Adam Smith’s influential work, published in 1776, namely An Inquiry Into the Nature and Causes of the Wealth of Nations (WN), might not have directly impacted the creation of the Declaration of Independence. However, his earlier work, The Theory of Moral Sentiments (TMS), was more widely recognized at the time and certainly influenced the colonists. It’s likely that Smith’s economic theories were absorbed indirectly through the writings of Lord Kames.
Though direct influence may not be necessary, one can observe distinct resonances between Smith’s WN and the Declaration. Smith critiques the strategies employed by the British Crown and Parliament to control the colonists, imposing privileges for certain groups while denying self-governance. In stark contrast, both Smith and the colonists advocate for impartial institutions that prioritize the welfare of everyone, much like a free market.
America as Market
An open society thrives on exchange rather than tight connections among its members. This market dynamic protects individuals’ interactions, enabling them to coordinate their activities with minimal friction. Markets not only reconcile conflicting interests but also foster well-being for all, particularly for the common populace. Public Choice Economics traces its roots to colonial perspectives on governance, framing democracy as a dialogue and politics as a form of exchange (Brennan 2012). Political systems that exceed the facilitation of citizen exchanges risk abuse. The introduction of WN by Edwin Cannan includes a noteworthy remark attributed to Smith by Dugald Stewart in 1755, which likely reached the colonists’ ears:
“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 endeavor 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 government’s role should be limited to safeguarding negative rights in order to sustain a functioning 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… [to] superintend the industry of private people” (WN IV.ix.51).
In a similar vein, 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 fundamental ideas within the Declaration echo Smith’s principles of effective governance, emphasizing the importance of sustaining a marketplace. The grievances against Great Britain stem from its failure to uphold proper governance and its oppressive demands for allegiance from the colonists.
Virtuous Faction, Impartial Institutions, and Vicious Faction
Affection, in this context, can be understood as the ingrained sympathy that develops among individuals collaborating towards common objectives (TMS VI.ii.10). Smith recognizes the family as a legitimate realm for such affection. Likewise, specialized workers within specific industries forge affectionate connections due to shared experiences. However, displaying affection universally across society proves impractical. Hayek (1945) later expands on this idea by asserting that the complexities inherent in economic knowledge render comprehensive planning unattainable. Within familial or closely-knit groups, affection can be termed a virtuous faction or party-feeling (Whately 1822).
Impartial institutions can facilitate objective exchanges. The expansive market and society are interlinked through exchanges that align our activities. Smith emphasizes that market interactions exemplify self-governing relationships: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner” (WM I.ii.2). To succeed in these interactions, we must anticipate the desires of others and cultivate sympathy. Instead of relying on sheer affection, we learn to empathize with others from an early age. “When [a child] is old enough to go to school… it soon finds that its peers have no such indulgent partiality” (TMS III.3.22). Over time, we internalize moral standards that earn us the approval of our peers, developing imaginative judgment similar to that of an impartial observer (TMS I.ii.3.8). Effective governance should focus on upholding justice among individuals in a neutral manner.
When monitoring a nation or market, one might appoint a governor. Smith refers to this role as the “science of a statesman or legislator.” In his perspective, this figure does not aim to manipulate or favor any party and does not assume a universally agreed-upon societal welfare function (Buchanan 1964). Rather, the statesman’s pursuit of peace, reasonable taxes, and fair justice aligns more closely with the bare-minimum governance that supports a market. The science of the legislator starkly contrasts with the actions of the “man of system,” who believes he can maneuver individuals like chess pieces (TMS VI.ii.2.17).
The misconception that a nation embodies a collective set of values mirrors the belief that fiat money holds intrinsic value. Currency, such as gold or silver, serves only as a claim to actual value. The nation does not possess intrinsic value; it is the individuals within it who do. Upholding the value of the nation or its currency amounts to a form of idolatry, confusing means of social organization with valuable ends.
Conversely, vicious faction, often referred to as party-spirit (Whately 1822), represents another form of affinity, similar to contemporary special interest groups. Although Smith does not explicitly categorize these, his condemnation of cartels and monopolies implies such distinctions. A vicious faction survives through government protection; devoid of this support, members would betray one another, much like a cartel in an open market. For Smith, mercantilism epitomizes the most egregious manifestation of this type, serving as a catalyst for many colonial grievances against Great Britain. Affection within vicious factions becomes blind to natural feedback mechanisms, diminishing individual dignity, seeking only the approval of its internal members while disregarding external perspectives. This dynamic marginalizes those outside the faction, particularly evident during Smith’s time with enslaved individuals, who felt akin to the colonists in their treatment.
In seeking national preferences, interventions in the market typically favor specific interests over the broader impact on common citizens. While Smith attributes blame to mercantilists, one could also identify a misguided sense of nationalism that enables such practices to thrive.
Great Britain’s Protection of Vicious Faction
The colonists faced significant violations of their rights to life, liberty, and the pursuit of happiness at the hands of Great Britain, stemming from an erosion of fair, sympathetic expectations. By showing undue favoritism to certain British citizens over the colonists, such as mercantilist cartels benefiting from trade privileges, Great Britain diminished the humanity of the colonists, who lacked genuine representation.
These violations crystallized in commercial exchanges, exemplified by the Stamp Act, which significantly increased transaction costs. This legislation introduced state surveillance into areas previously managed privately, justifying it as a means to fund the Seven Years’ War and attempting to foster affection for the British government among the colonists (Holtzbach, Rivera-Mills, and Snow 2025).
Smith critiques the mercantilist regime, highlighting how it fosters factional privileges, noting, “I have never known much good done by those who affected to trade for the public good. It is an affectation… not very common among merchants” (WN IV.ii.9).
The colonists, arguably too vulgar, too distant from Great Britain, and too mistreated, struggled to maintain the affectionate sentiments that once supported the mercantilists. They sought their own interests but resented the protected privileges enforced by Parliament and the Crown, favoring the spirit of natural liberty that views every man as a nation unto himself.
Rather than perceiving their liberation from British rule as an opportunity to create new shackles, the colonists envisioned a genuine freedom, which they regarded as natural. They crafted their governance not as an artificial construct but as a discovery based on historical studies of human interaction, illuminating the natural relationships inherent in commerce and social exchange. Their aspirations for an “ordered beauty” in governance stood in stark contrast to the “jealousy, prejudice and ‘national animosity’” that defined mercantilism (Hanley and Paganelli 2014, pp. 196 and 199).
Conclusion
Smith’s ideas resonate deeply with the Declaration of Independence, providing a compelling argument for human equality within market systems; recognizing a higher power with humility; advocating for natural liberty; and envisioning constrained governance that prioritizes the common good. Smith denounces Great Britain’s provocations as blatant violations of the colonists’ market rights: “To prohibit a great people… from making all that they can of every part of their own produce… is a manifest violation of the most sacred rights of mankind” (WN IV.vii.b.44). This prioritization of the Empire’s interests over the market needs of the colonies inspired the latter’s pursuit of a new system that not only secured their market interests but also gave rise to a nation devoid of imperial glory or a singular national identity. The true challenge now lies in sustaining this vision for future generations.
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.
