through questions about labour, value, and the division of labour that had been incubating in his Glasgow lectures for years, questions about why some nations were wealthy and others poor, about what determined the prices of goods, about the relationship between wages, profits, and rent. These were questions he had been turning over in his mind since at least the early 1750s, when the Glasgow lectures on jurisprudence, of which student notes survive, show him already thinking about commercial society in terms that foreshadow The Wealth of Nations.

But Toulouse was only the beginning. In the late summer of 1765, Smith and the Duke moved to Geneva (where Smith met Voltaire, a meeting he recalled with evident satisfaction for the rest of his life) and then, in December 1765, to Paris, where the intellectual world that had been preparing Smith’s greatest ideas was waiting.

Paris: The Meeting with Quesnay and His Circle

The winter and spring of 1765-1766 represent, for our purposes, the most consequential months in the pre-history of modern economics. Smith arrived in a Paris where Hume was still serving as chargé d’affaires at the British Embassy, Hume did not leave France until January 1766, and where the Physiocratic movement was at the height of its excitement and ambition. The two Scots were therefore briefly in Paris simultaneously, and both were moving in circles that overlapped extensively with the Physiocrats.

The most important contact Smith made in Paris, the most consequential for the subsequent history of economic thought, was with François Quesnay himself. Quesnay was then in his early seventies, a physician by training who had risen to become the personal doctor of Mme. de Pompadour and through her patronage had gained access to Versailles and the ear of the king. He was a small, serious, extraordinarily concentrated man, famous for the intense stillness of his manner and his willingness to discuss the most abstruse economic questions with complete absorption for hours at a stretch. His salon at Versailles, which met regularly in the rooms he occupied as court physician, was the centre of the Physiocratic universe.

Smith met Quesnay at Versailles. The evidence for this, while not extensive, is consistent with what we know of Smith’s movements in France and of Quesnay’s social circle. The most powerful corroborating evidence comes from Dugald Stewart’s Account of the Life and Writings of Adam Smith (1793), in which Stewart, drawing on information provided by Smith himself in conversation, records that Smith “had occasion to be much with M. Quesnai” during his time in France, and that he had a high opinion of Quesnay’s abilities despite disagreeing with his theoretical conclusions. Stewart also records the remarkable fact, which deserves to be much more famous than it is, that “Mr. Smith had once an intention, as I have been told, to have inscribed the ‘Wealth of Nations’ to his memory.” That Smith contemplated dedicating his masterwork to a French physician who had developed an economic theory he substantially disagreed with is one of the most revealing details in the entire biography. It suggests not a polite acknowledgment of a minor influence but a deep, almost filial respect, the kind of intellectual debt that shapes a thinker’s fundamental orientation even when the specific conclusions are rejected.

What would the meetings between Smith and Quesnay have been like? We are in the realm of speculation, but it is imagination well-grounded in historical particulars. Quesnay received visitors in a manner that was itself characteristic of the Physiocratic style, systematic, relentless, obsessed with the demonstration of first principles. He was famous for the Tableau Économique, which he had famously been allowed to print on the king’s own press at Versailles, a document he revised repeatedly through the late 1750s and early 1760s in successive attempts to make its logic more rigorous and more comprehensive. The Tableau was an object of almost mystical reverence among the Physiocrats, Mirabeau called it one of the three great inventions of human history, alongside writing and money, and a subject of puzzled scepticism among outsiders who could not entirely follow its chain of reasoning.

Smith would have engaged with the Tableau with exactly the mixture of genuine intellectual admiration and sceptical rigour that characterised his approach to all ideas. He would have seen, immediately, what was revolutionary about it: the conception of an economy as a system of circular flows in which the annual product of a nation could be traced from its point of origin in agricultural labour through the classes that transformed and distributed it and back again to the point of origin. This was a conception without parallel in the economic literature of the time, and Smith absorbed it deeply. The Physiocratic distinction between “productive” and “unproductive” labour, which the Physiocrats defined, absurdly in Smith’s eventual view, as the distinction between agricultural and non-agricultural work, became one of the organising distinctions of The Wealth of Nations, transformed and corrected.

He would also have engaged, one imagines, with intense interest in Quesnay’s insistence on what the Physiocrats called the ordre naturel, the natural order, the idea that economic life had a discoverable natural structure that would emerge and flourish if only the dead hand of mercantilist regulation and arbitrary taxation were removed from it. This concept, translated out of its specifically agricultural context, became in Smith’s hands the great animating idea of The Wealth of Nations: the notion that free markets, undistorted by mercantile monopoly or governmental interference, would naturally channel individual self-interest toward outcomes beneficial for the whole. The famous “invisible hand”, which Smith mentions only three times across his entire published work but which has become the most celebrated metaphor in the history of economic thought, is at its root a generalisation of the Physiocratic ordre naturel applied to an economy no longer conceived as primarily agricultural.

Turgot: The Most Important of All

If Quesnay was the oracle, Turgot was the Physiocrat who may have mattered most to Smith. It is with Turgot that the evidence of intellectual exchange is most tantalisingly suggestive. Anne-Robert-Jacques Turgot was a man of extraordinary range, simultaneously a working administrator and a theorist of the first order. He served as intendant of Limoges from 1761 to 1774, one of the great reforming administrators of the ancien régime, before Louis XVI appointed him Minister of Finance in 1774. His Réflexions sur la formation et la distribution des richesses, Reflections on the Formation and Distribution of Wealth, was composed in 1766, largely during the period when Smith was in Paris, and circulated in manuscript among the Physiocratic circle before its eventual publication in 1769-1770.

The Réflexions is a work of striking theoretical sophistication, far more so than most of Quesnay’s own writings. Turgot develops a theory of capital accumulation, a theory of the rate of profit and interest as determined by the competition of capitals, and a proto-theory of the distinction between different classes of income, wages, profits, and rent, that reads, at points, with remarkable closeness to chapters of The Wealth of Nations. The question of whether Smith read the Réflexions in manuscript during his time in Paris, or received a copy subsequently, is one of the most debated questions in the historiography of economics.

The case for a direct textual connection is circumstantial but powerful. Smith and Turgot were certainly known to each other, Turgot moved in the same Parisian circles as Hume, and Hume, who had extensive contact with Turgot, would almost certainly have introduced Smith to him. Hume’s admiration for Turgot was warm and well-documented: in a letter of 1766 he described Turgot as “a man of quality, a man of parts, a man of honour and a man of wealth, and though young, of great reputation.” When the Réflexions was eventually published and a copy reached Britain, it was Smith to whom Turgot is most plausibly assumed to have sent a copy, given Smith’s emerging reputation as the British thinker most seriously engaged with the questions the Réflexions addressed.

The structural parallels between Réflexions and The Wealth of Nations, particularly in their treatment of capital accumulation, the distinction of income classes, and the theory of interest, are of the kind that could be produced either by a direct reading of one by the author of the other, or by two minds working on the same questions with access to the same underlying intellectual tradition. Given the other evidence for contact, the former explanation seems the more economical.

It is with Turgot that the most important point of convergence, and the most important point of divergence, between Physiocracy and Smithian economics becomes visible. Both men believed that the key to national wealth was the accumulation and productive deployment of capital, of the stock of tools, materials, and provisions that enabled labour to be more productive than it could be in their absence. Both believed that the rate of return on capital was the crucial variable determining the pace of accumulation. But where Turgot (faithful to the Physiocratic orthodoxy) still believed that only agriculture produced a genuine “net product”, a surplus above the costs of production, Smith generalised this insight to encompass all forms of productive labour. The “productive” and “unproductive” distinction in The Wealth of Nations is recognisably descended from the Physiocratic original, but its meaning has been fundamentally transformed: Smith’s productive labour is any labour that produces a durable product capable of being sold and that therefore contributes to the accumulation of capital; his unproductive labour (menial servants, lawyers, clergy, and, in a passage of magnificent irreverence, “players, buffoons, musicians, opera-singers, opera-dancers”) produces only a transient service that is consumed as it is performed.

The Salons: Helvétius, d’Holbach, and the Philosophical Environment

The Physiocrats were, of course, not the only intellectual influence on Smith during his Paris years. The city was saturated with ideas, and a man of Smith’s intellectual appetite and social access would have absorbed them from many directions. Two salons deserve particular attention for what they contributed to the intellectual environment Smith inhabited.

The salon of Claude-Adrien Helvétius, one of the most controversial philosophes of the age whose book De l’Esprit had been publicly burned in 1759 for its materialist and utilitarian claims, was a gathering point for some of the most radical thinkers in Paris. Helvétius had died in 1771, but his widow, Anne-Catherine, continued to host one of the most brilliant salons in Paris, which would later include Benjamin Franklin among its regulars. During Smith’s time in Paris, Helvétius himself was alive and active, and his ideas, the systematic analysis of human behaviour in terms of pleasure-seeking and pain-avoiding, the attempt to derive a complete science of society from the mechanics of self-interest, would have resonated powerfully with a thinker working through the theoretical foundations of commercial society.

The Baron d’Holbach’s salon, known as the “café de l’Europe“, held on Thursdays and Sundays in his magnificent house, was the most intellectually daring gathering in Paris, a place where religious scepticism and philosophical materialism were discussed with a freedom that would have been impossible in London. Hume had been a regular there during his years in Paris, and Smith, who moved in the same circles and had Hume to introduce him, would likely have attended at least some of d’Holbach’s famous dinners.

What Smith drew from these wider philosophical environments was, primarily, a sharpening of the theoretical foundations of what he was trying to do. The French philosophes were, like Smith, engaged in the project of creating a science of human society, a systematic analysis of human behaviour and its social consequences that was empirical rather than theological, descriptive rather than prescriptive, and grounded in observable regularities rather than divine command. The project of The Wealth of Nations, to explain the wealth and poverty of nations through a systematic analysis of the economic behaviour of self-interested individuals operating within institutions, is squarely within this Enlightenment scientific ambition. Paris confirmed and deepened Smith’s conviction that such a project was possible and necessary.

Part Four: The Productive Disagreement

The Genius of the Critique

The relationship between Physiocracy and Smithian economics cannot be characterised simply as one of influence and adoption. It is more subtle and more interesting than that: a relationship of productive disagreement, in which Smith absorbed the deep structure of Physiocratic thought, its systemic vision, its commitment to the ordre naturel, its critique of mercantilism, while systematically dismantling its specific theoretical framework. Book Four of The Wealth of Nations contains one of the most respectful intellectual demolitions in the history of economic thought: a sustained critical analysis of the Physiocratic system that manages simultaneously to honour its revolutionary ambitions and to demonstrate its central error.

“This system, however, with all its imperfections,” Smith wrote of the Physiocratic school, “is perhaps the nearest approximation to the truth that has yet been published upon the subject of political economy.” This sentence, more than any other single statement in The Wealth of Nations, reveals the nature of the relationship. The Physiocrats had been approximately right; they had grasped the fundamental shape of the problem and had made a genuine advance toward its solution, but they had been wrong about the specific location of the source of wealth. By confining productive activity to agriculture and treating all other labour as merely “sterile,” they had imported into their otherwise revolutionary analysis a remnant of the pre-commercial mentality that privileged land above all other productive inputs.

Smith’s correction was simple in statement, though its implications were enormous: it was not agriculture but labour, all forms of productive labour, that was the ultimate source of wealth. The famous opening sentence of The Wealth of Nations, “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life” is, among other things, an implicit rebuke to the Physiocrats: not the land, not the soil, not the husbandman’s cultivation, but labour, all labour, in whatever sector it is applied, is the true foundation of national wealth.

This labour theory of value, which Smith did not hold in the fully developed form that Ricardo and Marx would later elaborate but which he pioneered, was paradoxically both a radical departure from Physiocracy and a logical extension of its deepest insights. The Physiocrats had been right to look for a general theory of the source of value; they had been wrong about where the source was located. Smith found the right location, and in doing so, he made political economy for the first time fully universal, applicable to commercial, manufacturing, and agricultural economies alike, independent of the particular natural gifts of any territory.

The Division of Labour: A Scottish Observation, a French Framework

The famous opening chapters of The Wealth of Nations, the analysis of the division of labour illustrated by the example of the pin factory, are so well known that it is easy to forget how radical they were as theoretical moves. Smith’s insight was that the enormous productivity of modern commercial society derived primarily not from any particular natural advantage or technological breakthrough but from the systematic division of the process of production into specialised tasks performed by different workers. A single worker making pins from scratch, Smith observed, could produce perhaps twenty pins per day; ten workers, each specialising in a particular sub-task, could produce forty-eight thousand.

This observation has antecedents in the French intellectual environment, though Smith’s treatment of it was uniquely penetrating. The Encyclopédie — Diderot and d’Alembert’s great monument to the Enlightenment, of which Quesnay himself had contributed the economic articles, contained extensive analyses of the techniques and organisation of various manufactures, and these “descriptions des arts et métiers” may well have provided Smith with specific empirical material for his theoretical analysis. It has been suggested by several historians that the famous pin-making example in The Wealth of Nations may owe something to a similar example in the Encyclopédie’s article on “Épingle” (pin), which described in detail the multiple stages of pin manufacture. Whether or not this specific textual connection holds, and it remains disputed, the broader intellectual environment of the French Encyclopédie project, with its celebration of practical knowledge and mechanical skill, clearly contributed to the climate in which Smith developed his analysis.

The Physiocratic concept of the circular flow of wealth through the different “classes” of society, the productive class of farmers, the proprietary class of landlords, and the sterile class of artisans and merchants, was also, despite its fundamental errors, the structural ancestor of Smith’s own analysis of the three great classes of commercial society: labourers receiving wages, capitalists receiving profits, and landlords receiving rent. Smith took the Physiocratic three-class framework, corrected its classification of who was “productive,” and turned it into the fundamental social anatomy of capitalist society.

Part Five: After France

The Return and the Writing

Smith left France in late 1766 and spent the next decade in Kirkcaldy, living with his mother, working on The Wealth of Nations with the focused intensity of a man who knows what he has to say and is determined to say it properly. The letters of this period, those that survive, show a man in complete intellectual command of his material, working through the vast architecture of a book that would cover the division of labour, the theory of value and price, wages, profit and rent, the history of commerce, the analysis of colonial policy, and the devastating critique of mercantilism that had been building in his mind since his Scottish apprenticeship and his French education.

Hume, during these years, remained his closest intellectual companion even at a distance. The correspondence between them in the early 1770s, as Hume’s health declined and as Smith pushed toward completion, is among the most moving in the history of philosophy. Hume was impatient for the book: “By all accounts your work is excellent,” he wrote in 1769. “Your diligence and industry is indefatigable.” Smith’s replies show a man acutely conscious of the responsibility he carries and determined not to rush what must be right.

Hume died in August 1776, just five months after the publication of The Wealth of Nations in March of that year. He had lived to see its publication and its initially warm reception, but not to witness the full magnitude of its eventual influence. Smith’s obituary letter for Hume, one of the great elegies in the English language, described his friend as “approaching as nearly to the idea of a perfectly wise and virtuous man as perhaps the nature of human frailty will permit.” It is a description that, stripped of its eighteenth-century formality, expresses something like: here was the person who made me what I am.

The Afterlife of Physiocracy in The Wealth of Nations

The Wealth of Nations was published on 9 March 1776, a coincidence of date that would later acquire ironic significance, given that another great liberal document was produced that same year. It was an immediate success, going through three editions in Smith’s lifetime and establishing its author as the world’s preeminent authority on political economy within a few years of its appearance. Charles James Fox, the Whig statesman, said he had read it through “with the most care and attention”; Pitt the Younger reportedly took Smith’s arguments as the intellectual basis for his commercial and fiscal reforms in the 1780s.

The Physiocratic traces in the book are visible throughout, if one knows where to look. The fundamental systemic vision, the economy as a totality of interconnected flows rather than a collection of discrete transactions, is Physiocratic in inspiration even when it has been transformed almost beyond recognition. The critique of mercantilism, which occupies much of Book Four and which constitutes one of the most sustained and devastating policy arguments in economic literature, is in many ways a generalisation of the Physiocratic assault on monopoly and regulation: where the Physiocrats had argued that mercantilist policies benefited a narrow class of merchants at the expense of the agricultural nation, Smith argued that they benefited merchants and manufacturers at the expense of the consuming public and the general welfare.

The concept of the “natural price”, the centre of gravity around which market prices oscillate, carries the imprint of the Physiocratic ordre naturel: there is, Smith insists, a natural level at which wages, profits, and rents will settle in the absence of artificial distortions, and this natural level represents the equilibrium to which competitive markets tend of their own accord. The “invisible hand” that directs individual self-interest toward social benefit is a secularised and generalised version of the Physiocratic conviction that the natural order of economic life, undistorted by human interference, tends toward the common good.

Part Six: What Would Economics Look Like Without France?

The Counterfactual

The question worth asking, as an explicitly speculative exercise, is what the development of economic thought might have looked like had neither Smith nor Hume spent significant time in France and encountered the Physiocratic movement.

The answer, one suspects, is that The Wealth of Nations would have been a very different book, perhaps a less systematic one, perhaps one less thoroughly grounded in the conviction that economic phenomena constitute a system amenable to unified theoretical treatment. Smith’s pre-France economic thinking, as visible in the Glasgow lectures, was already sophisticated; he had already grasped the importance of the division of labour, the labour theory of value, and the critique of mercantilism. But the Glasgow lectures, for all their brilliance, lack the architectural grandeur of The Wealth of Nations, the sense that one is mapping an entire world, tracing the connections between all its parts, giving a complete account of how a commercial society works and what makes it flourish or decay.

That architectural ambition, the vision of political economy as a science of the whole, came from France. It came from the Tableau Économique, from Turgot’s Réflexions, from the Physiocratic determination to represent the entire economy as a single analytical object. Without that encounter, The Wealth of Nations might have been what the Glasgow lectures already were: an extraordinarily penetrating series of observations about commercial life, but perhaps lacking the unified theoretical framework that made it not just a great work but a founding document.

Hume’s development, too, might have been different. His economic essays of 1752 were already, in their clarity and rigour, decades ahead of anything else being written in Britain on these subjects. But the French experience appears to have deepened his sense of the urgency and practical importance of economic reform; his subsequent letters on economic policy show a man who has moved from theoretical analysis to reforming impatience, a man who has seen what mercantilist and aristocratic arrangements do to a real economy and who has returned convinced that change is not merely intellectually interesting but morally urgent.

The Missing Dedication

Return, at the close of this argument, to the haunting fact recorded by Dugald Stewart: that Smith had intended to dedicate The Wealth of Nations to Quesnay. It is haunting precisely because it would have been such a strange dedication, from a man who spent a substantial portion of his masterwork demonstrating that Quesnay’s most central theoretical claim was wrong. What would have possessed Smith to make such a gesture?

The answer is that for Smith the important thing about Quesnay was not his specific theory of agricultural surplus but his vision of what a science of political economy could be: systematic, rigorous, grounded in a realistic understanding of how economic life actually worked, and capable of producing conclusions that could guide the reform of real institutions. Quesnay had shown, as no one before him had shown, that it was possible to analyse the entire economic life of a nation as a single object of inquiry and to draw from that analysis conclusions with direct policy relevance. That was the gift Smith wished to honour, not the specific contents of the Physiocratic system, but the form of inquiry it represented and the intellectual ambition it embodied.

Quesnay died in December 1774, before The Wealth of Nations was complete. Smith did not add a new dedication after his death; he simply removed the intention and let the book go out without one. But the ghost of that unrealised dedication haunts the text, present in the extraordinary generosity of Smith’s treatment of the Physiocratic system in Book Four, in the care with which he dismantles it while honouring its ambitions, in the architectural quality of the whole that bears Quesnay’s imprint even as it surpasses him.

Part Seven: Monopoly, Land, and the Community’s Stolen Wealth

The Single Tax and Its Radical Implications

One of the most consequential ideas that Smith and Hume encountered in Paris was not, at first glance, the most glamorous. Amid the grand theoretical architecture of the Physiocratic system, the circular flows, the classes of society, the mystical primacy of agriculture, there sat a very specific policy proposal that the Physiocrats called the impôt unique, the single tax. The idea was straightforward in statement and radical in implication: since all genuine wealth derived ultimately from the land, and since the landlord class received the net product of the nation’s agriculture simply by virtue of owning that land rather than by contributing any productive effort of their own, the only tax that made sense was a tax levied directly on that net product, on the rent of land. All other taxes, the Physiocrats argued, were ultimately borne by the productive agricultural class in any case, routed through the economy’s circular flows in damaging and distorting ways before arriving at the treasury. Better to tax the rent directly, to take from the proprietors the portion of national wealth that belonged to the whole community, and to leave the productive classes, the farmers, the artisans, the labourers, entirely untaxed and free to deploy their energies without penalty.

This was a more subversive idea than it appeared. The great hereditary landowners of Europe, the lords, the dukes, the squires, the ecclesiastical proprietors who, between them, controlled the overwhelming majority of the continent’s productive territory, had always presented their ownership as natural, ancient, and divinely ordained. The rent they collected was, in their own self-conception, the legitimate return on an asset that was theirs by history and law. What the Physiocrats were saying, beneath the technical language of the impôt unique, was that this was a fiction, that rent was not a legitimate return on productive effort but a tribute levied by those who happened to own the earth on those who had to use it to live. The proprietors, in Physiocratic analysis, were the great passive class: they contributed nothing to production, they innovated nothing, they risked nothing. They simply owned, and the ownership itself, quite apart from any improvement or cultivation they might undertake, entitled them to a share of everything the land produced.

Smith absorbed this insight, transformed it, and extended it into what became one of the most quietly radical threads running through The Wealth of Nations. His treatment of the rent of land is among the most startling passages in that carefully argued book, and it is rarely quoted by those who claim his authority for their preferred economic arrangements. “The rent of land,” Smith wrote, “considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take, but to what the farmer can afford to give.” Land rent, in other words, is not a reward for anything the landlord does. It is what the market will bear, the maximum that can be extracted from those who need access to the land to survive and produce. It is, structurally, a monopoly price, and Smith’s use of that particular word was deliberate and precise.

He went further. Ground rents, the rent of land in its pure form stripped of any return on buildings or improvements, were, Smith argued, a uniquely appropriate subject of taxation precisely because such a tax would fall entirely on the landlord and could not be shifted onto anyone else. “Ground-rents are a still more proper subject of taxation than the rent of houses,” he wrote in Book Five. “Nothing can be more reasonable than that a fund which owes its existence to the good government of the state, should be taxed peculiarly, or should contribute something more than the greater part of other funds, to the support of that government.” The logic is worth unpacking because it contains, in compressed form, an entire theory of community-created value. The ground rent owes its existence to the good government of the state, to the security, the law, the infrastructure, the accumulated social investment that makes a given piece of land valuable. It is not the landlord who creates the value of his land. It is everyone else. The growth of a city around a plot of ground, the construction of a road or harbour nearby, the increase in population that creates demand for its produce, the maintenance of law and order that makes it safe to farm, all of these factors, generated by the collective activity and investment of the whole community, flow directly into the rent that the landlord collects. He sits at the mouth of a river of community-created value and collects a toll that he has done nothing to earn.

This was not a peripheral observation in The Wealth of Nations. It was connected to the book’s central argument in ways that have been systematically obscured by subsequent generations of commentators. Smith’s insistence that the market, left free of artificial distortions, would produce the optimal distribution of labour and capital depended on a prior condition: that the monopoly on land, the fact that no one can produce anything without using some portion of the earth’s surface, and that the earth’s surface is entirely owned by a relatively small class of hereditary proprietors, should be addressed directly rather than left to undermine the market’s natural workings from below. You cannot have a free market in labour and capital while the ownership of the basic input of all production is concentrated in the hands of a hereditary class that collects rent without contributing effort. The monopoly in land vitiated all the freedoms the market was supposed to guarantee.

Hume and the Nature of Unearned Privilege

Hume approached the same territory from the direction of his historical and moral philosophy, and his conclusions were in many ways sharper and more explicitly radical than Smith’s, though they were expressed with the characteristic indirection of a man who had learned to be careful about what controversies he invited upon himself.

His essay “Of the Populousness of Ancient Nations” contains a sustained analysis of the relationship between different forms of property ownership and the prosperity of populations that amounts to a politely devastating critique of hereditary landed privilege. His essay “Of Taxes” is one of the most compressed and penetrating of his economic writings. It argues that taxes on consumption and production fall ultimately on labour and therefore reduce the productive capacity of the economy, while clearly implying that taxes on those incomes which arise not from productive effort but from the ownership of resources would be far less damaging. The distinction Hume was drawing, between incomes earned by contributing to production and incomes received merely by owning something scarce, was the same distinction that would later be systematised as the difference between earned and unearned income, between the returns to labour and capital on one hand and the returns to monopoly on the other.

What Hume had seen in France, and this is where the Parisian experience was perhaps most formative for his moral and political philosophy, was the full human cost of a society organised around the monopoly of land and privilege. The France of Louis XV was a country in which the great bulk of agricultural land was controlled by the nobility and the Church, in which the peasant cultivators paid taxes, rents, and feudal dues that absorbed so large a portion of their output that productive improvement was irrational. Why drain a field or rotate your crops if the additional produce simply vanishes into the landlord’s pocket? The Physiocrats had been born out of the recognition that this structure was not merely unjust but economically catastrophic: that France was poor not because it lacked resources or intelligent people but because its institutional arrangements systematically transferred the gains from productive effort to those who had contributed nothing to producing them.

Hume returned to Britain with the conviction, expressed with increasing directness in his later correspondence, that the same dynamic, less extreme in its English form but fundamentally similar in its structure, was at work across the Channel. The landlord class of eighteenth-century Britain, entrenched behind the Corn Laws that kept the price of grain artificially high, behind game laws that criminalised the rural poor’s use of common resources, and behind an electoral system in which the ownership of land was the qualification for political power, was extracting from the productive economy a toll that served no economic function. They were, in the language that Smith would later make famous, reaping where they had never sowed.

Monopoly: The Universal Corrupter

The insight about land was, for both Smith and Hume, not an isolated observation but an instance of a much broader principle. Land was the most important and the most ancient of monopolies, but it was not the only one that corrupted economic life and impoverished those who had no access to it. The mercantile economy of eighteenth-century Britain was saturated with monopoly in every form: chartered monopolies, guild monopolies, patent monopolies, colonial monopolies, and it was this comprehensive system of legal privilege, Smith argued, that accounted for the difference between the wealth that commercial society was capable of generating and the much more modest wealth it actually produced.

His famous remark about people of the same trade seldom meeting without the conversation ending in a conspiracy against the public was not a witticism thrown out in passing. It was a precise characterisation of a structural tendency in market economies: the tendency of those who have accumulated capital in a particular line of business to use their political influence to erect barriers against competition, to freeze their advantages into legal privileges, and to convert what should be a temporary market position into a permanent monopoly. The mercantilist system, the entire web of navigation acts, colonial restrictions, import prohibitions, guild regulations, and chartered company monopolies that governed British economic life, was, in Smith’s analysis, the institutional expression of this tendency elevated to the level of national policy.

The East India Company was his supreme example, and he returned to it repeatedly with a ferocity barely concealed beneath the polished surface of his prose. Here was a private corporation that had been granted by royal charter the exclusive right to trade with the entire Indian subcontinent, a monopoly over commerce with hundreds of millions of people, and that had used this privilege to accumulate wealth, power, and eventually territorial sovereignty on a scale that made it a state within a state. What the Company did to India, the ruinous taxation, the forced deindustrialisation, the deliberate destruction of native manufacturers who might compete with Company imports, the extraction of vast wealth from a subcontinent reduced to poverty by the mechanism of monopoly, was, for Smith, not an aberration but a logical extension of what all monopolies did, simply operating at larger scale with greater impunity. Every monopoly extracted wealth from those who had no alternative but to pay its price and transferred it to those fortunate enough to hold the monopoly charter. Every monopoly impoverished the many for the benefit of the few. The East India Company merely did so across an entire continent.

The corn merchants, the woollen manufacturers, the shipping interests, the colonial planters, the chartered trading companies, all of these, Smith argued with patient and devastating thoroughness, were engaged in the same basic activity: using their access to political power to convert temporary market advantages into permanent legal privileges, and then using those privileges to extract tribute from the productive economy. The mercantile system was not, as its defenders claimed, a policy designed for the good of the nation. It was, as Smith put it with a bluntness rare in the text of The Wealth of Nations, “a system of government whose interest is to deceive and oppress the public”, a conspiracy of merchants and manufacturers against the consuming public and the general interest, dressed up in the language of national benefit.

Hume, whose political writing was always more condensed and more caustic than Smith’s, arrived at similar conclusions through his analysis of what he called “factions”, the tendency of organised interest groups to capture political institutions and redirect their power toward private benefit. His scepticism about the ability of governments to manage economic life wisely was rooted not in any abstract faith in markets but in a concrete observation about the political process: that those with concentrated interests and the organisational means to advance them would always tend to prevail over the diffuse interests of the general public, and that the result of this structural imbalance was a government policy systematically tilted toward the few at the expense of the many. Monopoly was not a market failure, in Hume’s analysis; it was the predictable product of the interaction between concentrated economic power and political institutions insufficiently equipped to resist it.

The Noble Cause: Freedom From Tribute

It is important to understand what was at stake for Smith and Hume in this analysis, because the contemporary tendency to read them as theorists of capitalism in its existing form obscures the radical, emancipatory ambition that animated their work. They were not describing and celebrating the economic order of their time. They were accusing it of its failings and proposing a transformation of it, had it been fully implemented, into something genuinely revolutionary. A message as relevant today as it was then.

The world Smith and Hume inhabited was one in which the overwhelming majority of the population lived in conditions of economic dependence that, in their more extreme forms, were barely distinguishable from serfdom. The Scottish agricultural labourers of Smith’s childhood were in many cases legally bound to their estates in forms of tenure that persisted long after formal feudal obligations had been abolished in England. The English rural poor were enclosed out of the common lands that had provided the margin between subsistence and starvation for centuries, driven into a wage dependence that offered no security and little dignity. The Irish peasantry paid rent to absentee English landlords whose only contribution to Irish life was the extraction of that rent. Across France and continental Europe, the peasant population supported through their labour an aristocracy whose hereditary claim to the land rested ultimately on conquest and royal grant rather than on any productive contribution.

Every one of these arrangements was a form of monopoly in operation. The landlord’s right to collect rent was the right of the monopolist over an input, land, without which no production was possible. The guild’s right to restrict entry to a trade was the right of the existing practitioners to extract a premium from those who wished to work. The chartered company’s exclusive right to a colonial trade was the right to set prices at whatever the traffic would bear, unchecked by the competition that would otherwise hold them to the natural level determined by labour costs and reasonable profit. The entire structure of the existing economic order, as Smith and Hume analysed it, was an elaborate apparatus for transferring wealth from those who produced it to those who owned the monopolies through which production had to pass.

To dismantle that apparatus, to expose the monopolies, to tax away the ground rents that represented the community’s own wealth capitalised into private hands, to abolish the chartered privileges that allowed merchants to conspire against the public, to strip the corn laws of their protection and let the price of bread fall to its natural competitive level: this was the programme that ran, explicit in some passages and implicit in the whole, through The Wealth of Nations and through Hume’s economic essays. It was a programme whose full implementation would have transferred enormous wealth from the hereditary and commercial monopolists to the productive working population. It was, in the most precise and non-rhetorical sense of the word, a programme of liberation.

Smith understood, with characteristic clarity, why that programme had not been implemented and would face formidable resistance. Those who benefited from the existing monopoly arrangements were not merely wealthy; they were politically powerful in proportion to their wealth, and they were organised in ways that the general public was not. “The interested sophistry of merchants and manufacturers confounded the common sense of mankind,” he wrote, in a sentence whose controlled fury is easy to miss if one reads quickly. The intellectual work that The Wealth of Nations performed, demolishing, argument by argument, the theoretical justifications that had been constructed for mercantile monopoly, was inseparable from the political work of making reform possible. You had to clear away the fog of interested argument before people could see the system for what it was.

The Physiocratic encounter mattered to both men for exactly this reason. The Physiocrats, for all their theoretical errors, were engaged in exactly the same political and intellectual project: the exposure of the institutional arrangements through which a small class of proprietors and privileged merchants extracted tribute from the productive population, and the construction of an alternative vision in which the natural order of economic life, undistorted by artificial privilege, would allow the productive energies of the whole population to flourish for the common benefit. The single tax on land rents was, in Physiocratic thinking, not merely a fiscal measure but a moral declaration: that the community’s wealth belonged to the community, and that those who collected it by virtue of owning land rather than by virtue of contributing labour were collecting something that was not, in the deepest sense, theirs.

Part Eight: How Smith’s Heirs Betrayed His Legacy

The Capture of a Name

There is a particular kind of intellectual theft that is more insidious than ordinary plagiarism, because it proceeds not by taking an idea without acknowledgement but by acknowledging an idea while systematically gutting it of its content. The theft of Adam Smith’s legacy by the free-market right over the course of the twentieth century is an example of this more insidious kind, and it deserves to be named plainly. The Adam Smith Institute, founded in London in 1977 by Madsen Pirie and Eamonn Butler, at precisely the moment when what would become Thatcherism was assembling its intellectual arsenal, has done more than any other single institution to establish Smith’s name as a trademark of a political and economic programme that is, in its central features, the direct opposite of what Smith actually argued.

The timing was not accidental. The 1970s crisis of Keynesian economics, the stagflation, the industrial disputes, and the apparent breakdown of the managed postwar settlement created a vacuum of ideas into which a revived free-market liberalism rushed with considerable force. Smith was the perfect figurehead: universally celebrated, sufficiently long dead to be unable to protest, and author of a book so large and so rarely read in full that selective quotation from it was practically an invitation. The image that was constructed, of Smith as the prophet of minimal government, free trade, and the beneficent invisible hand of the self-regulating market, served the purposes of the new right with extraordinary convenience. Margaret Thatcher wore the Adam Smith tie, a garment bearing his portrait, as a badge of intellectual seriousness. Ronald Reagan invoked his name. A generation of economics students was taught a simplified version of his ideas stripped of everything that complicated the neoliberal narrative.

What was stripped out was, as it happens, the most important part.

What the Adam Smith Institute Does Not Advocate

Consider what a genuinely Smithian institute would advocate, drawn directly from the text of The Wealth of Nations and the economic essays of Hume.

It would advocate, first and foremost, a tax on the rent of land, the community-created value that accrues to landowners through no effort of their own, simply as a consequence of the growth and investment of the surrounding community. Smith was explicit on this point, as we have seen. Ground rents are the most appropriate subject of taxation precisely because they represent wealth that belongs, by any reasonable account of its origins, to the community rather than to the individual proprietor. The Adam Smith Institute has never, in nearly five decades of operation, made land value taxation a central or even a minor part of its policy advocacy. The great landlords and property developers of modern Britain, whose wealth is generated in exactly the way Smith described, by the growth of cities and the investment of public money in infrastructure, receive no particular critical attention from an institution that bears Smith’s name.

It would advocate, second, a vigorous programme of monopoly-breaking, an assault on every form of concentrated market power that allows its holders to extract rents from those who have no alternative but to pay. Smith was as clear about this as he was about land. The conspiracy against the public that merchants and manufacturers were structurally inclined to pursue was not an occasional aberration; it was a permanent tendency that required constant political vigilance and institutional resistance. The modern equivalents of Smith’s mercantile monopolists, the tech platforms that have established near-complete control over digital commerce and communication, the pharmaceutical companies that use patent law to convert publicly funded research into private monopoly profits, the financial institutions that have concentrated the supply of credit into a handful of enormous enterprises too large to be allowed to fail, would have received from the real Adam Smith a treatment no less devastating than his treatment of the East India Company. The Adam Smith Institute, whose primary funders and political allies are drawn largely from the corporate sector that benefits from these concentrations of power, maintains a studied silence about them.

It would advocate, third, generous wages for working people, not as a concession to sentiment but as a matter of economic principle. “It is but equity,” Smith wrote, “that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged.” He regarded high wages not as a drain on the economy but as a sign of economic health: a prosperous, growing economy was one in which workers were well paid, and the attempt to depress wages in the interests of profit was both unjust and self-defeating. The Adam Smith Institute has consistently opposed minimum wage legislation, trade union rights, and other mechanisms through which workers organise to improve their share of the product of their labour. Smith would have found this incomprehensible.

It would advocate, fourth, extensive public investment in education and infrastructure. Smith devoted large portions of Book Five to the argument that certain goods, roads, canals, harbours, schools, the education of the common people would be systematically under-provided by private enterprise and required public funding. His argument for public education was particularly striking: an ignorant population, produced by a commercial economy that divided labour so finely that most workers spent their lives performing a single mechanical operation, was politically dangerous and humanly degrading, and its prevention was a legitimate charge on public revenue. The Adam Smith Institute, whose defining commitment is to the reduction of public spending and the extension of private provision, does not find this argument congenial.

The Real Smith and His True Enemies

The picture that emerges when one reads Smith without the neoliberal filter is of a thinker whose deepest hostilities were directed not at governments per se but at the specific alliance between governmental power and concentrated private interests that he called the mercantile system. He did not believe that governments were inevitably or always incompetent; he believed that governments in the real world of the eighteenth century had been captured by merchants and manufacturers who used them to erect monopolies, restrict competition, and transfer wealth from the productive population to the privileged few. His argument against government economic intervention was primarily an argument against that specific kind of intervention, the kind that served private monopoly at public expense.

The distinction is fundamental. The free-market right has read Smith as an argument against government action in general, for the minimal state and the maximum private sphere. But Smith’s argument was against a particular kind of government action: the mercantilist kind, the monopoly-granting kind, the kind that used the authority of the state to reward the organised political pressure of merchants and manufacturers with exclusive privileges at the public’s expense. He was equally clear that there were things governments should do and could do well: provide defence, maintain justice, build public infrastructure, and educate the common people. The argument was not for the minimal state but for the just state, for a government that served the general interest rather than the organised interest of the commercially powerful.

The Adam Smith Institute, and the broader free-market intellectual apparatus of which it is part, has for forty years wielded Smith’s name in the service of an agenda that would have struck the real Smith as disturbingly familiar. The privatisation of public utilities that creates private monopolies in place of public ones; the deregulation of financial markets that allows the concentration of enormous economic power in a handful of institutions; the weakening of labour rights that shifts bargaining power back toward employers; the resistance to land taxation that protects the hereditary and speculative wealth of the property-owning class; the defence of intellectual property regimes that convert publicly funded research into private monopoly profit: all of these are, in Smith’s own analytical framework, precisely the kinds of arrangements through which the rich and the organised extract tribute from the productive population. They are the mercantile monopoly system translated into the language of the twenty-first century.

Hume would have been no less scathing. His scepticism about the capacity of any organised group, whether a guild of merchants or a corporation of shareholders, to act in the public interest when private interest pointed in a different direction was one of the firmest and most consistently expressed convictions of his political philosophy. The notion that a think tank funded by corporate interests and committed to policies that served those interests was the authentic interpreter of the tradition he and Smith had founded would have struck him as a specimen of the interested sophistry he had spent his career exposing.

The Unfinished Revolution

What Smith and Hume began, and what has never been finished, was a revolution not against government but against monopoly in all its forms: the monopoly of land, the monopoly of chartered privilege, the monopoly of inherited position, the monopoly of organised commercial interest over the mechanisms of political power. They understood, with a clarity that has not been surpassed, that a market economy could only deliver its promise of general prosperity if it was genuinely free, free not merely of governmental regulation but of the private monopoly power that, in their world and in ours, consistently tends to capture and corrupt both markets and governments alike.

The recovery of that understanding, the recognition that the true Smithian programme is not the defence of property and privilege in their existing forms but the liberation of the productive population from the tribute system that monopoly in all its forms imposes upon them, would represent a more authentic honouring of two of the greatest minds Scotland has produced than anything the Adam Smith Institute has yet managed. It would also, one suspects, be considerably more useful to the world.

Smith sat in Versailles with Quesnay and talked about the sources of wealth and the nature of rent. He walked with Turgot and argued about capital and labour. He returned to Kirkcaldy and spent a decade turning those conversations into the most important work of social science in the English language. The cause he was serving, the liberation of ordinary people from the chains of monopoly and unearned privilege, was then and remains now, the most important unfinished business in the history of political economy.

This essay draws on the following historical record:

For a richer history of great scope and breadth, look to read: Cheating: The Human Project and Its Betrayal by Fred Harrison is published by Shepherd Walwyn. https://shepheardwalwyn.com/product-category/authors/fred-harrison/

Primary sources: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776); Adam Smith, The Theory of Moral Sentiments (1759); Adam Smith, Lectures on Jurisprudence (student notes, 1762-64, published posthumously); David Hume, Political Discourses (1752) and Essays, Moral, Political and Literary; the Correspondence of Adam Smith (edited by Mossner and Ross, Oxford 1977); the Letters of David Hume (edited by Greig, Oxford 1932); Anne-Robert-Jacques Turgot, Réflexions sur la formation et la distribution des richesses (1766/1769); François Quesnay, Tableau Économique (1758 and subsequent editions); Dugald Stewart, Account of the Life and Writings of Adam Smith (1793).

Key secondary works: Ian Simpson Ross, The Life of Adam Smith (Oxford, 1995); E.C. Mossner, The Life of David Hume (Oxford, 1980); Ronald Hamowy, The Scottish Enlightenment and the Theory of Spontaneous Order (1987); Elizabeth Fox-Genovese, The Origins of Physiocracy (Cornell, 1976); Ronald Meek, The Economics of Physiocracy (1962); Emma Rothschild, Economic Sentiments: Adam Smith, Condorcet, and the Enlightenment (Harvard, 2001).