Misreading Adam Smith and revisiting mainstream economics

A look at the ‘father of economics’ on the 250th anniversary of the publication of The Wealth of Nations 

This year marks the 250^th anniversary of the 1776 publication of the book by Adam Smith– who is called the father of modern economics– The Wealth of Nations. While the book holds immense importance, over the centuries a number of its prime messages– for instance, ‘invisible hand’, and ‘division of labour’– have apparently been misread. At the same time, following the policy of ‘comparative advantage’ significantly contributed to lack of built-up of economic sophistication, and perpetuated status-quo of technical know-how in countries, which followed it, or were made to follow it, as was the case in colonized countries. 

For instance, while Adam Smith in his book talks about ‘division of labour’ he leads the argument in the direction of indicating that it should not be followed to the core given its negative impact on human’s freedom of thought, and creativity. Hence, while it is important to have specialization, ‘division of labour’ should not pursued in the extreme sense with people having a reasonable extent of variety in their pursuits, in turn, workers also having meaningful level of freedoms and democracy in choice of work, and on questions of how it should contribute to the overall economy in terms of production related decisions, for instance.

In an August 18, 2025, Project Syndicate (PS) published article ‘Adam Smith at 250’ the importance of specialization is highlighted an important contribution by Adam Smith as follows: ‘Next year will mark the 250th anniversary of the ratification of the Declaration of Independence, the founding document of the United States. But another foundational document, fundamental to our understanding of economics, will reach the same milestone in 2026: Adam Smith’s The Wealth of Nations. At a time of rapid economic and structural transformation, its insights are worth revisiting. Two stand out. One is that the “invisible hand” of markets efficiently allocates resources, as long as certain conditions – including a stable currency, a degree of trust and moral rectitude among economic actors, and credible property rights – are in place. Externalities (the unpriced impact of an entity’s activities on others) and informational gaps and asymmetries diminish the invisible hand’s efficiency and performance. The second, arguably more important insight is that an economy’s efficiency and productivity are enhanced by the “division of labor,” known today as “specialization.” A specialized economy is powered by various pockets of knowledge and expertise, which take advantage of economies of scale, learning, and enhanced incentives for innovation. Since specialization does not work in the absence of a reasonably efficient method of exchange, it depends on Smith’s invisible hand. As specialization advances, so does the economy’s complexity.’ 

Hence, while it is important to have specialization, ‘division of labour’ should not pursued in the extreme sense with people having a reasonable extent of variety in their pursuits, in turn, workers also having meaningful level of freedoms and democracy in choice of work, and on questions of how it should contribute to the overall economy in terms of production related decisions, for instance.

Having said that, his ideas with regard to over-reading into Adam Smith’s ‘invisible hand’, and the negative aspects of ‘division of labour’ which is the basis of specialization, are not brought out in the article in the sense Adam Smith intended in his book The Wealth of Nations. World-renowned linguist, and political dissident, Noam Chomsky highlighting the misreading of Adam Smith, pointed out for instance ‘Adam Smith is very rarely read. He is worshiped, but not read. And so, for example, everyone’s heard of the phrase “invisible hand,” but almost no one knows, well, how he used it. The term “invisible hand” actually does appear in his classic Wealth of Nations — once. It appears in an argument against what’s now called “neoliberalism.” What’s now called “neoclassical economics,” that we’re supposed to worship. So we’re supposed to worship Adam Smith, and neoclassical economics, and they radically differ on the notion [of] “invisible hand.” Adam Smith was concerned, as David Ricardo later was, that if there was free movement of capital and free import of goods— he was concerned about England— he said, England will suffer because British capitalists will invest abroad, and they’ll import from abroad, and that’ll harm the English economy. Ricardo had similar concerns. Adam Smith then gave an argument. It's not a very good argument, but his argument was that English investors will prefer to invest in England because of what some called a “home bias”— they’ll have a preference for investing close-by. And therefore, as if by an invisible hand, England will be saved from the menace of free capital movement and free imports. That’s “invisible hand.” What’s that got to do with the Cato Institute, or the modern enthusiasm about free capital flow and, you know, having US corporations invest in China so they can send stuff back here to sell cheap, exploiting Chinese workers? That’s not Adam Smith.’

In the same interview, Noam Chomsky discusses Adam Smith’s thoughts on ‘division of labour’ as follows: ‘And it goes right across the board. I mean, everyone who went to college learned the first paragraph of Wealth of Nations, in which he talks about how wonderful division of labour is, you know, vows for all kinds of efficiency, and productivity, and so on. Not very many people go to page– you know, whatever it is, page 400– in which he points out that ‘division of labour’ is monstrous. Because it turns people into creatures as stupid and ignorant as a person can possibly be, the person that becomes a machine, and that’s a terrible attack on fundamental rights, and therefore, he says, in any civilized society, the government’s ‘gonna’ [got to] have to intervene to prevent division of labour.’