Liberty Matters

Adam Smith, State Formation, and the American Revolution

Adam Smith, the famous Scottish political economist and moral philosopher, was also a profound and prophetic historical thinker who charted the progress of Western civilization from its “barbarous” beginnings to its culmination in the prosperity, politeness, and power of his own eighteenth-century Britain. Smith conjectured in the grand manner on the stages of historical development, beginning with the primitive, pre-civil stage of hunters and gatherers and progressing toward more advanced pastoral and commercial societies.[1] These stages reflected the ascendancy of successive modes of subsistence, production, and exchange that were characterized by distinctive forms of rule—the appropriate “superstructure” for dominant classes at each stage. 

Smith was fluent in this idiom, but questioned the linear logic of development when he looked beyond the boundaries of European nations and markets. With a growing number of British contemporaries, he condemned the “savage injustice of the Europeans” as they encountered and exploited more “primitive,” less developed societies during the age of discovery and imperial expansion.[2] Not surprisingly, the moral philosopher had mixed feelings about the implications of extending the market and thus enabling its progressive specialization.” Market expansion was certainly a good thing in theory, as it was in practice within and among the European states that collectively constituted a sort of “commonwealth” or “republic” under the emerging law of nations. But it was clearly not so in encounters with “barbarous nations” in the world beyond. 

Asymmetries of power fostered injustice. European fiscal-military states extended their “protective” domain over underdeveloped, stateless societies lacking the capacity to resist the depredations of exploitative, state-sanctioned capitalists. Published in 1776, Smith’s The Wealth of Nations celebrated the freedom markets afforded advanced commercial societies, but recognized the darker legacy of European globalization. The most conspicuous symptom of incipient despotism was the rapid expansion of the Atlantic slave trade and the exploitation of enslaved African labor in the New World enabled by British capital. Enlightened critiques of slavery and the slave trade expressed broader misgivings about state formation and imperial expansion in the era of the American Revolution. The American Declaration of Independence, also published in 1776, was a powerful indictment of imperialism and the abuses of illegitimate state power. In his original draft the slave-holding planter Thomas Jefferson excoriated King George III for waging a “cruel war against human nature itself” in sanctioning the slave trade and violating the “most sacred rights of life and liberty in the persons of a distant people who never offended him, captivating & carrying them into slavery in another hemisphere.”[3]

Jefferson and fellow patriots in the North American provinces mobilized against Parliamentary claims to sovereignty, breaking with Britain in 1776 to counter the coercive force the imperial state unleashed against them in another “cruel war.” Resistance rhetoric focused on the fearful prospect that overseas Britons would be stripped of their vaunted liberties and reduced to the condition of their own slaves. White American fears of enslavement seem grotesquely hyperbolic and hypocritical in retrospect. But many Revolutionaries, including Jefferson and other slave-owning opponents of slavery and the slave trade, shared Adam Smith’s anxious forebodings about the growth and potential abuse of unbounded—or what Americans and their metropolitan friends deemed “unconstitutional”—state power. 

From Smith’s perspective, deluded British policy-makers had stumbled into a stupid war, inspired by their vision of “a great empire on the west side of the Atlantic” that “has hitherto existed in imagination only.”[4] Rather than subjugating American “rebels,” Britain should incorporate them into an extended and more perfect British nation-state and market—or recognize their independence. The American war was tragically mistaken, in some ways worse than the “savage injustices” inflicted by Europe on the rest of the world. To reduce the rebellious colonies to submission (if not slavery) would be to reverse the linear logic of progressive history, for they had already arrived at an advanced stage of constitutional and commercial development. Having so quickly passed through (or by) the stages of development, the self-declared United States would soon demonstrate the capacity to develop infrastructure, mobilize resources, and forge progressively more perfect unions with each other and “the powers of the earth.” In other words, Parliament’s deluded claim to sovereignty over its imaginary empire would ultimately be fulfilled by reluctant Americans who could not imagine themselves to be independent—until they had no choice.[5] But theirs would be a “popular” or constitutional sovereignty, drawing on a shared tradition of legal and political development that enabled market formation. 

Adam Smith’s misgivings about “progress” in the context of extra-European expansion illuminates his historical consciousness. As economist Vernon Smith’s brilliant short essay shows us, Adam Smith was an history-minded comparativist whose understanding of contemporary market society was grounded in his empirical understanding of the contingent and ongoing development of state capacity, focused specifically on the problem of justice in Britain. Vernon Smith’s great predecessor “locates the origins of national economy in the universal propensity of individuals to truck, barter, and exchange” (VS, my emphases). The historical circumstances that made market development possible were unique to Britain, notionally latent as propensities—or contingent possibilities—in all humans, but not the inevitable outcome or endpoint of human history. The Smiths instead invoke a universally shared “theory of justice as property” as “a precondition for this economic development” (VS, my emphasis). They define justice in negative terms, as violations of an individual’s property “in their body,” “in the products of their body and mind,” and in the “promises” sociable individuals make to one another (VS,). All of these claims signify an individual’s dependence, or need for protection: “security, therefore, is the first and the principal object of prudence” (VS). 

The Smiths’ conception of state formation and market development is predicated on the psychology of property owners rather than on the rationality of (sovereign) individuals in a conjectural state of nature. According to Vernon Smith’s formulation of Adam Smith’s “great insight,” individuals are naturally risk averse. The “subjectively experienced asymmetry” between possible “gains and losses” derived from “a more fundamental asymmetry between human joy and sorrow.” For those who enjoyed a reasonable degree of sufficiency and security, “little may be added to their welfare” but, as Adam Smith explained in The Theory of Moral Sentiments, “much may be taken from it.” In the absence of a modern, liberal protective state and market society, most individuals would thus opt for a seemingly timeless status quo. Property made anxious owners conservative. Prospective “adversity,” Smith concluded, “necessarily depresses the mind of the sufferer much more below its natural state, than prosperity can elevate him above it” (TMS, p 64, quoted in VS). Progressive propensities would only be mobilized under the aegis of a protective sovereign. Before they would “truck, barter, and exchange,” it was “natural” for men to know their place—and stay put.

When Adam Smith talked about state formation, he eschewed ahistorical conjectures about human nature, instead relying on the kind of data antiquarian contemporaries were assembling about the histories of law, governance, and material conditions of the nations that constituted the United Kingdom. Progress toward the world Smith analyzed so comprehensively in Wealth of Nations had followed an uncertain path, punctuated by regime change and war: the emergence of a consolidated nation-state in the British Isles and a single, still far from perfect national market was not fore-ordained—or irreversible. The primal impetus toward state formation came from demands for property protection, not from the aspirations of homo economicus, an anachronistic ideal type. 

The ways in which societies historically dealt with murder—the most extreme violation of property rights—chart the progress of state formation. 

The “natural punishment” for murder in civilized countries “is death,” Adam Smith told his students in his Lectures on Jurisprudence, while “amongst barbarous nations the punishment has generally been much slighter, as a pecuniary fine” (LJ, quoted by VS). Because early governments lacked the capacity to impose the “natural” punishment, they could only hope to break the cycle of violence and preserve “the publick peace” by negotiating alternative forms of compensation (effectively putting a price on a life). As states successfully contained private violence by socializing vengeance, they reinforced the feudal hierarchy of ranks that maintained social order by fixing “a particular rate . . . for the atonement that shall be made for the death of persons of every rank in the state from the king to the slave” (LJ, quoted by VS). As the ambit of the sovereign’s authority expanded, however, his subjects were progressively reduced to a common status (aristocrats were transformed into courtiers), equally dependent on the modern, civilized state’s protection. Murders—and all other crimes—were assaults on “the king’s peace” not on the victims’ families, friends, or rank order.[6] In Scotland, “the criminal came to be considered as punished, not as the murtherer of the relation of such persons, but as the murtherer of the free subject of the king” (LJ, quoted by VS). As Vernon Smith pithily summarizes this development, “Victim Compensation Evolved Into a Tax as Government Became Stronger.”

Mirroring common lawyer William Blackstones assertion that the original title to all landed property in Britain and its overseas possessions derived from the Crown, so too the British “people” were fictively embodied in the sovereignty of King-in-Parliament. The idea that capital punishment—the state’s exclusive authority to inflict punishment on the bodies of its citizens, members of the body politic—could be seen as a landmark in the progress of civilization may seem counter-intuitive in our enlightened day. But the state’s monopoly on punishing criminals signaled a broader capacity to protect property and so establish “the general forms taken by the rule-of-law in modern liberal states” (VS). Enlightened legislators might one day even abolish capital punishment, deeming it a barbarous legacy of the progress of state-formation chronicled by Adam Smith in his Lectures on Jurisprudence. Certainly, the expansion of market freedom would make government progressively more responsive to the will of a peaceful, prosperous, and polite people. 

The modern idea of the “people,” the Smiths suggest, originated in the domain of market exchange. “The higgling and bargaining of buyers and sellers” produced “public prices” that circulated in emerging trade and information networks and gave rise to public opinion, a new constraint on the sovereign’s power (VS). Because “FORCE is always on the side of the governed,” as Adam Smith’s fellow Scot David Hume famously concluded, “the governors have nothing to support them but opinion.”[7] The market mobilized “buyers” and “sellers,” making them into a nation; even as modern governments consolidated authority and developed their coercive capacity, they increasingly depended on the wealth that tax-paying market participants produced. Nations became prosperous and powerful by promoting enterprise and distributing tax burdens equitably—among producers and consumers and across generations—in ways that enhanced state capacity without unleashing the latent “FORCE” of an alienated counter-public. For Smith and other critics, this was the measure of Parliament’s failure in the American crisis: by withdrawing protection from, and making war against, its overseas provinces, Britain divided the nation and squandered its wealth.

The new nation that misguided ministerial policy makers brought into being was “born modern,” demonstrating the American provinces’ capacity to mobilize men and resources and forge a continental alliance before they declared independence. The “people’s war” was a great equalizer. Sovereignty begat sovereignty: commercial republican patriots successfully resisted conquest and subjection to the unconstitutional authority of a distant despot, deflecting the “savage injustices” European states had inflicted—and would continue to inflict—on the rest of the world. It is not therefore surprising that these freedom-loving anti-imperialists should imagine themselves inaugurating a “new order for the ages,” a republican millennium of peace and prosperity for all the peoples of the world—even, ultimately, including their own slaves. What they could notso easily grasp was the enhanced capacity of the United States, a new and improved version of the old empire, to consolidate and perpetuate the “peculiar institution” and expand the ambit of “savage injustice” across and beyond the continent they claimed as their home. Focusing on capital punishment, Adam Smith underscored the growth of sovereign state capacity, even as he and his followers emphasized the ways markets unleashed the dynamic, yet peaceful and spontaneously self-ordering propensities of profit-seeking and productive enterprise that the powerful and protective nation-state makes possible.


[1] Nicholas Onuf and Peter Onuf, Nations, Markets, and War: Modern History and the American Civil War (Charlottesville: University of Virginia Press, 2006), 23-29.

[2] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Edwin Cannan, 2 vols. (London: Methuen, 1904), vol. 1, book 4, chap. 1, On evolving metropolitan attitudes see Jack P. Greene, Evaluating Empire and Confronting Colonialism in Eighteenth-Century Britain (New York: Cambridge University Press, 2013).

[3] A Declaration by the Representatives of the United States of America, in General Congress Assembled, in Merrill D. Peterson, Thomas Jefferson Writings (New York: Library of America, 1984), 22. 

[4] Smith, Wealth of Nations, vol. 2, book 5, chap. 3.

[5] Eliga H. Gould, Among the Powers of the Earth: The American Revolution and the Making of a New World Empire (Cambridge: Harvard University Press, 2012).

[6] Historian Lisa Ford persuasively argues that imperial Britain developed the technology of sovereignty in its overseas territories. Ford, The King’s Peace: Law and Order in the British Empire (Cambridge: Harvard University Press, 2021)

[7] David Hume, “Of the First Principles of Government,” in Essays Moral, Political, and Literary, ed. Eugene F. Miller (Indianapolis: Liberty Classics, 1985), Essay IV, 32-36, at 32.

Copyright and Fair Use Statement

“Liberty Matters” is the copyright of Liberty Fund, Inc. This material is put on line to further the educational goals of Liberty Fund, Inc. These essays and responses may be quoted and otherwise used under “fair use” provisions for educational and academic purposes. To reprint these essays in course booklets requires the prior permission of Liberty Fund, Inc. Please contact if you have any questions.