Some thoughts on The Wealth of Nations at 250
Adam Smith’s Wealth of Nations turns 250 this year. There are various celebrations of his life in Edinburgh and Glasgow, as well as his hometown of Kirkaldy. An invitation to the latter has prompted me to reflect on the modern relevance of The Wealth of Nations.
The anniversary has prompted the usual mix of reactions – some dismissing the originality of Smith (in The Economist, of all places), others have treated him a kind of secular saint of free markets. As a Guardian editorial reminded us, Smith was far more than his caricature.
What most of these reflections share is a tendency to reduce Smith to a slogan: the “invisible hand” (although Smith referred to “an invisible hand”). But if you actually read Smith, or even just look at the words he uses most often, you get a very different picture. What stands out isn’t just “market” or “trade”, but labour, land, price, value, rent, nations. Smith’s project was not to defend markets in isolation but to understand how whole societies generate prosperity, and under what conditions that prosperity can be sustained.
And that takes you, inevitably, to Book V.
The part of Smith people forget
The last book of The Wealth of Nations is not an afterthought. It is where Smith turns from how wealth is created to what the state must do. His answer is simple. The sovereign has three duties: defence, justice, and the provision of public works and institutions.
These are not minor exceptions to an otherwise self-sufficient market system. They are the conditions that make a commercial society possible in the first place. As Smith puts it, commerce and manufactures cannot flourish without a functioning system of justice: without secure property rights, enforceable contracts, and confidence in the state. But even more fundamental than justice is defence.
Smith is explicit:
“The first duty of the sovereign… is that of protecting the society from the violence and invasion of other independent societies.”
This is a necessity and not framed as a choice (of course, here the influence of the Jacobite uprisings in his own lifetime are hard to ignore). What is more interesting, though, is why this duty changes as societies develop. In what Smith calls “rude” societies, defence is relatively cheap. Individuals can fight; militias can be raised; the costs are limited. But as societies become wealthier, more commercial, and more specialised, this breaks down. The division of labour, the central mechanism in Smith’s account of growth, also produces dependence. Workers become highly specialised. They cannot simply drop their tools and become soldiers. Warfare itself becomes more complex, more technical, and more capital-intensive. The result is that defence must also become specialised. A standing army replaces the militia. Military capability becomes a permanent, organised, and expensive function of the state.
Prosperity creates vulnerability
This is the part of Smith that sits uneasily with the standard “free market” reading. The same process that generates wealth also creates new forms of vulnerability. A commercial society is richer, but it is also less self-sufficient. It depends on long supply chains, complex institutions, and the continuous functioning of markets. Disruption, whether from war or external threat, is therefore more costly. And so, as Smith observes, the expense of defence tends to rise with the progress of society.
This structural aspect of economic growth has largely been forgotten. For much of the post-Cold War period, advanced economies behaved as if defence were a declining necessity, a legacy cost that could be gradually reduced. In the first quarter of the 21st century, defence spending in Europe was roughly half of that in the United States.
Smith would have seen things differently. In his framework, the development of a commercial society does not reduce the need for defence but instead intensifies it. Specialisation increases dependence and the technology of warfare evolves alongside the economy, making conflict more prolonged, complex, and expensive. The idea that mature market economies can treat defence as peripheral is hard to square with Smith’s analysis.
Rethinking Smith
All of this points to a broader issue in how Smith is read. He was not writing a manifesto for minimal government. He was trying to identify the functions that markets cannot perform, but which are necessary for a market society to exist. Defence is the clearest case. It is not a distortion of the system. It is part of its foundation. Smith understood that the success of commercial society rests on institutions (legal, political, and military) that lie outside the market. At the end of the day, the invisible hand doesn’t defend itself.