Adam Smith is the greatest economist of all time. But was he right?

In 1759, Smith published his first great work, The Theory of Moral Sentiments. His second, The Wealth of Nations, followed in 1776. Both are regarded as fundamentally important source texts for every economist. No other economist has had such longevity.

One quote, from The Theory of Moral Sentiments, sums up his direct influence on the neoliberal economy of the modern world:

“Every individual ... neither intends to promote the public interest, nor knows how much he is promoting it ... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

Smith supports the idea that an iron law drives self-interest in a free market. He repeats this belief in The Wealth of Nations:

“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.”

It is clear why Smith was regarded as the central character for orthodox free marketers like Friedrich Hayek and Milton Friedman. But is it fair to reduce a great thinker to two quotes?

Stephen Kinsella, professor of economics at the University of Limerick, doesn’t think so.

“Reading a great man's words gives you three things," Kinsella says. 

"First, you get a strong sense of nuance. Smith is not really reducible to bullet points and allegories.

"Second, you get a sense of what kind of thinker Smith was. He was all-encompassing in his thought and cut from the cloth of his times. Today, he would not have been an economist at all.

"Smith would have engaged with the largest problems of our time, which are the disconnection of the self in a hyper-connected world and climate change. Third, you get to have a bit of critical disdain for them because Smith was only human.”

And did Smith really want the market to run free? Herman Daly, former senior economist in the Environment Department of the World Bank, didn’t think so.

He quotes Smith’s disdain for monopolies: “The monopolists by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price. The price of monopoly is upon every occasion the highest which can be got.”

The National columnist Richard Murphy said Smith knew that free markets did not work in the public interest, highlighting this quote from The Wealth of Nations: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Father of economics or errant uncle?

In Doughnut Economics, Kate Raworth references Smith more than a dozen times. Raworth writes that he has “an ill-deserved modern reputation as a free marketeer”.

Dirk Ents, the MMT scholar, says: "Adam Smith is the grandfather of economics, so he is relevant to all schools of thought – directly or indirectly”.

Ents suggests that within his work: “There are also important ideas about the specialization of labour and the limiting factor (extent of the market), introducing increasing returns to scale that fit well with Modern Monetary Theory.”

Perhaps the world’s leading heterodox economist, Steve Keen, sees him as an errant uncle.

“The preceding Physiocratic school of economic thought argued that land was the source of all wealth; Smith replaced this with labour as the source of prosperity and the division of labour as the source of its growth. Only now, as we overshoot the planet's capacity to support our rapacious civilisation, are we coming to realise that the Physiocrats were right and Smith was wrong.”

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Ecological economist Phil Lawn suggests that “Smith would oppose neoliberalism, which depletes moral and natural capital and undermines the successful transition to an ecologically sustainable, distributionally equitable, and allocative efficient economy”.

So Smith was a political economist. But also not an economist at all. He was right. And he was wrong. He would have supported the free market, while also being against it. You see what you want to see.

Smith dealt with aggregate wealth. Production was the answer, and it was all-consuming in Smith’s world. It dominated economic thought connecting Ricardo, Malthus, and Marx and continuing way into the middle of the twentieth century. Smith looked out of his window and saw only scarcity. There was little point in considering the importance of security and of reducing inequality when so many had so little. Production was the only goal. Today’s world couldn’t be further from Smith’s day.

In the global North, we live in a world with too much production. Too much stuff. We must move away from the production-led worldview of Smith and those economists who followed him.

We must now consider that security, wellbeing for all, and reducing inequality are our moral imperatives, not the further accumulation of goods. The idea of efficiency guided Smith and still drives the orthodox economics of the day. But efficiency arrives by trampling effective and just policies.

The “invisible hand” will not solve problems that Smith could not have imagined, and we can, therefore, not look to Smith for guidance.

But Smith provides inspiration. He broke with the conventional wisdom. “The result was a formidable interpretation of, and prescription for, the world as he found it,” says J K Galbraith.

No one would argue with that.

Is Adam Smith still relevant today? Was he a dyed-in-the-wool free marketeer? Join us for a live Q&A on Wednesday, 28th June, at 230pm BST to give us your thoughts on all this month's articles.