Why Adam Smith Embraced Commercial Society: The Wealth of Nations, Book 3

• “A significant portion of Book 3 delves into the historical transition from the feudal order that dominated Europe for centuries to a liberal, commercial society. It explores how a world characterized by hierarchy, dependency, and intrastate conflict was replaced by one governed by the rule of law, where individuals could experience relative freedom and security. Smith’s depiction of feudal lords squandering their vast powers on trivial luxuries has become particularly well-known.”

Much of Book 3 recounts the historical evolution of how and why the long-standing feudal order across Europe eventually transitioned to a liberal, commercial paradigm. This narrative illustrates the shift from a realm rife with hierarchy, dependency, and internal conflict to one where the rule of law prevailed, granting individuals a degree of freedom and safety. Smith’s critique of the feudal lords, who dissipated their considerable power on trivial indulgences, has become iconic.

Following the collapse of the Roman Empire, Smith details how the powerful landowners in Europe wielded substantial control over their vast estates, as the kings’ authority was often too weak to challenge them locally. In societies bereft of luxuries and manufactured goods, the lords had scant use for their wealth aside from the upkeep of thousands of serfs, who became wholly reliant on their overlords for sustenance, shelter, and protection: “Every great landlord was a sort of petty prince. His tenants were his subjects. He was their judge, and in some respects their legislator in peace, and their leader in war. He made war at his own discretion, frequently against his neighbours, and sometimes against his sovereign” (WN III.ii.3; see also III.iv.7). Smith poignantly highlights the serfs’ near-total lack of autonomy: they possessed no private property immune from their lord’s encroachment, were bought and sold along with the land, had little freedom in choosing their professions, and often required their lord’s permission to marry. Essentially, they were akin to slaves (see WN III.ii.8).

According to Smith, kings struggled for centuries to curtail the lords’ powers but to no avail. “What all the violence of the feudal institutions could never have effected, the silent and insensible operation of foreign commerce and manufactures gradually brought about.” As commerce flourished and luxuries became available, the lords finally found alternative ways to expend their wealth, opting to indulge their own desires rather than sustain their serfs. For example, “for a pair of diamond buckles perhaps, or for something as frivolous and useless, they exchanged the maintenance, or what is the same thing, the price of the maintenance of a thousand men for a year, and with it the whole weight and authority which it could give them” (WN III.iv.10).

As the lords began to lavish their wealth on trivial luxuries, they could no longer afford to sustain their dependents. Once the serfs were released, Smith asserts that “the great proprietors were no longer capable of interrupting the regular execution of justice or of disturbing the peace of the country. Having sold their birthright, not like Esau for a mess of pottage in a time of hunger and necessity, but in the wantonness of plenty, for trinkets and baubles, fitter to be the playthings of children than the serious pursuits of men, they became as insignificant as any substantial burgher or tradesman in a city” (WN III.iv.15). The decline of the lords resulted in a substantial enhancement of royal power—as observed in Britain under the Tudors—thereby allowing the establishment of what Smith refers to as a “regular government,” capable of effectively maintaining order and delivering justice nationwide (WN III.iv.15).

Once the populace was liberated from their lords, they not only gained increased security—thanks to royal enforcement of the rule of law—but also greater freedom of choice, including where to reside and what trades to pursue. It was only after attaining this kind of freedom that individuals, according to Smith, “became really free in our present sense of the word Freedom” (WN III.iii.5). Thus, the crux of Smith’s narrative is that commerce facilitated the introduction of “order and good government, and with them, the liberty and security of individuals … who had before lived almost in a continual state of war with their neighbours, and of servile dependency on their superiors” (WN III.iv.4).

In subsequent sections of The Wealth of Nations, Smith elaborates on the social orders discussed in Book 3—namely, feudal Europe and the western Europe of his own era—positioning them as stages within a four-stage process (see WN V.i–ii). He posits that societies generally evolve through hunting, shepherding, agricultural, and commercial stages, with feudal Europe aligning with the third, agricultural stage, while the western Europe of the eighteenth century epitomized the final, commercial stage.

Smith’s four-stages framework serves to reinforce the lessons derived from the narrative surrounding the decline of the feudal lords in Book 3. The essentials can be summarized in the following table:

Let’s dissect this further. In the initial societal stage, akin to that observed among many Native American tribes, there is no domestication of animals or cultivation of crops; survival hinges on hunting, fishing, and gathering. Within these societies, private property is almost nonexistent—nothing exceeding the value of a few days’ labor (WN V.i.b.2). Consequently, there is little need for “any established government or any regular administration of justice” (WN V.i.b.2).

Due to the minimal economic disparity or governance in the hunting stage, individuals typically experience a significant degree of personal freedom or autonomy. The trade-off for this seemingly uncomplicated existence is what Smith characterizes as “universal poverty” (WN V.i.b.7). He notes early in the book that such societies can be “so miserably poor that they are frequently compelled … to directly destroy, or abandon their infants, their elderly, and those afflicted with lingering ailments, to perish from hunger or be devoured by wild beasts” (WN intro.4).

Smith identifies the second, shepherding stage of society through examples such as the “Tartars” (inhabitants of Central Asia), Arabs, and Scottish Highlanders. In these societies, subsistence is not as perilous as in the hunting stage. The ownership and raising of animals typically ensures a more stable food supply. However, this also introduces genuine economic inequality for the first time, necessitating “some degree of … civil government” to protect the property of the affluent (WN V.i.b.12).

A defining characteristic of the shepherding stage is the emergence of personal dependence. Smith argues that due to the absence of luxuries and manufactured goods in this stage, wealthy individuals can only utilize their wealth to “maintain” or provide for others—often thousands—thereby rendering those individuals entirely reliant on them, echoing the relationship between serfs and lords during the feudal era. Smith contends that there is “no period … in which authority and subordination are more perfectly established” (WN V.i.b.7). While dire poverty characterizes life in the hunting stage, the shepherding stage is marked by the subservience of all but the wealthiest individuals.

The third, agricultural stage commences when individuals begin to own and cultivate land, with Smith’s primary example being the feudal era in Europe he scrutinizes in Book 3. This land ownership, along with increased economic inequality, necessitates more extensive government than was present in the shepherding stage. However, the issue of dependence from the previous stage remains significant. Property continues to be a source of considerable power—land becoming more crucial than herds—while the affluent still have little alternative for their wealth aside from the maintenance of numerous dependents (see WN III.iv.5).

Smith viewed the pervasive “servile dependency” in feudal Europe—an enslavement-like condition—as the principal barrier to liberty and security during that period (WN III.iv.4). This is precisely why he considered the rise of commerce and the decline of feudal lords as transformative.

The fourth and final stage in Smith’s schema, commercial society, emerged in the western Europe of his era as international trade expanded and occupations became more specialized. These changes led to even greater economic inequality than seen in the agricultural stage, at least numerically, but the substantial productivity unleashed by commerce also facilitated what Smith describes as “that universal opulence which extends itself to the lowest ranks of the people” (WN I.i.10). As John Locke famously posited, even the impoverished in a commercial society are materially better off than the affluent in pre-commercial societies (see WN I.i.11).

Most importantly for Smith, the dilemma of personal dependence—a concern that dominated the shepherding and agricultural stages—is significantly alleviated in a commercial society. In this environment, while the wealthy may possess considerable purchasing power, their wealth does not confer direct authority over others, as all individuals engage in market relationships with one another, creating a multitude of potential buyers, sellers, and employers (see WN I.v.3; III.iv.11–12; and V.i.b.7).

It is true that the wealthy can indirectly support many others through employment or purchasing their goods, but Smith argues that this indirect relationship does not equate to control. Even though employees may strive to satisfy their employers to retain their jobs, it is highly improbable that they would forfeit their rights or follow them into battle, unlike the serfs compelled to serve their lords.

Moreover, according to Smith, people enjoy greater personal independence in a commercial society not despite the increased strength of government compared to earlier stages, but precisely because of it. As illustrated in the narrative of Book 3, the ascent of liberty and security was facilitated by the establishment of a “regular government” capable of enforcing order and administering justice throughout the nation (WN III.iv.15). So much for the simplistic portrayal of Smith as a staunch adversary of all government intervention.

This insight encapsulates Smith’s four-stages schema: in the society marked by the most property, the greatest inequality, and the strongest government, the independence that characterized the least property, inequality, and government re-emerges. It is a different kind of independence, indeed a preferable one, since it stems not from a lack of property rendering government unnecessary, but from the effective rule of law and market interdependence. (Thus, the final box in the table above is underscored in italics.) Instead of experiencing liberty and security amidst “universal poverty,” as in the hunting stage, individuals attain liberty and security alongside “universal opulence.” As Smith emphasized in the crucial passage I highlighted earlier, this is the key reason behind his advocacy for and promotion of commercial society, notwithstanding its flaws.

This article has been cross-posted from Liberty Matters, part of the Liberty Fund network. It is part of the series “Compounding Interest: Revisiting the Wealth of Nations at 250“.