Powered by 
In this week’s Grumpy Economist Weekly Rant, John Cochrane marks the 250th anniversary of Adam Smith’s The Wealth of Nations—and argues Smith’s central insight remains misunderstood. The famous butcher-brewer-baker passage and the “invisible hand,” he says, aren’t just descriptions of how markets function; they express a moral vision: people pursuing their own advantage in competitive, voluntary exchange can end up enriching others, often without intending to.
Cochrane connects that vision to modern debates about wealth, billionaires, and the lingering “zero-sum” suspicion that someone’s success must come from someone else’s loss. The real story of the last two and a half centuries, he argues, is that economic freedom—grounded in property rights, the rule of law, and open competition—made broad prosperity possible, not subsidies, protectionism, or heavy regulation.
Transcript
Hi, I’m John Cochrane, senior fellow here at the Hoover Institution, and welcome to my Grumpy Economist Weekly Rant.
Today, we’ll talk about the anniversary of Adam Smith’s Wealth of Nations, published 250 years ago, the founding essay, really, for what economics is all about.
Let me read you two famous quotes. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their own self-interest. We address ourselves not to their humanity, but to their self-love, and never talk to them of our own necessities, but of their advantages.”
I put in both sentences because they’re kind of interesting. Of course, the first is the famous one: that they work out of their own self-interest and yet provide for us. But the second one is interesting. When you talk to them and ask them to do something for you, you say, “This is going to be to your advantage,” not, “You should do it out of benevolence to me.” And they do.
The invisible hand: “Every individual necessarily labors to render the annual revenue of the society as great as he can.” Wait, everyone works to make society as well off as he can? Yes, that’s the point. Working for yourself, you benefit everyone else.
“He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.” He’s just working for himself. “He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it.”
Notice here, there’s not just a fact. There’s a moral vision. What is the value of billionaires? That’s something we’re debating in California these days. And a lot of our zeitgeist is that they only do good when they make money evilly and then give it away in philanthropy. No, that’s not what Adam Smith is saying. This moral disapprobation of what they do is unfounded.
When a billionaire invents a new product, starts a new company, gives us wonderful products that we live on, maybe takes 1% of the benefit for himself, he has done us tremendous good.
It’s part of an interesting shift that we haven’t yet completed. Before Smith, before the Industrial Revolution, we were a zero-sum society. The only way for you to get richer was to take it from someone else who got poorer. Now, we are a growth society. We can make the pie bigger for everybody. But we still kind of depreciate the people who do all that good work for us.
Of course, Smith pointed out that mercantilists were wrong, that the idea of trading for exports to accumulate gold was a bad one, and that trade was there for us, the consumer, to buy cheaply what others can do better than those who live in our own country.
In his time, surprisingly, every aspect of the economy was intensely regulated: who could work, what jobs they could have, what prices they could charge. That was only slowly changing in his time.
And what growth did these ideas set off? In his time, the numbers I looked up said about $3,000 per capita in England, which was the richest place in the world, only up, though, from about $1,000 at the peak of the Roman Empire. Now, in the UK, it’s $40,000, and in the US, $60,000, and in Singapore, even more than that.
Life expectancy, environment, child mortality, poverty—everything’s gotten dramatically better. From what? From the still-limited economic freedom which Adam Smith expounded for us.
There’s another document from 250 years ago. It’s a great year, 1776: the Declaration of Independence, which gave a vision of a society and government that channels human self-interest rather than hectors us for a benevolence which will never happen and which always seems to justify immense oppression.
Marx called it capitalism. That was kind of an insult. We need a better word. I’m going to try to call it freedomism today.
Freedomism is the only vision of economic relations not fundamentally built on violence, on taking from one to give to another. Freedom works. If we had to choose between freedom and prosperity, it would be a hard choice. Fortunately, we don’t have to choose.
How did we get so wealthy? Not from subsidies, not from industrial policy, not from protections, not from regulations—from freedom. Within property rights and rule of law, yes, but the sanctity of mutually beneficial voluntary transactions under the shadow of competition, that’s what made us all so wealthy.
The question for our time is: can we preserve it and extend it for our children and grandchildren?
If you like this rant, don’t forget to click the subscribe button.
Read more from John Cochrane on Adam Smith
John Cochrane, “Smith and Jefferson at 250,” The Grumpy Economist.
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow of the Hoover Institution at Stanford University. An economist specializing in financial economics and macroeconomics, he is the author of The Fiscal Theory of the Price Level. He also authors a popular Substack called The Grumpy Economist.