Running head: ADAM SMITH ON WEALTH INEQUALITY 1

Adam Smith on Wealth Inequality

Thomas S. Johnson

Liberty University
ADAM SMITH ON WEALTH INEQUALITY 2

Adam Smith on Wealth Inequality

Adam Smith would respond to the question of income inequality and social unrest by

discussing the importance of quality of living and what constitutes wealth production. Adam

Smiths response to the hypothesis that wealth inequality leads to social unrest would likely

require defining the terms wealth and wealth inequality. Even then, Smith would likely

dismiss or clarify the necessity of some income inequality as a natural byproduct of improving

living standards.

Definitions Change Over Time

Adam Smith would likely write at length on the issue of unequal distribution of wealth

and whether it lead to social unrest, however, he would also in all likelihood disagree with the

concept that unequal distribution of wealth leads to social unrest because of how he defined

wealth and because of the methods he advocated for remedying poverty. Adam Smiths views

and writings must be understood in context to his time. As Adam Smith was writing at a time

when mercantilism was a pervading economic view, Smiths writings were often times in

reference to these views (Sowell, 2005). Because of this, Smiths choice of words, terminology,

and concepts can mislead readers about what Smith was writing.

Adam Smith's response would also include his specific remedies for improving the

quality of living. Namely, that a system that benefits all members of society would not entail

excessively disproportionate wealth inequality, especially over a protracted period of time.

Free Market as a Means to National Prosperity

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Adam Smith, like most of the classical economists who followed him, advocated for a

free market, or laissez-faire, economy for its efficiency in producing wealth for a nation.

Classical economic theory treated wealth as arising from mutually beneficial trade and use of

comparative advantage to maximize efficiency in the use of resources (Sowell, 2005).

Smith meanwhile defined this wealth not only as that of the wealthy elites of society but

as defined by the total population (Sowell, 2005). Sowell (2005, p.6) evidences this when he

quotes Smith, no society can be flourishing and happy, of which the far greater part of the

members are poor and miserable. By broadening the scope of wealth to refer to all members of

a society, Smith forced the issue of wealth to be more than just about gold and currency.

Smith saw the free market economy as the most efficient system for producing wealth as

the free market allowed each individual to work towards their own benefit in as efficient a

manner as possible (Sowell, 2005). As each individual worked towards their own benefit by

trading with others, their collective work allowed the market to communicate information

meaningful both to the buyer as well as to the seller (Genetski, 2011). The free market was

defined in response to the then prevailing economic model mercantilism.

As opposed to the free market, Mercantilism operated by aggregating wealth for the

social elite of a nation with little to no concern for the poor (Sowell, 2005). In the Mercantilist

view, wealth was a fixed value that could be bartered, stolen, or taxed (Sowell, 2005). The

obvious result of the mercantilist economy was one of massive income disparities and a poor

and miserable people (Sowell, 2005, p.6).

Adam Smiths Essential View on Inequality

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Adam Smith was primarily concerned with mitigating and addressing extreme poverty

rather than in establishing equality of income and wealth (Sowell, 2005). Adam Smith

(1776/1975) himself wrote in his book Wealth of Nations,

It is but equity, besides, that they who feed, clothe, and lodge the whole body of the

people, should have such a share of the produce of their own labour as to be themselves

tolerably well fed, clothed, and lodged. (p.97)

By this Adam Smith did not mean that wealth equality was necessary but that an

increasing standard of living was desirable for a nation (Smith, 1776/1975; Sowell, 2006).

This is not to say that inequality could not lead to civil unrest, as indeed research by Dutt

and Mitra (2008) show. Adam Smith, in fact, said that vast differences in wealth could lead the

poor to envy and even attack the wealthy (Smith, 1776/1975). "Wherever there is great property,

there is great inequality. For one very rich man there must be at least five hundred poor, and the

affluence of the few supposes the indigence of the many" (Smith, 1776/1975, p.550). However,

Adam Smith also believed that a civil governments role was to protect the property of the rich

It is only under the shelter of the civil magistrate that the owner of that valuable property can

sleep a single night in security (Smith, 1776/1975, p.550). The unfortunate consequence of

Smiths proposition was that wealth inequality was in some ways inevitable if society as a whole

was to improve (Rasmussen, 2016).

Smith held to the standard that individuals should be motivated to pursue their own

interest (Rasmussen, 2016). Speaking on capitalists, Smith said, By pursuing his own interest he

frequently promotes that of the society more effectually than when he really intends to promote

it. I have never known much good done by those who affected to trade for the public good
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(Smith, 1776/1975, pp.349-350). In driving economic forces towards efficient competition,

Smith hoped that economies would benefit the many and not just the few.

This seeming contradiction of concepts, that Smith was both in favor of practices that

produced inequality while also being critical of extreme wealth inequality is one of the factors

often overlooked when discussing Smiths theories. However, Smiths sentiments are not enough

to gauge his works. His theories and propositions must also be examined for their rational

outcomes.

Smiths Implicit Attack on Inequality

Deborah Boucayannis suggested in her 2013 article that while Adam Smith did not

explicitly decry wealth income inequality, Smith's focus on increasing competition implicitly

leads to decreased concentrations of wealth. "If wealth cannot become concentrated, economic

inequality is necessarily lessened" (Boucoyannis, 2013, p.1051). In this context, Smith can

arguably be said to be opposed to economic inequality in general, and increasing rates of

inequality in particular.

The reason Smith was skeptical of income inequality was because Smith desired markets

to be increasingly free of economic interventions (Genestki, 2011). A free market is generally

less plagued by the crony capitalist practices which empower powerful individuals to appropriate

wealth at the expense of the general populace (Boucoyannis, 2013; Sowell, 2005). An underlying

principle of this argument is that Smith is correct in asserting that free markets lead to increased

competition and that increased competition leads to lower concentrations of wealth

(Boucoyannis, 2013; Sowell, 2006).

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Instead of supporting rampant wealth aggregation, Smith hoped for an economy where

any and all individuals could benefit without fear of corrupt individuals bending the law to steal.

Smith wrote against special interests buying political favor (Boucoyannis, 2013; Genetski, 2011)

and that this crony capitalism leads to increased concentrations of wealth.

Conclusion

Adam Smiths take on wealth inequality and social unrest is neither simple nor

straightforward. The contexts of his time and the changes in terminology make knowing exactly

how Smith would respond to modern issues of inequality difficult to know at best and at worst

impossible. What can be said is that Smith deplored avarice and hoped for an orderly

improvement of society. Smiths objective for society in his lifetime had been to increase

prosperity for all people and to curtail the degradations of greedy men.

Although beyond the scope of this piece, it is worthwhile to explore the ways in which

later writers like Marx and Keynes altered the terminology and interpretations of classical

economists like Adam Smith. What is more, there is a lingering question as to how modern

issues have returned to an 18th century, mercantile interpretation of wealth as a zero sum. As the

Apostle Paul noted, For the love of money is a root of all kinds of evil. Some people, eager for

money, have wandered from the faith and pierced themselves with many griefs (1 Timothy 6:10,

New International Version). Society would do well to reconsider both its values and premises

with this social trend at work.

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References

Boucoyannis, D. (2013). The equalizing hand: Why Adam Smith thought the market should

produce wealth without steep inequality. Perspectives On Politics, 11(04), 1051-1070.

http://dx.doi.org/10.1017/s153759271300282x

Dutt, P., & Mitra, D. (2008). Inequality and the instability of polity and policy. The Economic

Journal, 118(531), 1285-1314. http://dx.doi.org/10.1111/j.1468-0297.2008.02170.x

Genetski, R. (2011). Classical economic principles & the wealth of nations, book I: Classical

principles. Campbell, CA: FastPencil, Inc. ISBN: 9781607463894.

RASMUSSEN, D. (2016). Adam Smith on what is wrong with economic inequality. American

Political Science Review, 110(02), 342-352.

http://dx.doi.org/10.1017/s0003055416000113

Smith, A. (1975). An inquiry into the nature and causes of the wealth of nations. In W. B. Todd

(Ed.), The Glasgow Edition of the Works and Correspondence of Adam Smith. (Vol. 2),

pp. 97-550. Oxford: Oxford University Press. Oxford Scholarly Editions Online (2014).

doi:10.1093/actrade/9780199269563.book.1 (Original work published 1776).

Sowell, T. (2007). On classical economics. New Haven, CT: Yale University Press. ISBN:

9780300126068.