This week 250 years ago, Adam Smith published An Inquiry Into the Nature and Causes of the Wealth of Nations – and invented economics. The anniversary has been marked by opinion columns, new books and academic conferences. How different it was 50 years ago. The 1976 bicentenary produced the definitive scholarly edition and helped cast Smith as the father of free-market economics. This was an easy sell during the 1970s slow collapse of the postwar economic order. Smith was useful as a symbolic figure for the revival of free-market ideas. Yet the truth is more complicated.
Milton Friedman, a Nobel laureate, recruited Smith as the patron saint of neoliberal economics in his 1980 book and television series Free to Choose – a manifesto that anticipated Reaganism in the US. He reduced Smith to two claims: that a voluntary exchange benefits both parties and that self-interest is led by an “invisible hand” that unintentionally promotes the public interest. In short: greed is good. In fact, Smith used the phrase “invisible hand” only once in The Wealth of Nations, to describe whether merchants invest their capital at home or abroad – and not, as Friedman claimed, as a general theory of markets.
