All Commentary
Thursday, April 1, 1976

Another Bicentennial: The Publication of The Wealth of Nations

Dr. Carson has written and taught extensively, specializing in American intellectual history. His most recent book, The Rebirth of Liberty (1973), covers the founding of the American Republic from 1760 to 1800.

It had never occurred to me that the key to understanding some of the crucial passages of the Declaration of Independence could be discovered by reading The Wealth of Nations. I had long known, of course, that they were both published in 1776: The Wealth of Nations in March, the Declaration of Independence in July. The thought was in my mind, too, that there was something symbolic in the fact that these two great landmarks of liberty had come forth in the same year. It is commonly understood that the two documents were produced from a similar intellectual outlook, but knowledge of this had but little prepared me for what could be learned about the one by studying the other.

The main difficulty in discerning the meaning of the Declaration of Independence is, for me at least, in the first few lines of the second paragraph. They are also the most quoted lines from the document. To wit: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.” Though there may be difficulty with some other passages, the most troublesome are these two: “that all men are created equal,” and the right to “the pursuit of Happiness.”

Differences Abound

In the most obvious senses, men are not created equal. They differ from one another in height, in weight, in strength, in native intelligence, in heredity, in ability, in upbringing, in interests, and in almost every other way that comes to mind. Indeed, these very differences go to make up one of our most prized possessions, our individuality. Not only are we not the same, as some say, but also in our differences we are not equal. Some have talents for doing all sorts of things. Others can learn to do anything only with the greatest difficulty. Some are endowed with all the good graces, or so it seems. Others are very nearly graceless.

There are those who claim that we are all equal in the sight of God. Whether this is so, or in what way it may be so, I do not know. Those who say this usually say it as if it were obvious and offer no proof or evidences in support of it.

Within the context of the Declaration, it is sufficiently clear that what is meant is that men are endowed by their Creator with an equality of rights. It is equally clear, when the matter is pursued logically and historically that for this to be instituted they must be equal before the law.

What are these rights to which men are entitled? According to the Declaration, they are the right to “Life, Liberty, and the pursuit of Happiness.” Life and liberty pose no great problem for explanation, but the same does not go for the pursuit of happiness. The commonly used phrase at the time was “property,” but Jefferson substituted for it “pursuit of Happiness,” not because he doubted that property was a natural right but because he wished to say considerably more than this. The meaning of the phrase poses no great difficulty. If other words are needed, it means the right to seek one’s own well-being. But what is the ground of such a right? How can seeking one’s own well-being be justified? Would this not be contrary to the general welfare? Would it not be that very selfishness which has been so often condemned? On what basis does the equal right to do such a thing rest?

The answers to these questions can be found in The Wealth of Nations. They can be found elsewhere in bits and pieces, but nowhere so comprehensively as in Adam Smith’s major work. There is in the following quotations the key to understanding the basic passages of the Declaration:

Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society, which he has in view. But the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.¹

The following is more famous but not necessarily clearer:

The produce of industry is what it adds to the subject or materials upon which it is employed. In proportion as the value of this produce is great or small, so will likewise be the profits of the employer. But it is only for the sake of profit that any man employs, a capital in the support of industry; and he will always, therefore, endeavor to employ it in the support of that industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods.

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, 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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.2

The same principle which applies to trade and manufacture within a country applies to that among countries as well:

… The interest of a nation in its commercial relations to foreign nations is, like that of a merchant with regard to the different people with whom he deals, to buy as cheap and to sell as dear as possible. But it will be most likely to buy cheap, when by the most perfect freedom of trade it encourages all nations to bring to it the goods which it has occasion to purchase; and, for the same reason, it will be most likely to sell dear, when its markets are thus filled with the greatest number of buyers.³

There are many economic concepts treated in Smith’s magnum opus, some of them more or less original with him, but there is one overriding principle which occurs over and over again. It is this: when individuals are free to pursue their own interests they will benefit not only themselves but the general public as well. Adam Smith did not discover, of course, that men are self-interested. That has surely been known as long as there has been a concept by which it could be thought. He may not have been the first to discover that there is a natural harmony wrought by an invisible hand — the natural order? — from the multitudinous acts of unconcerned and self-interested individuals, but he did give the principle the most pointed application and spell out the extent of its comprehensiveness. It is the crux of his lengthy and detailed argument for economic liberty and free trade.

There, too, lies the key to understanding some of the most momentous phrases of the Declaration of Independence. In what way are all men created equal? There may be others, but there is certainly this one: Every man is, by nature, self-interested. The Founders of the United States were apt to refer to it as self-love. Jesus made it the foundation point of his second most important commandment: “Do unto others as you would they should do unto you.” In short, He said, extend that care and love to others which you have for yourself. The Creator has implanted this self-interestedness, or self-love, in us to insure our survival and that of the race.

Self-Interest Is Normal

Any man lacking the ability to discern his interest and the will to pursue it is unfitted to the office of a man. He would be unable to look after himself and would have to be taken over by others for his own good and the protection of others from him. This is not to say that men may not perform selfless acts — acts of heroism, acts motivated by love untinctured by concern for self. It is rather to say that self-interest is the rule — the norm — and selflessness the exception. The opposite of self-interest is not, as is sometimes supposed, selflessness; it is self-destructiveness, a condition requiring restraint. All men are equal, then, in that all are self-interested.

Self-interest as the ground, or one of the grounds, of equality, gains plausibility by the fact that one of the unalienable rights asserted is the right to “the pursuit of Happiness.” This is the right to fulfill one’s self, to seek one’s own well-being, or to pursue one’s own interest. There is no reasonable way to attach a different meaning to the phrase. The Declaration of Independence makes the right to pursue his self-interest a fundamental right of man. Within the framework of The Wealth of Nations such a right is justified, for when men behave economically so as to advance their own interests the result is also to advance the good of people generally.

It is not my position, of course, that Jefferson was influenced by The Wealth of Nations when he wrote the Declaration, or that there was some sort of interchange between the two men. There was none to my knowledge. It is rather that a common set of assumptions was leading to similar conclusions, and that the two works illuminate one another.

Old Ideas Challenged

The two works are closer related, however, than even this would suggest. Much of the body of Smith’s two-volume work was devoted to a point-by-point refutation of the mercantile system and to the economic arguments for free trade. The American revolt followed changes in British policy, changes in taxation which can be attributed to the infelicities of mercantilism.4 Once the thrust of Smith’s conclusions about mercantilism were accepted, the American cause would have a virtually complete justification.

The full significance of the views that all men have an equal right to the pursuit of their interests and that when they exercise this right it works to the public benefit can only be appreciated in the context of what has usually been believed and done. To say that the ideas of Jefferson and Smith were radical may not expose their full scope. In fact, they laid under siege some of the most deeply rooted and persistent notions that men have held.

No notion is more deeply rooted and persistent than the one that some class, order, or body of men is chosen, ordained, or especially equipped to decide what is good for the rest of us. The generality of men are the sheep and they are the shepherds, as it were. How they have been chosen or selected has varied from time to time and place to place but such an elite has commonly occupied decision-making roles throughout history.

The Puritans of New England considered themselves chosen of God to rule over the people there. They not only excluded others from government but also laid down all sorts of economic restrictions. “Inns, mills, and ferries were subject to control. Charges were limited by law, and the obligations of such institutions were legislatively defined…. Efforts were made to determine fair prices, fair wages, and reasonable profits.”5

The most presumptuous effort to control the lives of people by an elite occurred in colonial Georgia, however, immediately after its founding. Georgia was conceived as a charitable undertaking and was placed under a Board of Trustees who resided in England. “The Board will always do what is right,” the Trustees proclaimed in 1735, “and the people should have confidence in us.”6 They proceeded to fasten upon the inhabitants regulations both strange and perverse:

Not only did they encourage silk-culture by a guaranteed inflated price and by bounties and prizes for the product delivered in England, but they even wrote into land-grants provisions requiring each grantee, in order to validate his claim, to plant at least 50 white mulberry trees on every 50 acres; every grantee of 500 acres had to plant 2000 trees within twenty years.

In addition, they had many rules governing consumption and other kinds of production than that of silk.

Many Regulators in England

Old England had its own varieties of elites to determine what was good for people in the centuries before Adam Smith. It had an hereditary monarchy and aristocracy, an established church with its hierarchy, and other classes and orders who participated in laying down regulations. These, from time to time, laid down rules governing economic relations: controlling prices, controlling wages, granting monopolies, deciding who could sell what, where, and to whom, restricting the lives and reducing the livelihood of the people.

One of the main difficulties with the notion that some know best what the rest of us should do is that those who govern are self-interested, too. They deny to men the right to decide what is in their own best interest, but what they most frequently do is saddle everyone with what is in the interest of a few. Smith did not neglect to point out that those who fastened the mercantile regulations on England did so to advance their own special interests. He said:

… The capricious ambitions of kings and ministers has not, during the present and the preceding century, been more fatal to the repose of Europe than the impertinent jealousy of merchants and manufacturers…. [T]he mean rapacity, the monopolizing spirit of merchants and manufacturers… may very easily be prevented from disturbing any body but themselves.

That it was the spirit of monopoly which originally both invented and propagated this doctrine [mercantilism], cannot be doubted; and they who first taught it were by no means such fools as they who believed it. In every country it always is and must be the interest of the great body of people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufactures confounded the common sense of mankind.8

It might be nearer to the whole truth to say that mercantilism resulted from a tacit alliance between monarch and merchants, each pursuing their own ends.

At any rate, Smith gave short shrift to the notion that there existed any person or group competent to decide the economic good for the rest of us. On one facet of the matter, he wrote:

The statesman, who should attempt to direct private people in what manner they ought to employ their capitals [sic], would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.9

Of the economy in general, he declared:

It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries.

They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.¹º

What Smith could say of the ways of kings and ministers can be said with equal justice about those who govern in republics.

A Gainer and a Loser in Any Transaction?

Another widely held notion is that in any given transaction there is someone who wins and someone who loses. How such a notion arises again and again is fairly easy to understand. In a transaction a merchant may make a profit, a profit which may be thought of as the difference between what he paid for the item and what he sold it for. The buyer, on the other hand, may be unable to discern any profit which he has gained in the transaction. At least, he is unable to calculate it and enter it in his books. One profited from the transaction; the other did not. There was a gainer and a loser, or so it may appear.

An example may show how some people come to feel this way. A man buys an automobile for $2000, say, and drives it for awhile. Being in need of money, he sells it to a used car dealer for $800. In a few days, he learns that the dealer has sold the car for $1100. The man may readily conclude from these facts that he paid too much for the car in the first place and sold it for too little in the second. At any rate, the amount of money which he had was diminished by the series of transactions, and that of the dealer increased.

It may not be that the feeling that there is a loser in the transaction arises so much from the fact that one has clearly made a profit — though there are those who oppose profit-making in principle and a great many more who oppose profit-making at their expense — as that transactions usually involve the trade of some commodity or service for money. If all transactions were in kind, both parties would no doubt believe that they were the gainers, and both would no doubt be right. But when money enters the picture, is used as a medium for the exchange, he who paid out the money may conclude that he has been a loser, particularly if he tries shortly to sell the commodity for the sum he paid for it. Indeed, a man may pay $1 for 5 pounds of apples, consume the apples, become ill, and feel certain that he is the loser in the transaction.

Balance of Trade

This idea of a gainer and a loser has been given international and even universal application. The main route to this notion has been the conception that there is only a given quantity of a thing. Anyone who acquires more must then be depriving others of it. The best known instance of this line of thinking occurred when precious metals were used as money and thought of, by some, as wealth, or the only true wealth. Since there is only a certain quantity of these in nature, the nation which gains these does so at the expense of other nations. The mercantile notion of “favorable” balance of trade was justified by the notion that a nation should attempt to increase its holdings of precious metals. To do so, it ought to sell more to other nations than it bought, getting the difference in gold and silver. But the belief that there is only a certain quantity of a thing has not been restricted to precious metals; it has been extended to other things as well. In our day, there are those who claim that if one man eats overmuch he is depriving others of needed food.

At any rate, over the centuries the notion that in transactions there is a gainer and loser, either potentially or actually, has bred a large portion of government regulation, restriction, and intervention. It has led to laws promoting exports and discouraging imports, to the payment of bounties, to the imposing of tariffs, to price controls, to wage controls, to quality controls, to prohibitions against sending gold out of a country, to the confiscation of “excess profits”, to all sorts of laws for the protection of consumers.

Each Party Gains

Adam Smith did not spend much energy on the gainer-loser in transactions idea. He simply stated that where a trade had been freely effected it was assumed to be to the mutual advantage of the parties. (The Austrian School has since buttressed this point with extensive theoretical demonstrations.) He did go to some length to justify profits, rent, and interest. Indeed, he held that men save and invest in order to make a profit, that the capital that results from this is the main way to prosperity, and that when men are free to compete prices and wages are regulated by it. He did acknowledge that in transactions men frequently were unable to get the best possible price for what they were selling or buying. The source of this, however, was government restraints on commerce and on the entry of competitors to the field, not that some individual was taking unfair advantage. And, he devoted fulsome attention to the fallacies of mercantilism and the bullion or monetary theory of wealth.

The Wealth of Nations moves toward one conclusion, sometimes ponderously but always masterfully — the individual and social beneficence of liberty:

All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of society. According to the system of natural liberty, the sovereign has only three duties to attend to…: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting… every member of the society from the injustice or oppression of every other member of it…; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions….¹¹

A Century of Gain

For more than a century after 1776 the thrust toward liberty gained sway in the world. The United States and England led the way in many respects. Trade restrictions among nations were either greatly reduced or removed. In the course of the nineteenth century, serfdom and slavery, where they still existed, were generally abolished. The ideas that men have an equal right to pursue their interests and that when they do so the general public benefits gained hold and were buttressed by law in many lands. There was a great creative and productive surge within nations, and the nations of the world were generally drawn together in a great trading network. Populations increased as rarely before, but the ever-larger numbers of people were more prosperous than ever. Wars still occurred, but with one or two notable exceptions they were brief and limited affairs.

By the turn into the twentieth century, though, there were already ominous signs that the tide was shifting against individual liberty. The defection of the intellectuals was already well underway. A spate of ideologies was gaining adherents, particularly socialistic ideologies. The system that had produced abundance on a scale never before imagined in the world was being attacked for not having made everyone affluent. Governments were beginning to impose new and old restraints on productive efforts. Nations were once again beginning to erect barriers against trade. New names and new ideas were supplanting those of the Founders of the United States and the classical economists: such names as Karl Marx, Friedrich Nietzsche, Nicolai Lenin, Benito Mussolini, and Joseph Stalin. In their wake has come the totalitarian state which threatens in varying degrees individual liberty in every corner of the world.

As fate would have it, on the two hundredth anniversary of the Declaration of Independence and The Wealth of Nations, the world is more in need of the ideas of liberty contained in them than it was in 1776. There is one appropriate way to celebrate the bicentennial of The Wealth of Nations; it is to read or re-read it. True, the sentences are long and complex, and the periods are rounded, as it is described. The language is, much of it, from a bygone era. But many of the ideas are as fresh and applicable today as when they were penned.

Nor is the celebration of the publication of The Wealth of Nations something for Scotland only, or for England, or even for the English-speaking countries. Adam Smith’s great work was written by a Scotsman in English in the eighteenth century, but it belongs to the ages and to the whole world. He took economics out of its parochial framework where it was concerned only with the wealth of a single nation and made it a universal study, one which conceived an order in which the efforts of the individual benefited not only his own country but peoples everywhere that trade took place. So long as the love of liberty survives anywhere, sustenance for it can be found in The Wealth of Nations.


¹ Adam Smith, The Wealth of Nations Edwin Cannan, ed. (New Rochelle: Arlington House, n. d.), II, 27.

2 Ibid., pp. 29-30.

³ Ibid., pp. 38-39.

4 See Clarence B. Carson, The Rebirth of Liberty (New Rochelle: Arlington House, 1973), pp. 65-76.

5 E. A. J. Johnson, American Economic Thought in the Seventeeth Century (New York: Russell and Russell, 1961), p. 17.

6 Daniel J. Boorstin, The Americans: The Colonial Experience (New York: Vintage Books, 1958), p. 88.

7 Ibid., p. 83.

8 Smith, op. cit., II, pp. 71-72.

9 Ibid., p. 30.

¹º Ibid., I, p. 371.

¹¹ Ibid., II, p. 290.

  • Clarence Carson (1926-2003) was a historian who taught at Eaton College, Grove City College, and Hillsdale College. His primary publication venue was the Foundation for Economic Education. Among his many works is the six-volume A Basic History of the United States.