Adam Smith work 'prophetic' says paper published to mark 250th anniversary of Wealth of Nations

The paper, The Genius of Adam Smith, by academic Mark Skousen and published by the Institute of Economic Affairs, argues that one of Smith’s major predictions - that natural liberty would produce prosperity extending to the lowest ranks of society - proved to be “prophetic”.

However, Smith would be “deeply troubled” by the size of modern government, complex tax systems and the “return of crony capitalism”, Mr Skousen says.

Separately, to mark the anniversary of the book’s publication, Professor Sir Anton Muscatelli, the Royal Society of Edinburgh’s president, visited the RSE’s archive at the National Library of Scotland to read a letter written from Smith to Scottish philosopher David Hume, prior to the publication of The Wealth of Nations.

In the letter, Smith, who was a founding fellow of the RSE, states: “I have begun to write a book in order to pass away the time”.

Even in its day, The Wealth of Nations, which was published 250 years ago today, was an instant success. Despite this, in his final days, Smith ordered nearly all his work should be destroyed upon his death.

Sir Anton said the letter was “a priceless window into the relationship” between Hume, and Smith.

“What The Wealth of Nations has meant to Scotland and the world cannot be overstated. Smith’s work has influenced every modern economy on the planet in some way or another,” he said. “It is also a classic example of Scotland on the world stage – small but formidable, and able to make massive and lasting contributions.”

Smith’s system of natural liberty is built on three pillars: the rule of law and justice; individual freedom to pursue one's own interests; and robust competition to moderate greed and channel self-interest into socially beneficial outcomes.

Mr Skousen, presidential fellow at Chapman University and author of The Making of Modern Economics, says in the paper that far from being a defender of business interests, Smith was deeply suspicious of merchants and corporations who sought favours from the state.

He also targeted mercantilism: the system of government-granted monopolies, tariffs and top-down economic management that stifled growth and enriched the few at the expense of the many.

Mr Skousen said: “Two hundred and fifty years on, every government that hands out monopoly privileges, piles on regulation, and taxes enterprise into submission is repeating precisely the errors Smith dismantled. The Wealth of Nations is not a historical curiosity. It is a standing indictment of what governments keep doing wrong."

Mr Skousen argues that Smith, were he alive today, would be struck by the dramatic improvement in living standards that his ideas helped produce.

However, he would also be “deeply troubled by the expansion of state intervention, complex and punishing tax systems, and the return of crony capitalism”.

The paper says Smith’s policies for the "highest degree of opulence" - "peace, easy taxes, and a tolerable administration of justice" are being challenged once again, by global wars and an attack on free trade and globalisation.

Lord Frost, director general of the IEA, said: “Many dodgy economic ideas have been and gone in the 250 years since Adam Smith wrote 'The Wealth of Nations', but his principles remain, and have stood the test of time. He would have been horrified by the size of modern government and would surely have predicted that today's intrusive state and super-high tax and regulatory burdens would do nothing to create wealth or spread prosperity.

“Smith showed us the way forward 250 years ago: keep the rules straightforward, hold the burden of the state down, and trust people to make their own decisions. Much of modern politics consists of avoiding the obvious truth that Smith's ideas constitute the only proven programme that reliably delivers growth and allows every person to flourish."