Adam Smith’s publication in 1776 of An Inquiry Into the Nature and Causes of the Wealth of Nations (WN) may not have had a direct influence on the drafting of the Declaration of Independence. Smith’s The Theory of Moral Sentiments (TMS) was better known in 1776 and certainly did influence the colonists. But Smith’s arguments on political economy may have been absorbed indirectly through the works of Lord Kames.
Influence, direct or indirect, is not necessary to recognize resonance between Smith’s WN and the colonists’ Declaration. Smith explains the mechanisms that Crown and Parliament in Great Britain used to achieve their goals through intervention into and control over the lives of colonists. Great Britain imposed protections and privileges for a subset of society, foreclosed on the colonists’ right to self governance, and advanced institutions to promote British nationalism. In contrast, Smith and the colonists seek after impartial institutions that govern for the welfare of all, analogous to a market.
America as Market
An open society, outside of close connections, is held together by exchange. It is a market, that affords protection to individuals in their dealings with one another such that they can coordinate their activities with as little friction as possible. Markets reconcile differences among ends and facilitate flourishing for all, but especially the common people. Public Choice Economics derives from the colonial attitudes about government and describes democracy as governance by discussion, politics as exchange (Brennan 2012). Political systems that go beyond facilitating exchange among citizens lead to abuse. Edwin Cannan’s introduction to WN includes the following comment that Dugald Stewart attributes to Smith in 1755, quite early enough to have become known to 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).
Government’s responsibility is limited to protection of negative rights, to sustain the 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)
Similarly, in the Declaration of Independence, the colonists assert that:
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 key concepts in the Declaration resonate with the principles Smith identifies as consistent with good governance and those that are essential to sustaining a market. The complaints against Great Britain are that it has ceased providing good governance and has become tyrannical in its demand for the affection of the colonists.
Virtuous Faction, Impartial Institutions, and Vicious Faction
Affection may be described as habituated sympathy among people cooperating to achieve shared goals (TMS VI.ii.10). Smith treats the family as a legitimate sphere for affection. Similarly, specialized workers that cooperate in particular industries share a common language and way of life, birthing affectionate associations. In broader society we cannot reasonably practice affection toward everyone. Hayek (1945) later builds on this understanding to explain that in market exchange the challenges of appropriate knowledge of time and place make economic planning that benefits all members of society impossible. We can treat the family, and other close relations, and the affection that ties such groups of people together as a virtuous faction, sometimes called party-feeling (Whately 1822).
Impartial institutions facilitate exchange. The broader open market and society are held together through exchange that coordinates our activities. Smith points to market interactions as the prime example of how impersonal relations are often self-governed: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner” (WM I.ii.2). We have to imagine what the other person wants and seek their sympathy. Instead of affection, we learn sympathy with others, starting as young people. “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 morality of actions that earn us the approbation of our peers and develop a way of imaginatively judging our own actions that Smith considers similar to an impartial spectator (TMS I.ii.3.8). Good governance limits itself to maintaining justice among people impersonally relating to one another.
In case of either a nation or of a market, we might select a governor to monitor what is going on. Smith points to the “science of a statesman or legislator.” This person does not operate in Smith’s framework to dominate or to grant favors such that some societally preferred outcome obtains. On the contrary, “societal” and its derivatives presume a sort of agreed upon social welfare function that does not and cannot exist (Buchanan 1964). The statesman, in pursuit of peace, easy taxes, and a reasonable administration of justice much more resembles the minimalist state for maintaining and preserving a market. The science of the legislator is not the same as the activity of the man of system, who, wise in his own conceit, imagines he can move men around like pieces on a chessboard (TMS VI.ii.2.17).
The misperception that a nation has a shared set of values is analogous to the idea that an official money holds value. Money such as gold or silver are merely claims on those things that do have value. The nation does not hold value, the individuals within it do. To uphold the value of the nation or of the money is to practice a sort of idolatry, mistaking the means of social coordination as worthy ends in themselves.
On the other end of the spectrum we encounter another manifestation of affection, vicious faction, sometimes called party-spirit (Whately 1822), that today we call a special interest group. Though Smith does not employ this taxonomy, it is implicit in his condemnation of cartels and monopolies. A vicious faction is held together by protection from government, otherwise, like a cartel facing competition in an open market, the members of the group would cheat on one another, dissolving the faction. Mercantilism represents the most reprehensible form of such organization for Smith, and it became the catalyst for many of the complaints of the Colonists against Great Britain. The affection of vicious factions is no longer sensitive to the natural feedback mechanisms that give each person dignity but seeks the approbation of its internal members to the neglect and even the detriment of approbation from those outside the group. The individuals outside the faction become viewed as less-than, and their perception of morality is discounted or disregarded in the administration of justice. The most common out-group in the time Smith is writing and in the colonies is that of enslaved people, and the colonists whose judgments are not considered perceive themselves to be treated as slaves.
Seeking after national preferences requires interventions into the market economy that privilege some parties, and usually those parties’ concentrated interests of commerce, over the consequences to common people. Smith lays the blame on the mercantilists. But we might point to the spirit of nation, and of the exalting of the state as the symbol of the nation, as the conceit that makes way for the mercantilist.
Great Britain’s Protection of Vicious Faction
Violations of the life, liberty, and pursuit of happiness of colonists by Great Britain consist of violations of proper impersonal sympathetic expectations. Great Britain reduces the humanity of the colonists by showing undue preference to some of its citizens over the colonists. In particular: the mercantilist cartels who enjoy protection and preference in trade, and the citizens of Great Britain proper who enjoy real representation rather than virtual representation in exchange for taxation.
Violations of natural liberty become most evident in our commercial dealings. The imposition of the Stamp Act increased transaction costs in many commercial and personal dealings. The Stamp Act interjected surveillance (Kukathas 2021) by the state into dealings sufficiently managed privately. The Stamp Act was justified as a way to pay for the Seven Years’ War and as an attempt to increase the affectionate attitude of colonists toward the government of Great Britain (Holtzbach, Rivera-Mills, and Snow 2025).
Smith indicates that a system of mercantilism yields to factional privilege, by his use of 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 are perhaps too vulgar, too distant from Great Britain, and too abused by that government to sustain the affectionate sentiments that enabled the mercantilists for far too long. The colonists seek their own gain, but having no part in the protected special interests of Parliament and Crown, the colonists resent those “honors” and prefer the spirit of natural liberty that treats every (freed)man as a nation to himself.
The colonists do not consider removing the shackles of Great Britain as an opportunity to forge new shackles of America (though shackles there were, and justified on grounds of “nation” that Smith explicitly rejects). They seek liberty. A liberty they see, like Smith, as natural. And they collect a system from their studies of men and government through antiquity, not a created or designed government, but a discovered system of governance, that reflects the natural relations of commerce and social exchange of sentiments and language. The colonists can be said to demonstrate wonder and courage at developing “a vision of the beauty and order of the system as a whole” (Hanley and Paganelli 2014, p. 196). The colonists appear to pursue “the ordered beauty of the ‘liberal system’ as an alternative to the reductive jealousy, prejudice and ‘national animosity’ that characterizes the mercantile system” (Hanley and Paganelli 2014, p. 199).
Conclusion
We find in Smith parallels to the Declaration of Independence: A robust argument for the equality of men, particularly in market systems; a similar deistic and epistemologically humble recognition of a higher power; a thorough argument for natural liberty; and a shared vision of eudaimonia; all nested within an appropriately constrained set of governing institutions that function for the well-being of the common man. Smith judges Great Britain’s provocation as a violation of the colonist’s market opportunities: “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). Provoking the Declaration, the health and flourishing of the national interests of the Empire of Great Britain was given priority over the market flourishing of the individuals in the colonies. The colonists, in response, sought a system that protected their market, and in so doing founded a new sort of nation, not founded on the glories of an empire or a national identity. Our challenge is to keep it.
Notes
[1] Lord Kames sponsored and attended lectures given by Smith. See, for example: Fleischacker (2025) and Liu (2022).
[2] Hamilton: The Musical (Miranda 2016) beautifully illustrates the attitude that the colonists need 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.
