In 1776, Adam Smith released his seminal work, An Inquiry Into the Nature and Causes of the Wealth of Nations (WN), which, while not directly shaping the Declaration of Independence, echoes its sentiments through its critiques of British governance. At that time, Smith’s The Theory of Moral Sentiments (TMS) was more widely recognized and arguably made a more immediate impact on the colonists. However, it’s plausible that Smith’s economic ideas filtered into colonial thought indirectly, courtesy of figures like Lord Kames.
While the influence of Smith on the founding fathers may not be overt, it’s impossible to ignore the resonance between his WN and the colonists’ Declaration. Smith elucidates the methods employed by the Crown and Parliament to manipulate colonial life through regulatory interference, prioritizing the interests of a select few while undermining the colonists’ aspirations for self-governance. The contrast is stark: Smith and the colonists advocate for impartial institutions that serve the common good, akin to the workings of a free market.
America as Market
At its core, an open society thrives on exchange, functioning as a market that safeguards individual interactions and minimizes friction in cooperation. Markets are instrumental in reconciling diverse interests and enhancing the welfare of all, particularly for the everyday citizen. Public Choice Economics, arising from colonial attitudes toward governance, portrays democracy as a dialogue and politics as a marketplace of ideas (Brennan 2012). When political systems stray from facilitating citizen exchanges, they invite corruption and abuse. Edwin Cannan’s introduction to WN cites a thought attributed to Smith back in 1755, which would have likely resonated with the colonists:
“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical” (WN p. 22).
The role of government, according to Smith, is limited to safeguarding negative rights to sustain a flourishing market.
“All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of society. According to the system of natural liberty, the sovereign has only three duties to attend to…: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting… every member of the society from the injustice or oppression of every other member of it…; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions…” (WN IV.ix.51).
In parallel, the Declaration of Independence states:
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”
The Declaration’s core concepts resonate strongly with Smith’s principles of governance and market sustainability. The colonists’ grievances against Great Britain stemmed from its failure to provide just governance, which had devolved into a tyrannical demand for loyalty.
Virtuous Faction, Impartial Institutions, and Vicious Faction
Affection can be best understood as a habitual sympathy among people working together towards shared objectives (TMS VI.ii.10). Smith acknowledges the family as a legitimate domain for affection. Likewise, specialized workers in industries cultivate shared languages and lifestyles, nurturing affectionate relationships. However, in wider society, practicing universal affection is impractical. Hayek (1945) later built upon this notion, arguing that the complexities of knowledge and context make comprehensive economic planning for society unfeasible. We might classify close-knit groups, such as families, as a virtuous faction or party-feeling (Whately 1822).
Impartial institutions are essential for facilitating exchanges. Smith illustrates this through market interactions, where impersonal relations often govern themselves: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner” (WN I.ii.2). We learn to anticipate the needs of others and cultivate sympathy, beginning from our youth. “When [a child] is old enough to go to school, or to mix with its equals, it soon finds that they have no such indulgent partiality” (TMS III.3.22). We internalize the moral actions that gain us peer approval and develop a sense of self-judgment akin to an impartial spectator (TMS I.ii.3.8). Effective governance should focus on maintaining justice among individuals who relate to each other impersonally.
In both governance and market contexts, we might appoint a leader to oversee operations. Yet, in Smith’s framework, this leader should not aim to dominate or favor certain groups for a preferred outcome. Instead, the “science of a statesman or legislator” should prioritize peace, fair taxes, and a reasonable administration of justice, resembling a minimalist state that supports market operations. The legislator’s role is distinct from that of the man of system, who mistakenly believes he can maneuver people like chess pieces (TMS VI.ii.2.17).
The fallacy of assuming a nation shares a uniform set of values parallels the notion that official currency has inherent value. Gold or silver simply represent claims to actual value. Nations do not possess intrinsic value; rather, it is the individuals within them who do. Upholding the value of a nation or its currency can lead to a form of idolatry, mistaking tools for social coordination as ends in themselves.
On the other hand, we encounter a contrasting form of affection termed vicious faction or party spirit (Whately 1822), which we might recognize today as special interest groups. Although Smith does not explicitly categorize this, it is evident in his critique of monopolies and cartels. A vicious faction relies on government protection; without it, like a cartel facing competition, its members would betray one another, leading to disbandment. To Smith, mercantilism epitomizes the most egregious form of such factionalism, inciting numerous complaints from the Colonists against Great Britain. The affection intrinsic to vicious factions disregards the natural feedback mechanisms that uphold individual dignity, as members seek validation from within their group while neglecting external perspectives. Those outside the faction are viewed as lesser, and their moral viewpoints are often dismissed. In Smith’s time, enslaved individuals represented a significant out-group, and colonists perceived their treatment as akin to slavery.
Pursuing national preferences typically necessitates market interventions that privilege certain groups, often the concentrated interests of commerce, over the welfare of the general populace. Smith rightly places the blame on mercantilists, but we might also scrutinize the nationalist fervor that elevates the state as the embodiment of national identity, a mindset that fosters mercantilism.
Great Britain’s Protection of Vicious Faction
The colonists’ grievances against Great Britain stem from violations of their rights to life, liberty, and the pursuit of happiness, which manifest as breaches of the expected impartiality in sympathy. Great Britain diminishes the humanity of the colonists by favoring certain British citizens over them, particularly mercantilist cartels enjoying trade protections and British citizens receiving genuine representation instead of mere virtual representation in exchange for taxation.
The infringements on natural liberty become glaringly apparent in commercial interactions. For instance, the Stamp Act escalated transaction costs in various commercial and personal dealings, inserting governmental oversight into matters that had previously been privately managed. Justified as a means to fund the Seven Years’ War, the Stamp Act aimed to foster a more affectionate attitude among colonists toward the British government (Holtzbach, Rivera-Mills, and Snow 2025).
Smith critiques mercantilism’s tendency to bestow privileges, coining the term affectation: “I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it” (WN IV.ii.9).
The colonists, perhaps deemed too vulgar, too distant, and too mistreated by Great Britain, found it challenging to sustain the affectionate sentiments that had once supported mercantilists. They pursued their self-interest but, excluded from Parliament’s favored interests, harbored resentment towards those “honors” and gravitated towards the spirit of natural liberty that champions the autonomy of every individual.
The colonists did not view their liberation from British rule as an excuse to forge new chains within America (though chains did indeed exist, justified by a “national” identity that Smith would vehemently oppose). They sought genuine liberty, which they regarded as natural. Their political aspirations were informed by a historical understanding of governance, derived not from a manufactured system but from a discovered order reflecting the natural relationships of commerce and the social exchange of sentiments. The colonists exhibited both wonder and courage in crafting “a vision of the beauty and order of the system as a whole” (Hanley and Paganelli 2014, p. 196). They appear to strive for “the ordered beauty of the ‘liberal system’ as a preferable alternative to the reductive jealousy, prejudice, and ‘national animosity’ that characterize the mercantile system” (Hanley and Paganelli 2014, p. 199).
Conclusion
In drawing parallels between Smith’s work and the Declaration of Independence, we uncover a potent argument for human equality, particularly within market frameworks; a shared acknowledgment of a higher power and a humble epistemological stance; a comprehensive discourse on natural liberty; and a collective vision for human flourishing—all encased in a suitably constrained set of governing institutions designed for the common man’s benefit. Smith perceives Great Britain’s actions as a transgression against the market opportunities of the colonists: “To prohibit a great people, however, from making all that they can of every part of their own produce, or from employing their stock and industry in the way that they judge most advantageous to themselves, is a manifest violation of the most sacred rights of mankind” (WN IV.vii.b.44). The colonial response was a quest for a governance system that safeguarded their market interests, ultimately leading to the establishment of a novel nation—one not defined by imperial grandeur or nationalistic fervor but by the pursuit of liberty. Our ongoing challenge lies in preserving this vision.
Notes
[1] Lord Kames sponsored and attended lectures by Smith. See, for example: Fleischacker (2025) and Liu (2022).
[2] Hamilton: The Musical (Miranda 2016) poignantly captures the notion that colonists needed to be “reminded of” Great Britain’s “love.”
References:
Brennan, Geoffrey (2012) “Politics-as-exchange and The Calculus of Consent” Public Choice, 152:351-358.
Buchanan, James M. “What Should Economists Do?” Southern Economic Journal. Vol 30, No. 3.
Eicholz, Hans. July 4, 2019 “1776 and All That: Thomas Jefferson on Adam Smith” Liberty Fund Adam Smith Works.
Fleischacker, Samuel (2025) “A Little Lower Than the Angels: What the Founders Learned from Adam Smith” parts 1 and 2 at Adam Smith Works.
Hanley, R.P. & Paganelli, M.P. (2014). “Adam Smith on money, mercantilism and the system of natural liberty” in D. Carey (Ed.), Money and political economy in the enlightenment (pp. 185-199). Voltaire Foundation.
Hayek, F. A. (1954) “The Use of Knowledge in Society” American Economic Review. XXXV, No. 4. pp. 519-30. American Economic Association.
Holzbach, Owen, Daniel Rivera-Mills, and Nathanael Snow. January 6, 2025. “Thomas Whately and National Affection in Politics” The Pamphlet Debate on the American Question in Great Britain, 1764-1776. Liberty Fund.
Kukathas, Chandran. (2021). Immigration and freedom. Princeton: Princeton University Press.
Liu, Glory (2022) Adam Smith’s America. Princeton University Press.
Miranda, Lin-Manuel. Hamilton: An American Musical. Edited by Jeremy McCarter, Grand Central Publishing, 2016.
Onuf, Peter S. June 20, 2023. Liberty Matters “Adam Smith, State Formation, and the American Revolution”
Smith, Adam (1759, 1791) The Theory of Moral Sentiments. Edited by D.D. Raphael and A.L. Macfie. Liberty Fund, Indianapolis, 1982.
Smith, Adam (1776) An Inquiry Into the Nature and Causes of the Wealth of Nations. Edited by Edwin Cannan, Liberty Fund, 1981.
Whately, Richard (1822) The Use and Abuse of Party-Feeling in Matters of Religion. Oxford University Press.
This post first appeared as an essay at A Call to Liberty It has been reposted here as part of Econlib’s celebration of the 250th anniversary of the Declaration of Independence.
