Economics and the Value of Nations: Why Adam Smith Still Matters

Why, in the 21st century, should we still read Adam Smith? Often hailed as the “father of modern economics,” Smith is just as often dismissed as outdated—an 18th century thinker writing before industrialisation, automation, and the complex global economy we know today. Yet, as a closer reading of The Wealth of Nations (1776) reveals, Smith’s ideas remain deeply relevant—not because they offer final answers, but because they expose enduring questions about labour, value, and the structure of modern society.

This blog post offers a concise exploration of Smith’s place in economic thought, drawing on the evolution of economic theory in his time, his intellectual influences, and a critical evaluation of both his insights and his limitations. My blog is a shorter version of a longer (6,000 word) article which can be read here: Economics & the Value of Nations: A Snapshot on Smithian Scholarship.

The Modern Relevance of Adam Smith
At first glance, Smith’s world seems distant from ours. But on closer inspection, the society he described—what he termed “commercial society”—is the same one we inhabit today. Its defining feature is waged labour: people earning a living by selling their capacity to work. While earlier societies relied primarily on slaves, serfs, or domestic servants, Smith observed the rise of wage labour as the dominant social relationship—a condition that continues today.

Importantly, Smith wrote at a moment of transition. The social structure of modern capitalism had already emerged, even if the technological form—industrial machinery—had not yet fully developed. This gave him a unique vantage point. Without the distraction of machines, Smith could focus more clearly on the social relationships underpinning economic life, particularly how wages, profit, and rent are distributed across social classes.

Later economists, captivated by mechanisation, often misread these relationships. Thinkers such as Jean-Baptiste Say even treated machines as independent “factors of production” deserving income in their own right—an idea foreign to Smith. By contrast, Smith’s emphasis remained firmly on human labour and its organisation.

Competing Economic Theories in Smith’s Time
To understand Smith’s contribution, we need to situate him within the intellectual context of the late 18th century. Two dominant schools of thought shaped economic debate:


• Mercantilism
• Physiocracy


Smith’s work engages critically with both.

Mercantilism: Wealth Through Trade
Mercantilism argued that national wealth comes from maintaining a positive balance of trade—exporting more than you import. Rooted in the practical experience of merchants, it framed economic life as a process of buying cheap and selling dear.
However, mercantilist policies required heavy government intervention. States enforced monopolies, controlled trade routes, imposed tariffs, and maintained colonial systems to ensure profits. Colonies were restricted to trading with their “mother country,” creating protected markets that enriched merchants and, by extension, state revenues.

While this system could generate wealth for the metropole (e.g. Britain), it did so at a cost: higher prices, reduced competition, and greater inequality. Workers, in particular, bore the burden of inflated costs and heavy taxation. Despite Smith’s powerful critique, mercantilist policies persisted well into the 19th century, only gradually giving way to freer trade principles.

Physiocracy: Wealth from Nature
In contrast, the French Physiocrats located the source of wealth in nature, especially agriculture. Observing that agricultural production yields a surplus—planting one seed produces many—they concluded that only agriculture (and extractive industries like mining or fishing) truly created new wealth.

Urban industries, by comparison, were deemed “sterile.” A jeweller might reshape silver into necklaces, but the total quantity of silver remains unchanged. Physiocracy also introduced a powerful methodological innovation: systematic data collection. By tracking agricultural output, population, and economic activity, the Physiocrats could analyse economic growth empirically. They also advocated laissez-faire policies, arguing that government interference—such as price controls on bread—often made economic problems worse.

Smith’s Synthesis and Breakthrough
Adam Smith absorbed ideas from both traditions, particularly during his time in France, where he engaged directly with leading Physiocrats. Yet his contribution lies in transcending their limitations. Smith agreed that production is central to wealth, but he rejected the idea that only agriculture is productive. Instead, he identified human labour, across all sectors, as the true source of value.

His famous example of the pin factory illustrates this point. By dividing labour into specialised tasks, productivity increases dramatically—even without new machinery. This increase is not natural but social, arising from the organisation of work.
Smith also challenged the Physiocratic dismissal of trade. For him, exchange is not sterile; it motivates production. People produce not just for subsistence but for markets, responding to demand shaped by social needs.

Class Structure and Economic Insight
One of Smith’s enduring contributions is his clear articulation of a three-class system:

• Workers (earning wages)
• Capitalists (taking profit)
• Landowners (taking rent)

This framework remains influential today. Unlike earlier thinkers, Smith recognised the shared characteristics within each class. Workers across sectors are united by their dependence on wages, while business owners share a profit motive.

The Importance of Smith’s Library
Modern scholarship has deepened our understanding of Smith through the study of his personal library. This “hermeneutic” approach—interpreting Smith through the texts he read—reveals the intellectual world that shaped his thinking. Smith’s library contained works in multiple languages, travel accounts, and early economic texts like Richard Cantillon’s (1755 [1720s]) Essai sur la nature du commerce en général. By tracing Smith’s references back to these sources, we see how he adapted and reinterpreted earlier ideas.

For instance, from Cantillon, Smith draws insights about wages needing to cover not just workers’ survival but also population reproduction. This reflects a deep awareness of the relationship between labour, subsistence, and demographic growth.
Smith was also aware (from Cantillon’s work) that workers are perfectly capable of producing double what they require to survive.

The Labour Theory of Value: Insight and Problem
At the heart of Smith’s economics lies a powerful but problematic idea: that labour is the measure of value. In principle, this means that the value of goods reflects the (generic) labour time required to produce them.

However, Smith also recognises an apparent contradiction: workers do not receive the full value of what they produce. Instead, part of this value becomes profit for employers (and rent for landowners; interest for bankers; taxes for politicians).
This creates a theoretical tension. If goods exchange at their labour values, how can workers consistently receive less than the value of their labour?

Smith never fully resolves this issue. Later economists attempted to “correct” him, often abandoning the labour theory of value altogether. But another interpretation suggests that Smith was uncovering a real feature of capitalist society: a mismatch between value as a universal measure (of human effort) and the labour time of wage labourers (and how it can be the ‘measure’ of itself).

My longer article (link above) outlines this contradiction using the analogy of Kilograms as a measure of weight (which cannot then appear on the scales as a ‘Kilogram of Kilograms’). Marx resolved the ‘problem’ by noting that wage labourers are not paid for their ‘labour time’ (but for the product of their ‘recreation’ time, namely. their labour power.

Wealth vs. Value: A Crucial Distinction

Another key issue in Smith’s work is his use of the term “wealth.” He famously argues that labour is the source of all wealth, but this is only partly correct. Nature clearly provides wealth—sunlight, minerals, natural resources. What nature does not provide is value, which is a social construct arising from exchange. Smith’s failure to clearly distinguish between wealth and value leads to confusion. A more accurate title for his book might have been The Value of Nations, emphasising the social processes that determine economic outcomes.

Conclusion: A Thinker Worth Revisiting
Adam Smith’s Wealth of Nations remains a foundational text not because it offers flawless theory, but because it grapples with fundamental questions that are still unresolved in “mainstream” economic theory:

• What creates value?
• Why is value distributed in the way it is? [What is role of violence / exploitation?]
• What role do labour, nature, and exchange play in economic life?


Consequently, Smith’s insights into labour, class, and productivity continue to shape economic thought. At the same time, his unresolved contradictions—particularly around value and wages—highlight the complexity of the system he sought to understand. Far from being outdated, Smith’s work invites us to think more critically about the modern economy. His legacy lies not in providing final answers, but in opening a field of inquiry that remains in dispute.

Theses on the Mirage of “Left” Unity

Introduction

A teaching and union colleague recently pointed out that one of the 2025 Reith Lectures claimed disunity on the “Left” was incapacitating struggle against the new authoritarianism. This disunity leaves the “Left” unable to combat the rise of the Far Right. Like most theories, this claim contains its moment of truth. There seems to be little obvious opposition to the politics of isolation. Self-immolation in an era of capitalist crises and state austerity stands unchallenged.

However, such calls to arms overlook or ignore not just the historical reasons for “Left” disunity. They neglect to consider why, philosophically, there have been incompatible positions on the “Left”. Indeed, we should ask this question. Has there ever been such a thing as “Left unity” (producing a unified position, movement, group, or identity)?

The Left should be associated with ‘radicalism’ (a desire to change the status quo). This creates its ‘identity’ in opposition to ‘conservatism’ (a desire to maintain the status quo). However, there has never been agreement amongst “the Left” as to what counts as the ‘status quo’. Hence, what is it that needs to be ‘changed’? If this cannot be agreed upon, radicals (change seekers) face a crossroads. They are bound to head off in different directions. Thus, disunity is built into the so-called ‘march of progress’!

Analysing the Options

Here I will argue there are 3 fundamental positions on “the Left”. Everyone involved may want to ‘change society’ (and clearly they hope to do this ‘for the better’). But, as noted, their positions are fundamentally, in both theoretical and practical terms, incompatible. I call these three positions: (1) State Takers, (2) State Makers, and (3) State Breakers.

All three stand in relation to ‘capitalism’ as the currently existing mode of production. And each wants to present their own position as the ‘best way forward’ or ‘best available option … in reality’. I say ‘stand in relation to’ and not ‘stand against’. The first major division arises between those ‘radicals’ who see capitalist relations of production grounded in ‘human nature’ (and thereby inevitable or insurmountable). Others see capitalism as running against ‘human nature’ (and thereby flawed and historically dangerous; working its way towards barbarism). Yet, things are never this ‘neat’ and sub-positions emerge as there are those who ‘think’ they are overthrowing capitalism whenever the state nationalises or incorporates services and institutions, despite widespread awareness of the modern nation state’s role in advancing capitalist relations of production (i.e., the wage labour form, laws on community dispossession, the promotion of monetary command over life).

What is a ‘State’?

First I am required to give a definition of what I mean by ‘state’. I understand a ‘state’ to be a permanent structure or condition which entails a political division between rulers and ruled. Typically, there are politicians and non-politicians. One section of the social totality (the polity) makes decisions in relation to the other (who take instruction).

A classic account of a ‘state’ is Plato’s Republic. In this account, the community is divided into three distinct classes: (a) philosophers, (b) soldiers, and (c) traders (techne). Plato argued against democracy. He did not envision a properly functioning society where everyone (within the polity) had the capacity, skills, time, or inclination to govern. Rulers (the government or governors) had to be ‘trained’ to rule properly. Indeed, the most effective rulers had to be philosophers. And these philosophers had to be communists not ‘corrupted’ by private interests. Philosophers were placed above techne. They were not ‘encumbered’ with everyday requirements, such as producing the material needs of the polity. Their sole job was to ‘rule’.

Of course, Plato’s arrangements involved permanent classes reproduced through genetic isolation from each other. The philosophers were a nobility, though a physically weak one which needed protecting by a second class (level or layer) of ‘rulers’, the soldier guardians, who had physical strength. Naturally, the head (philosophy or wisdom) ruled the body (might) and in Plato’s Republic it was ‘impossible’ for individuals to move between classes (defined by ‘birth’).

Our contemporary ‘states’ differ in so far as everyone is abstractly ‘equal’ before the law. Anyone, under the American Dream, has the ability to rise among the ‘ranks’ and become a ‘ruler’ (politician). But this social mobility does not mean there is no permanent division between rulers and ruled in modern society. Whilst ‘individuals’ can change rank and swap places, at any moment in time/space rulers (politicians) are still a class apart from the ruled. Each empowered individual has temporary privileges (the ability to take part in meaningful votes) which others do not, but as a ruling class politicians are a ‘permanent’ feature and division.

Whereas in Plato’s Republic both the individuals and their class divisions are permanent, with modern states individuals are ‘free’ to move between or across classes, becoming ‘temporary’ rulers. But the classes themselves (politicians versus non-politicians) remain ‘permanent’. An individual can be elected or co-opted into the ruling (governing) class. And they can also exploit their way into being a desirable and co-optable character via accumulation of monetary wealth (capital).

Elections give a semblance of democratic engagement (in contrast to Plato’s Republic). As the philosopher Hegel notes, there is democracy merely one day every 4 years; an event through which a temporary tyrant or oligarch is selected to serve ‘their’ term. During that term the elected are a class apart. Democratic events (‘the election’) are rarer than the 29th of February (1 in 1,461 days). Such is ‘the state’ we are in!

(1) State Takers

The first position on “the Left’ is populated by those willing to work with the ‘existing’ class-divided system and its peculiar arrangements. They put themselves forward to be selected as one of the temporary dictators (or club of would-be dictators) under such a system. [A kind of reversal of The Hunger Games, in which a champion for the exploiting class – to carry it forward – is chosen by and from amongst the exploited class.]

The aim is to ‘take over’ the state in its current condition, with our ‘champions’ firmly believing they are ‘the one’ – an incorruptible Messianic ‘ruler’ who will represent and govern in the interests of ‘the workers’ (the working class or techne). There are clear echoes of Plato in this; minus the preference for ‘democratic’ selection of the philosopher-guardians. Plato’s philosophical machinations were all about coping with the potential for guardians to be ‘corrupted’. But with a social system which eulogises the corruptible there is no need to bother with Plato’s concerns.

Meanwhile, modern political science knows too much about familial and genetic corruption (via primogeniture) and, consequently, desires to draw the polity’s governors from what it perceives as the endless ‘talent pool’ of a mass population that has been legally and commercially equalised through market trading (i.e., every commodity owner is formally equal – the same – except those who do get ‘chosen’ tend to have socially desirable exploitative ‘talents’ indicating they deserve a chance at power and ‘ruling’).

Whilst the “Left” State Taker position may be widely identified with social democracy, it also covers democratic socialism, Fabianism, and movements such as social liberalism and market socialism. Figures and characters range (in UK politics) from Tony Blair to Jeremy Corbyn, from Jenny Lee to George Galloway. Some appear more ‘radical’ than others, but the primary goal has always been to take charge of the existing state apparatus and run it ‘for the good’ or ‘the betterment’ of the lower orders.

After all, can such a state (as the existing one) remain in the hands of Right-wingers or even Centrists? Wouldn’t that be worse for ‘the working class’? Aren’t State Taker arguments reasonable? Don’t they make sense? Let’s ‘take the state’! Couldn’t anything be more obvious?

The criticism is that after more than two centuries of such ‘Left’ (radical) reformist argumentation and action the tension (or contradiction) between progress and regress is nothing except heightened. There is no lack of food, but use of food banks continues to rise. And the arrival of state welfare has introduced another control mechanism with which to discipline and punish the universal working class (constantly filtering people into deserving and undeserving ‘classes’ despite movement of the ‘means testing’ slide ruler). There has always been a ‘dark side’ to social democratic politics – a complicity with ‘the beast’ through which the permanent class division perseveres.

(2) State Makers

This has always been considered a ‘more radical’ stance on the existing state, and its promises features more fundamental change. There are a range of methods involved, from the democratic ‘take over’ (which quickly aims to become a ‘make over’), through guerrilla movement (often based on ethnic, national, cultural, or racial differences in a supposedly ‘cosmopolitan’ colony), to the militaristic General’s coup d’état.

Having read Robert Service’s work on the Russian Revolution, I am never sure how to treat and place Lenin. He wore a civilian suit but, at the same time, was the puppet master of Bolshevik action undertaken by armed units managed by Trotsky. Though the real coup took place after the only free elections returned a majority of Mensheviks and Socialist-Revolutionaries to the post-provisional Assembly. So, Lenin and the Bolsheviks ‘suspended’ the Assembly (at gun point).

The Russian Revolution (as Arendt, 1963, notes: ‘modelled’ on the French and not the American Revolution) is a clear example of state making. This was no mere ‘take over’ of the old apparatus and its class divisions. The monarchy was executed (multiple generations), the nobility fled overseas, and the peasants refused to be subservient (to anyone: Kerensky and Lenin included). For about six months (Feb-Oct) there was what Ernst Bloch would call an ‘opening’. If there was a ‘state’ it was one of flux (so really a ‘non-state’ given the absence of permanency [see my definition of ‘state’ above]).

Then Lenin and Bolshevik Co., stepped into build up a ‘new state’. Despite the theoretical proposal that this would be a state which would ‘wither away’, it never did. Or, it took 70 years and then ‘withered’ into an “illiberal” oligarchic state and not ‘away’. The Bolsheviks were classic state makers. They ‘radically’ changed the structural components and ‘classes’ of the Russian (Imperial) state. The Dictatorship of the Proletariat was the new ruling class. But since this particular class could not be found outside the major cities of Imperial Russia, it was Bolshevik Party membership (and obedience to Party organs, structured in a strict hierarchy) that defined the ‘new’ permanent ruling class.

As a piece of state making this became a proven success which, subsequently, was followed, copied and mimicked across the globe (primarily for its acclaimed ‘success’): China; North Korea; Cuba, Vietnam; Syria; Libya; Afghanistan; Venezuela. Therefore, as a ‘model’ for “Left” (radical) politics it remains prominent and powerful if not as predominant as it used to be.

And, of course, this kind of state making (overthrowing one state system and replacing it with another) does not have to be “Left” wing. Unlike Socialist Afghanistan, ‘socialist’ Iran never made it beyond the revolutionary period due to the radical Clerics and their supporters becoming the ‘vanguard’ which remade the state. The Islamic Caliphate in Iraq/Syria (ISIS) is another example of such ‘regressive’ radicalism.

Contemporary ‘successful’ Leftist state making may be associated with ‘civic nationalist’ movements or with the downtrodden / wretched ‘side’ in civil and colonialist wars. But in what manner do the remade nation ‘states’ of Ireland, Tanzania or Bosnia-Herzegovina now count as “Left” good causes? And what of advocates for a Palestinian State? Surely this is a contemporary highly-reasonable case for “Leftist” ‘state making’? But the history of hitherto state making does not sit well with any prefigurative attempts to make ‘the state’ work for the people.

(3) State Breakers

Finally, we reach the anarchist “Left”. In that the ‘state’ is a permanent division between ‘rulers’ and ‘ruled’, no matter what form that class division takes (e.g., ‘dictatorship of the proletariat’; plutocracy; meritocratic and labour aristocracy), the state breaker’s aim is to do away with permanent social division – to create an indivisible political community, a true ‘polity’ (where the people rule in the people’s interest). Out go ‘charismatic’ “leaders of the people” and “representative” forms of democracy, with their election of one part of the population into positions of power over another.

The state breaker “Left” is, therefore, associated with the more extreme forms of democracy; so-called direct democracy involving participatory action, delegation, and consensus. The latter forms need to be grassroots based, such that the local is free to engage with the federal and global (which are nothing except the conglomeration of local polities).

The objections to state breaking are that it is ‘impractical’ and will lead to ‘anarchy’ (objectors mean ‘chaos’, since ‘anarchy’ is, indeed, the goal). But anarchy simply means ‘without a state’ (so, without a permanent division between rulers and ruled). Used pejoratively, ‘anarchy’ is shouted by those within an existing ruling class as a form of defense against change. That is, their own removal from power.

Of course, given a history of state makers managing to produce even worse systems that what preceded them, the real ‘chaos’ in modern history has been produced by a perpetuation of ruler/ruled divisions (a ‘state’) that promote ‘terror’ (and what is ‘war’ if not terror) in order to ‘keep the state going’.

State breaking remains ‘fanciful’ – the most utopian of the three “Leftist” positions. But it does exist, and always has, bubbling away and percolating through historically-made institutions (which would rather pretend, and do pretend, they are an outcome of ‘nature’). We find remnants of delegatory democracy in trade unions – where the ‘branch’ and not the ‘representative’ votes at conference. Such leftovers are a reminder of past attempts to break the state (during the French Revolution, the Paris Commune, the post-World War 1 revolutions – see Tomba).

Conclusion

Given the above positions, what does “Left” unity look like? There may be some ‘abstract’ desires which ‘all’ can agree upon (remember: these do not even include an ‘end to capitalism’), but what are concrete examples of these? An example might be ‘an end to poverty’? Everyone on the “Left”, surely, will agree to this as ‘an end’ of the “Left”?

But then we simply move on to differences over action and ‘policy’ (‘the means’), where the above positions once more make themselves felt as disunity. Furthermore, the latter ‘assertion’ soon becomes a ‘charge’ against any ‘opposing’ position, such that ‘dissent’ from a policy or strategy enables the charge of disunity to become a ‘control’ mechanism!

What then becomes of “Left” unity? Does it mean ‘everyone’ getting behind a (state taker) “representative” of “all”, such as Starmer, Corbyn, Mélenchon, or Saunders? Or does it mean signing up to a specific ‘leadership’ organisation (the vanguard party or a rainbow coalition), in the hope of ‘changing the system’ by creating an alternate system?

Such demands for “Left” unity can ultimately become ‘suspect’ within themselves – a means of disabling certain forms of resistance and refusal. Hence, calls for ‘unity’ are but mirages – the unreachable sites of an ‘identity group’ formed purely in opposition to the “Right”, and not by any autonomous agenda. Instead of trying to “unite” the mutually exclusive positions of the “Left”, would it not be better to work out what is required for real emancipation?