Celebrating America’s Independence and Adam Smith’s Legacy: Jonathan Williams on American Radio Journal

This year, we as Americans celebrate the 250th anniversary of our nation’s independence on July 4, 1776. This once-in-a-generation milestone is more than a celebration of our past; it’s a movement to shape America’s future. For us at ALEC, America’s 250 is a powerful opportunity to renew our commitment to the principles that built and sustained our republic: federalism, free markets, and limited government.

That’s why we launched States 250, a special initiative to honor America’s founding and elevate the essential role of the states in securing our nation’s future.

However, another incredible milestone we reached this month is the 250th anniversary of The Wealth of Nations, authored by Scottish economist Adam Smith. The book is one of the most important in modern economics, paving the way for an understanding of markets. Smith’s revolutionary argument was that market systems could operate efficiently without burdensome government interference or micromanagement. He saw that when individuals are allowed to pursue their own economic interests and well-being, the wealth of the whole nation was increased.

This ran counter to the understanding of economics at the time. The conventional wisdom in Great Britain was in favor of all sorts of cronyism, government control of business practices, taxation, and price controls, but Smith exposed the errors in that approach, showing that people would actually be wealthier if markets, and more importantly individuals were free.

The Wealth of Nations has been so influential partly for how it makes that argument so cogently. At the center of the argument is the idea that the division of labor is responsible for economic growth and increased wages. In short, he explains how work has become more specialized, allowing workers to attain a high level of specialized knowledge or skill. This specialization makes a worker more valuable than a generalist who tries to do everything, thus increasing wages.

Smith explains how the market allows these specialized activities to occur when workers need only work for their own motivated interest to enhance their well-being. As he famously wrote, “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.” That was a transformational idea at the time and has paved the way for countless economists to expand on the work of Smith, furthering our understanding of how markets operate.

The Wealth of Nations was not written simply to lay out a path for making money. Adam Smith was not a businessman selling a get-rich-quick scheme. In fact, nearly two decades before The Wealth of Nations, Smith authored what he considered his most important work, The Theory of Moral Sentiments. Having seen the horrible poverty, more dire in his time than in ours, for sure, he was deeply concerned with exploring how nations can build wealth for ordinary workers.

Indeed, it is the market system, the forces of which he helped explain, that has helped billions to do just that since 1776. Here in the United States, in state capitals and in Washington, DC, two and a half centuries later, the lessons Smith teaches are as important as ever for policymakers.

For example, on taxation, Smith explained that in order for markets to function properly, government should tax only what is necessary to support the function of government. He added that taxes should be predictable, easy to pay, and proportional to the thing being taxed. These principles recognize that while some taxation is necessary to support the government functions that make the market possible, high levels of taxation are a problem for economic growth.

In his final analysis, Smith recognized that the way to increase the wages of workers and the wealth of a nation was indeed through economic growth. Over the past 18 years, in our report Rich States, Poor States, we have documented that the states following Smith’s lessons and strengthening the forces of the free market are increasing prosperity and gaining residents.

Americans are voting with their feet, as we like to say. Recognizing the importance of public policy and the free market, they are following policy incentives to make themselves and their families better off by moving and finding economic opportunity. Our 50 states, the laboratories of democracy, continue to prove Adam Smith’s economic thinking was correct.

Now, 250 years since the publication of his famous work and America’s independence. 1776, what an incredible year for freedom and setting the stage for human flourishing and prosperity.