Today marks the 250th anniversary of the publication of The Wealth of Nations: Adam Smith’s seminal text in the history of economics. Smith gave his name to the institute that I co-founded, so you might expect me to advocate for reading his most famous text. But you shouldn’t. It’s very long, written in elegant but spacious prose and full to exasperation of examples, observations and terminologies that puzzle a modern reader. Read my Condensed Wealth of Nations instead or wait for my cartoon graphic novel to come out later in the year.

Smith would see the scale of government today as the greatest tyranny

Nonetheless, modern unreadability doesn’t mean that The Wealth of Nations is unimportant. It’s one of the most crucial books ever written, ranking alongside those of Isaac Newton and Charles Darwin. Just as they changed how we understand the physical world, Smith changed the way we see the human world. And still today, we prosper because of it.

Smith was by no means the first economist. Many of the ideas he set out in The Wealth of Nations were not even new. But he managed to develop those ideas and weave them into a comprehensive new view of economic life – something that unified and explained how all those exasperating observations fitted together. In doing so, he created Classical Economics, a way of thinking that has informed and shaped nearly all the economic thinking that has followed.

It was Smith who told us how specialisation, trade, exchange, markets and prices functioned and the benefits they can bring, particularly to the poorest. He saw specialisation, efficiency, investment and innovation as the drivers of human prosperity – ideas that still inspire thinking on capital accumulation and market dynamics today. He saw how technological changes, like the industrialisation of his time, reshaped working practices and job markets and brought new challenges that had to be addressed, such as displacement, turnover and alienation. Think AI today.

Smith foresaw that all such technological progress, while disruptive, ultimately enlarges human prosperity by promoting greater productivity and creating new opportunities – much as the Industrial Revolution displaced handloom weavers but created far more jobs in factories, services, and in entirely new industries. Today, artificial intelligence provokes similar anxieties: prominent voices, including AI leaders like Anthropic’s Dario Amodei, warn of half of entry-level white-collar jobs being wiped out, pushing unemployment to 10-20 per cent in the coming years. Already there are reports of tens of thousands of layoffs in 2025 attributed to AI anticipation.

But the emerging evidence suggests a far more nuanced reality. Certainly, entry-level and routine cognitive roles face acute pressure, with young workers seeing sharper declines in employment in AI-exposed fields. But survey-based forecasts from the World Economic Forum point to a net creation of jobs. potentially 170 million globally by 2030 after displacing 92 million.

A big turnover, certainly, but nevertheless a huge expansion, as AI augments human capabilities, creates demand for new skills in oversight, ethics and creative applications, and drives productivity gains that fuel economic expansion. The way forward lies not in halting innovation but in ensuring flexible labour markets, retraining, and minimal regulatory barriers that allow displaced workers to transition swiftly – precisely the adaptive processes Smith advocated 250 years ago.

Smith’s biggest target in The Wealth of Nations was mercantilism – the vast battery of regulations, subsidies, taxes and controls that was designed to protect jobs and fill the nation’s bank vaults at the expense of others. This operated in domestic commerce too: towns, for example, banned artisans from other places from working there, while guilds petitioned for regulations to keep out competitors, however much more innovative and efficient they might be.

But Smith demonstrated how both sides in a bargain benefited – not just the one who ends up with the cash, and how specialisation made those bargains easier and more beneficial. The world is large, diverse and well connected. Why try to make wine in rainy Scotland, when you can buy it for a thirtieth of the price from sunny France?

Certainly, Smith understood the political psychologies that gave rise to protectionism. He was more a social psychologist than an economist. His previous book was on ethics, and his next, had he written it, would probably have been on politics. And he recognises the significance of factors such as security and retaliation in promoting trade barriers. But he reminds us that the mutual gains from exchange are so large that we should aim to make free trade our principal goal – something nearly all economists accept today.

In our own time, these mercantilist ideas resound in the ongoing debates over trade tariffs, particularly those of the US, the world’s largest trading nation. With initial ‘emergency’ tariffs struck down by the Supreme Court, new 10 per cent rates have been imposed, targeting major partners like China, Canada, Mexico and the EU, ostensibly to address trade imbalances, fentanyl flows, and national security.

In The Wealth of Nations, Smith railed against such protectionism, showing how it would raise consumer prices, disrupt supply chains, invite retaliation (as seen in past tit-for-tat escalations), and ultimately burden ordinary citizens more than they protect jobs. While he accepted that tariffs might provide leverage against other countries’ manipulation of trade through subsidies (or today, through currency manipulation), he knew that they smother wealth creation, favour politically connected industries, and deny consumers the benefits of comparative advantage, specialisation and free exchange.

Smith would see the scale of government today as the greatest tyranny

But while most modern economists echo Smith’s praise for free trade, many contradict themselves by calling for government to have greater control over domestic markets. Perhaps that stems from a cronyism akin to that which Smith criticised between businesses and regulators; perhaps governments need economists to justify their policy objectives, while economists need governments to implement their various theories and test them on the guinea-pig citizenry.

Smith, however, would see the scale of government today as the greatest tyranny. To him, the core functions of government were defence, the administration of justice, and the provision of a limited number of public goods, mostly those such as infrastructure that made trade and commerce, and therefore wealth creation, easier. Larger governments, he thought, would become more corrupt ones, providing greater power for officials to abuse and a larger, more lucrative, target for business cronies to exploit. Greater regulation would increase costs, discourage investment and serve the interests of businesses rather than the public.

Governments that could go deeply into debt were even more dangerous. By borrowing, they could expand without raising taxes. They would be more inclined to start hostilities with others. And they would absorb capital that ordinary citizens could use more productively. Today’s world in which global government debt is 100 per cent of GDP would truly shock him.

Smith wrote to a friend that all that was necessary to take a country from the lowest barbarism to the greatest prosperity was ‘peace, easy taxes, and a tolerable administration of justice’. His thinking has given us so much in terms of understanding economics, trade and markets. But perhaps we need to focus more on those three essentials.