Smith, Capitalism, and the Founding Fathers

“There is some economic history to it. After all, the United States with its richness of natural resources, was fertile ground for capitalism. Adam Smith’s classic book, "Wealth of Nations," first published in 1776, had a lasting influence upon our founding fathers. Capitalism’s idea of producing a commodity that could be sold for more than it actually cost to produce it, while creating jobs which lifted desperately poor people into an economic middle, class was pure genius.” (Punctuation as in original.)

From: Metro West Daily News (near Boston, Massachusetts, USA) 2 April, by Frank Mazzaglia (local columnist).

Nice idea, but completely at odds with the facts. Adam Smith did not write about capitalism (a phenomenon unknown in the 18th century); he wrote about Commercial Society and about markets – of the kind located on carts and wooden stalls, emporia, small shops and quay sides. His ‘Merchants and Manufacturers’ were 'Undertakers', tradesmen, artisans and salesmen and women (butchers, bakers, ale-house owners, saddlers, horse and cattle dealers, wheelwrights, blacksmiths and forgers, tinsmiths, carpenters, miners, etc.,) and ‘machines’ were hand-tools, mainly of wood not metal (see early editions of Chamber’s encyclopedia or Diderot’s illustrated version in French, 1755) and certainly not driven by ‘fire engines’
(Smith’s words for what became steam engines in the 19th century).

It was not ‘capitalism’s idea’ to produce goods ‘to be sold for more than [they] cost to produce’; this was practiced for centuries before 19th century capitalism and had it antecedents from long before Roman times.

Smith’s model sourced the practice in the division of labour and the gradual realization of the benefits of exchanging surplus output for products (eventually money) that were wanted instead of producing everything scarce time allowed if a person did it himself. As dependence on others grew and the division of labour deepened, living standards rose to undreamt of levels; again, long before the phenomenon known as capitalism (a word invented in 1854; the word ‘capitalist’ was first used in print in 1793 and ‘capital’ in the that sense went back to the 16th century). That the division of labour and growing markets for its products would gradually raise a poverty stricken population towards opulence was a function of commercial markets. That was what ‘Wealth of Nations’ was about.

So, much as Adam Smith contributed to understanding how markets worked and how societies moved from poverty to opulence, it was not his ‘pure genius’ that promoted it or somehow occasioned it. That some of the founding fathers had read his books (‘Moral Sentiments’ and ‘Wealth of Nations’) there is no doubt. But the degree of his influence on events in the American ex-colonies and beyond is an open question still. (Broadly, he was sympathetic to the American colonists, and he knew and corresponded with Benjamin Franklin).