Executive Summary

2026 marks the 250th anniversary of two momentous historical events: the publication of Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations, on March 9, 1776, and, four months later, the proclamation of the Declaration of Independence on July 4, 1776. Our world continues to be shaped by the ideas expressed in both texts.

No text is written in a contextual vacuum, and the drafting of The Wealth of Nations — a book that would become the foundational work of modern economics — was overshadowed by the crisis in the relationship between Great Britain and its North American colonies that followed Britain’s defeat of France in the Seven Years’ War (1756–1763). Though immersed in the world of scholarship, Adam Smith was intensely interested in the events shaping his time. Much of Books IV and V of The Wealth of Nations contain extensive commentary on the economic relationship between Britain and the 13 colonies, with whom relations had steadily deteriorated from 1766 onwards. Other writings penned by Smith — most particularly, a 1778 memorandum submitted to the British government at the request of the Solicitor-General on the options facing Britain following its defeat at the Battle of Saratoga in 1777 — directly discuss the economics and politics of the conflict as well as how to end the war between British America and what the colonists still called “the mother country.”

The purpose of this paper is to outline and reflect upon Adam Smith’s analysis of the economic factors contributing to the conflict and his thoughts on how the crisis might be settled. It demonstrates that Smith was prepared to contemplate solutions that had revolutionary implications for America — and, for that matter, Britain. It concludes by delineating the lessons that Smith’s engagement with these matters offers us today.

Key Points:

• The Wealth of Nations’ application of rigorous economic analysis to the American crisis enabled Smith to identify key economic factors contributing to the conflict, as well as ways in which better economic policies might help to resolve the crisis.
  
• Smith identifies the doctrines and practices of the mercantilist economics that dominated the eighteenth-century European world as gradually putting Britain and the 13 colonies at odds with each other. By virtue of imposing higher costs on trade for American colonists and placing significant restrictions on the colonists’ economic liberty, mercantilist economic policies would gradually cause American colonists, Smith believed, to reconsider the benefits of belonging to the British Empire.
  
• Though Smith identified several ways in which the war between Britain and America might be avoided, he thought that there were two optimal long-term solutions to Britain’s American predicament. The first involved a political and economic union between Britain and its North American colonies based on free trade, fiscal consolidation, and the full integration of the American colonies into the British Parliament and therefore Britain’s constitutional arrangements. The second option for Britain was to simply allow the colonies to go their own way: that is, to become independent.
  
• Smith favored the unification option, but he concluded by 1778 that the progress of the war and the anger left in its wake on both sides of the Atlantic made this unlikely. Smith, however, argued that American inde-pendence, by ending the 13 colonies’ enmeshment in British mercantilist policies and establishing their status as a separate sovereign entity, would eventually open the way for the negotiation of a healthier, more stable, and prosperous long-term economic and political relationship between Britain and an independent America — one that would be buttressed by longstanding historical, cultural, linguistic, and religious ties to the for-mer mother country.
  
• Smith’s engagement with the American question constitutes an example of economic analysis identifying underlying problems that generate tensions between nations, but also the possibilities for resolving them. It thus demonstrates the worth of economics as a tool of intellectual inquiry to provide insights into problems of international relations that might otherwise escape the attention of policymakers.

Introduction

On March 9, 1776, a two-volume book written by the Scottish philosopher Adam Smith was published by W. Strahan and T. Cadell in London. The product of almost two decades of research by Smith, his Inquiry into the Nature and Causes of the Wealth of Nations is widely recognized today as the text that laid the foundation of the social science of economics. Until then, what we would recognize as “economics” had been primarily studied as a sub-branch of moral philosophy and jurisprudence. The Wealth of Nations, however, marked the beginning of economics as a new way of seeing the world, revealing insights into human affairs that had hitherto eluded most people.

Four months later, across the Atlantic, on July 4, 1776, a shorter but equally momentous text was adopted by the Second Continental Congress in Philadelphia. This document — the Declaration of Independence — marked the formal separation of the 13 colonies of British North America from Great Britain. The Declaration was the culmination of years of disputes between London and its North American colonies over issues ranging from taxation to the colonies’ constitutional relationship to the British Parliament in London.

Given the slowness of transportation between Britain and North America, it is unlikely that many of the American colonial leaders had read Smith’s book before America’s first Independence Day. Close reading of The Wealth of Nations, however, illustrates that Smith had given considerable thought to the American crisis. And while Smith’s analysis and proposed solutions were couched in rhetorically mild terms, they had revolutionary implications for not just the 13 colonies but also for Britain and its empire.

Smith was hardly alone in devoting time and energy to these topics. Legislaters, thinkers, and pamphleteers throughout Britain and North America had been debating the reasons for the collapse of relations and offering proposals to restore harmony between the two English-speaking peoples separated by the Atlantic. What makes Smith’s analysis different from that of others is that he brought the full force of his economic way of thinking to the challenge. In the words of the British historian Andrew S. Skinner, “Smith’s brand of radicalism is distinctive in the sense that he addressed the American question from the standpoint of a political economist.”^[1] That perspective is what made Smith’s reflections on this topic truly revolutionary.

The goal of this paper is to present Adam Smith’s views on the causes of the conflict between Britain and the North American colonies, outline his proposed solutions for settling the conflict, and discuss his reasons for believing why, in the long-term, American independence was likely. It concludes by outlining four insights from Smith’s study of the quarrel which are relevant for our time: specifically, 1) protectionist policies severely distort percep-tions of the national interest; 2) interventionist agendas augment friction in international relations; 3) economic liberalization can help facilitate (but cannot guarantee) the more peaceful conduct of domestic and international politics; and 4) rigorous economics can help us better understand complex political and foreign policy problems and thereby create more possibilities for resolving them.

The Shadow of Mercantilism

Before exploring these questions, it is helpful to understand the dominant economic arrangements of Adam Smith’s time, not least because they constituted Smith’s primary point of intellectual entry into the debate about America. At the core of The Wealth of Nations is Smith’s critique of what he famously called “the mercantile system.” Smith’s critique of mercantilism is central to comprehending his insights into some of the deeper economic causes of the conflict between Britain and the 13 colonies.

Britain was not the only country to embrace mercantilist policies. They were also followed by other European powers with a substantial global presence — especially, Spain, France, Portugal, and the Dutch Republic — but also European states like Prussia and the Habsburg Empire whose ambitions were limited to the European continent. The core doctrines of mercantilism were not written down in the way that economic theories are articulated today. The closest that mercantilist ideas came to being formally outlined was a book penned by Smith’s fellow Scot, Sir James Steuart, entitled An Inquiry into the Principles of Political Economy (1767).

Mercantilism’s core features may be summarized as follows:^[2]

• Wealth was not viewed as primarily created through entrepreneurship, competition, and free exchange. Instead, nations were thought to prosper by acquiring as much of the world’s existing wealth as they could, by acquiring as much territory as they could, and by dominating as many trade routes as possible.
  
• Wealth itself was not primarily understood as our capacity to meet our needs and wants. Ultimately, wealth was identified as consisting of how much gold and precious metals individuals and nations possessed
  
• Mercantilism’s conception of wealth encouraged policymakers to focus upon how their nations could export more than they imported to realize a positive balance of trade. To reduce imports, governments sought to create or promote numerous domestic industries via subsidies. They also imposed tariffs on imports to disincentivize individuals from purchasing foreign-made products. Conversely, the export of goods was encouraged, and often subsidized, by governments. The overall effect was that trade and trade routes between countries were managed by governments rather than reflecting free exchanges between consumers and producers in international markets.
  
• Mercantilism involved governments giving charters to joint-stock companies, which conferred upon them a monopoly of a country’s trade in particular parts of the world. The objective was partly to raise revenue, but also to establish some degree of indirect control by governments over trade routes and thereby minimize foreign competition. The world’s foremost example of this policy was the British East India Company (EIC), which was granted a charter by Queen Elizabeth I in 1600. By the terms of this charter, any English ship which traded west of the Straits of Ma-gellan and east of the Cape of Good Hope without a license from the EIC risked being confiscated and having its cargo permanently impounded. By the time of the American Revolution, the EIC enjoyed a monopoly over British trade in the Indian subcontinent and had an iron grip on British trade with China, the source of much of the tea that the EIC exported to Britain.^[3] As early as 1612, the EIC was using force to protect its monopoly by deploying what amounted to a private navy to protect its trading ships.^[4] This trend toward militarization accelerated in the eighteenth century, when the EIC began maintaining its own armies to defend and expand its establishments throughout India.^[5] To support and promote its interests at the political level, the EIC also spent considerable sums to maintain a powerful lobby in the British Parliament and inside the government.

Adam Smith studied the policies associated with mercantilism closely. His conclusions played a significant role in shaping some of the most important economic ideas, especially concerning trade policy, outlined in The Wealth of Nations. After carefully describing the mercantile system’s workings in relatively neutral terms, Smith proceeded to identify the fallacies of key mercantilist doctrines as well as their negative long-term implications for consumers, governments, and countries.

Much of that critique was focused on the concept of the balance of trade. According to Smith, the entire idea was, to put it bluntly, “absurd.”^[6] Smith noted that “this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium.”^[7] But, Smith insisted, “Both suppositions are false.”^[8] When two people freely exchange goods within or between countries, Smith underscored, both “win” (albeit to different degrees) insofar as both get what they want. Otherwise, neither party would have agreed to the exchange.

Another key Smithian criticism of mercantilism concerned efforts by governments to promote domestic industries and domestic production, thereby reducing, it was thought, the need to import goods. Subsidies, regulations, and tariffs, Smith argued, can certainly shape a country’s economic direction, but they could not increase a country’s total output. No regulation, Smith maintained, “can increase the quantity of industry in any country beyond what its capital can maintain.^[9] All such regulations did was shift a nation’s capital “into a direction into which it might not otherwise have gone.^[10] The problem, Smith stressed, is that there was no way of knowing whether “this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord.”^[11] All tariffs and subsidies do is incentivize businesses to move their investments elsewhere, and we cannot know in advance whether this will boost output in ways superior to that facilitated by the free exchange of goods and free flow of capital.

But there was another, even more fundamental problem with mercantilist efforts, stressed Smith, to restrict imports to protect domestic producers: such policies misconceived the very purpose of economic production. The goal of production was not for the sake of production. Production, Smith stressed, is a means to an end, and the end is consumption: that is, the satisfaction of consumers’ needs and wants.^[12] It followed, Smith stated, that “the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.”^[13] Mercantilism, by contrast, constantly sacrificed the interest of the consumer “to that of the producer.”^[14] And if existing producers are the priority, then governments will gravitate to maintaining them, no matter how inefficient or even corrupt they might be.

The consequence was less competition which, as we will see, translated into slower growth and potential stagnation. Moreover, Smith recognized that by allowing the state to grant monopolies or subsidies to bolster particular groups at everyone else’s expense, mercantilism encouraged businesses to focus their attention on acquiring political privileges, instead of competing in the marketplace. And once a company was granted a monopoly of, for example, a trade route, it could exert disproportionate influence over trade policy and thus promote its sectional interests to the economic detriment, again, of everyone else.

The East Indian Company, Taxes, and War

By the mid-1760s, the dysfunctionalities associated with mercantilism and identified by Smith were becoming harder to ignore. For example, the high customs duties imposed to discourage imports had led to widespread smuggling throughout Europe. Governments found themselves having to devote vast expenditures to an expansive customs enforcement apparatus to engage in a losing battle against smugglers.

The political downsides of mercantilist economics were also becoming more evident. The EIC’s convergence of economic and political power had corrupted many British colonial officials, merchants, and their Indian counterparts. Just as corrupting were the vast sums spent by the EIC in bolstering its lobby in Britain’s halls of power. In addition, many government ministers and members of parliament were major EIC shareholders, with financial incentives to maintain its trade monopoly. The result was cronyism on a wide scale and widespread resistance to any attempt at economic liberalization.^[15] This is partly what Smith had in mind when he described the fury that his critique of mercantilism encountered from some quarters. “I had no expectation,” Smith told a Danish correspondent, “that the public would be very favourable to my system. I knew it was a very violent attack I had made upon the whole commercial system of Great Britain; I expected a very great attack; but though I have been some times virulently enough abused, I have never yet been answered.”^[16]

At this point we can begin to grasp the contribution made by mercantilist policies to the emerging antagonisms between the American colonies and Britain. In the 1760s, widespread famine and war in India were compromising the EIC’s ability to pay the vast tax revenues it owed to the British government. The EIC also had large surpluses of tea sitting in its London warehouses. To rectify both problems, the EIC and its lobby pressured government ministers and members of parliament to extend the EIC’s dominance of the trade in goods like tea to other parts of the British Empire. This was one factor behind the 1773 Tea Act.^[17]

The Act allowed the EIC to export tea directly into North America and to sell it at a discounted price, thereby cutting out British and American middlemen. The Act was also intended to reduce the smuggling of tea into the colonies from Europe by American merchants in violation of what were called the Navigation Acts. But such smuggling reflected more than just an effort by American colonists to circumvent mercantilist structures and regulations. It was also a way of signaling resistance to the tax on tea that continued to be levied on Americans by Britain: a tax regarded by the colonists as illegitimate on the grounds that only their own assemblies, and not the British Parliament, could levy taxes on colonists. The memorable confluence of these policies and events was the Boston Tea Party, in which colonists dumped hundreds of chests of imported EIC tea into Boston Harbor in 1773, which in turn played a key role in precipitating the American Revolution.

This brings us to the second dimension of mercantilism that weighed heavily on the North American colonies’ relationship with Britain: the afore-mentioned Navigation Acts, or “the Acts of Trade and Navigation,” to give them their full title.^[18] First enacted in 1650 and gradually amended and expanded for decades afterwards, they outlined an extensive list of regulations and customs requirements concerning trade between Britain, its colonies, and the rest of the world. The Acts were thus a primary way in which London sought to manage the flow of trade within the British Empire as well as commerce between inhabitants of the empire and those of other nations.

The Navigation Acts mandated that all British trade with the colonies around the world had to be transported on British ships and that 75 percent of those crews had to be British or colonials. They also specified that foreign exports to the colonies first had to be transported through Britain, where a tax was levied. This, plus the costs associated with a second shipping-and-handling process that was entirely superfluous, meant that consumers in the 13 colonies found themselves paying higher prices for imported goods.

The Acts also specified that certain colonial goods (known as “enumerated” products) that were in short supply in Britain or which were commodities peculiar to American colonies (including tobacco and naval stores) first had to be sent to Britain before being exported to other countries, even if better prices were offered elsewhere. Americans resented this, as it impeded them from sending these goods directly to buyers in other countries who might be willing to pay more than British merchants. Moreover, it was the British merchants, rather than Americans, who consequently reexported the American goods to Europe, and thereby secured much of the profits from continental European markets. Compounding the expenses of American traders was the requirement for colonial merchants to pay import duties on the products which they exported to British ports like Liverpool and Glasgow.

That said, many American colonists were willing to put up with these impo-sitions, partly for what we would call national security reasons. In the first place, much of the revenue raised by the Navigation Acts helped Britain to pay for the Royal Navy. As an island kingdom, Britain needed a large and experienced navy to prevent interdiction of its trade routes and blockages

by foreign powers. Just as important was a regular supply of skilled sailors who could operate ships during war. This was why the Acts mandated that 75 percent of British ships had to be crewed by Britons and colonials. Furthermore, as the world’s most powerful naval force, the Royal Navy helped to secure the safety of trade routes extensively used by Americans who traded across the Atlantic and throughout the British Empire, especially in the Caribbean. And though the Royal Navy’s upkeep was expensive, the Royal Navy’s control of the seas prevented the American colonies from being cut off from Britain, the country which remained their biggest export market.

Smith Enters the Fray

Notwithstanding Americans’ relative comfort with the Navigation Acts, the costs associated with the Acts and mercantilist policies more generally were steadily increasing, thereby impacting the rate of economic growth in Britain and America. Few understood this better than Adam Smith. He made this point the centerpiece of his analysis of the conflict between Britain and the 13 colonies.

Long before the outbreak of war between Britain and the 13 colonies in 1775, Smith had been thinking about the growing tensions characterizing the relationship. Such was Smith’s focus on the topic that his friend David Hume described him as “very zealous in American affairs.”^[19] At one point, Hume even rebuked Smith for allowing his preoccupation with the American situation to delay publication of The Wealth of Nations. “If you wait till the Fate of America be decided,” he told Smith, “you may wait long.”^[20]

Part of Smith’s interest in the subject was stimulated by British government officials such as Lord Shelburne and Lord Townshend, both of whom would later become prime ministers. Aware of his deep knowledge of fiscal matters, they began asking Smith in the mid-1760s for his advice on taxation in the colonies in light of the growing difficulties around the whole issue in North America.^[21] They also understood that Smith’s interest in commercial and trade policy was likely to yield insights less obvious to other commentators.

Perhaps the most surprising feature of Smith’s analysis of the deeper economic reasons underlying the conflict between Britain and the colonies is Smith’s suggestion that, for all the distortions associated with mercantilism, there were aspects of mercantilism which had delivered some benefits to America and Britain.

First, the pre-1776 mercantilist arrangements effectively created complementary markets for Britain and the 13 colonies. For example, Smith noted that the production of more “advanced or more refined manufactures”^[22] was actively forbidden in the North American colonies. In Smith’s mind, “such prohibitions” were “unjust” as they restricted the economic freedom of the colonists to use their capital as they saw fit.

But, Smith added, the restrictions had “not hitherto been very hurtful to the colonies.” Some of the limitations on the ability of Americans to produce certain goods, Smith argued, had actually bolstered the economies of the North American colonies by discouraging Americans from investing in activities where they lacked what we would call a comparative advantage. After all, land in America was so cheap, plentiful, and fertile that it made perfect economic sense for Americans to focus heavily on agriculture and instead import what manufacturing goods they needed from Britain.

Britain, for its part, gained from this “new and inexhaustible market”^[23] in North America where it could sell its manufactured goods. British merchants were also able to import the enormous agricultural produce of the colonies as well as strategic goods important for national defense (like pig iron).^[24]

Smith’s acknowledgement, however, of this seemingly win-win situation did not prevent him from identifying looming problems with these arrangements. These difficulties revolved heavily around the question of the rate of economic growth. Smith argued that, absent the Navigation Acts and the way in which it and other mercantilist impositions structured trade between Britain and North America, the rate of growth in Britain would likely be much higher. In Smith’s view, “if the manufactures of Great Britain . . . have been advanced, as they certainly have, by the colony trade, it has not been by means of that monopoly, but in spite of the monopoly.”^[25] He observed, for example, that, without the Navigation Acts, British manufacturers would have been freer to send their goods to “the neighboring markets of Europe, or to the more distant one of countries which lie round the Mediterranean sea.”^[26] That would have considerably reduced their shipping costs and thereby likely produced greater profits.

Looking more generally at British trade and the way that it had been effectively pushed in specific directions by the Navigation Acts, Smith lamented that the Acts were likely to compromise the growth rates that would otherwise be realized by British trade with the rest of the world:

Her commerce, instead of running in a great number of small chan-nels, has been taught to run principally in one great channel  In her present condition, Great Britain resembles one of those unwholesome bodies in which some of the vital parts are overgrown, and which, upon that account, are liable to many dangerous disorders scarce incident to those in which all the parts are more properly proportioned.^[27]

In short, while the trade routes created by mercantilist policies were “upon the whole beneficial,” growth was “a good deal less so than it might otherwise be.”^[28] Economic growth in Britain would have been much greater if trade had been free of mercantilist strictures that discouraged people from pursuing new opportunities to engage in exchanges in many “small channels” that, taken together, might turn out to be more profitable than those realized through the “one great channel” into which everyone was being artificially corralled.

As for the Americans, Smith believed that the point was rapidly approaching whereby the restrictions associated with the mercantile system would start to outweigh the apparent benefits — including those of a national security nature. In short, the trade-off of greater growth for the security provided by Britain and the Royal Navy was likely to become less attractive. As the economies of the colonies grew more sophisticated, it was likely that American merchants would want to experiment and try their hand at activities like manufacturing. “In a more advanced state,” Smith thus stressed, mercantilist obstacles to the colonists pursuing such a path would come to be seen as “really oppressive and insupportable”^[29] and hindering an even greater rate of growth.

But there was also a political dimension to this emerging American dissatisfaction with mercantilist policies. For one thing, Smith predicted that mercantilist restrictions would become viewed by the Americans as the “principal badge of their dependency.”^[30] In short, as time passed, Americans would start to resent the limits imposed by Britain’s mercantilist policies upon Americans’ economic freedom. And at the heart of this discontent, Smith believed, would be a dawning recognition of mercantilist policies as a “manifest violation of one of the most sacred rights of mankind:”^[31] that being the rights associated with property ownership and the freedom to exercise those rights as they wish.

Finally, Smith believed that the mercantilist policies that determined the parameters for trade between America and Britain were characterized by a significant injustice: that the people who benefited the most from these structures were those merchants and companies (like the EIC) with close connections to the government. Britons and Americans alike, Smith thought, should ask themselves whether the interests of such individuals has “been considered more than either that of the colonies or that of the mother country.”^[32] The whole “project” of mercantilism, as Smith described it, was “altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers.”^[33] Such cronyism was, for Smith, ultimately bad for the long-term economic development of both America and Britain, and, above all, unjust by virtue of being based upon legal privileges and rampant influence-peddling.

An Economic and Political Union

Mercantilist assumptions and policies were steadily distorting and corrupting the relationship between Britain and its colonies. Smith was convinced, however, that it did not have to be this way. He pointed out, for example, that “the most perfect freedom of trade is permitted between the British colonies of America and the West Indies,”^[34] implying that it could be extended further throughout the British Empire.

But Smith also concluded that changing the economic arrangements between the 13 colonies and Britain was going to require something else: a fundamental alteration of the political relationship between Britain and its North American colonies. Here, Smith offered two primary ways forward, both of which involved radical changes to the political and constitutional status quo. His thoughts on this matter are primarily laid out in two texts: The Wealth of Nations and a memorandum submitted to the British govern-ment in 1778 at the request of the Solicitor-General Alexander Wedderburn, following the devastating British loss at the Battle of Saratoga in 1777 — a defeat that brought France into the war, thereby fundamentally changing the British government’s military calculus by dramatically reducing the odds of Britain winning.^[35]

Smith was not the only person to consider the possibility of the first option: a constitutional union between Britain, the North American colonies, and the empire more widely. Twenty years earlier, Benjamin Franklin had suggested that such a union would be “very acceptable to the colonies.”^[36] Others, however, like Smith’s friend and patron Lord Kames doubted that the colonies could sustain a union between themselves, let alone with Britain.^[37] What makes Smith’s proposed unification different is that it was economic reasoning that pointed him in this direction.

The economic union that Smith had in mind had three features. One was the gradual phasing out of the maze of mercantile restrictions and regulations that retarded growth in North America and Britain, along with the “extension of freedom of trade”^[38] between the colonies, Britain, and other provinces of the British Empire. His second unifying economic measure would be to have the colonies share the responsibility for Britain’s colossal public debt. Smith considered this fair because, he commented, “That publick debt has been contracted in the defense, not of Great Britain alone, but of all the different provinces of the empire; the immense debt contracted in the late war in particular, and a great part of that contracted in the war before, were both properly contracted in defense of America.”^[39]

Smith is referring here to the debt accumulated by Britain during the Seven Years’ War (known to most Americans as the French and Indian War) in which most of Britain’s efforts had been directed against the French in North America. Britain’s sweeping victory, as reflected in the terms of the Treaty of Paris (1763), removed forever the threat to the 13 British colonies hitherto posed by France’s huge, pre-1763 geographical dominance of North America. On this basis, Smith argued, it was reasonable that the taxes levied by Britain upon its own inhabitants to pay down the public debt should also be levied upon the American colonies.

Smith understood, however, that there was a political implication to this type of economic union. One of the basic principles of the British constitution, Smith affirmed, was that taxation required representation. Americans needed to be given a say in the taxes levied throughout the empire by the British Parliament. That in turn meant giving Americans direct representation in that legislature. In his words,

By extending the British system of taxation to all the different prov-inces of the empire inhabited by people of either British or European extraction, a much greater augmentation of revenue might be expected. This, however, could scarce, perhaps, be done, consistently with the principles of the British constitution, without admitting into the British Parliament, or if you will into the states-general of the British Empire, a fair and equal representation of all those different provinces, that of each province bear to the produce of the taxes levied upon Great Britain.^[40]

For Smith, an economic and political union was not simply a way to fix some immediate problems. It was also a means of forcing Britain to come to grips with what it meant to have an empire, and more specifically an empire in which the freedoms of the British constitution (the principles of which the American colonists claimed to be defending) prevailed.

On the concluding page of The Wealth of Nations, Smith posited that “The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been, not an empire, but the project of an empire.”^[41] If this enterprise were to become a reality, and bound together by a fiscal consolidation, free trade, and the British constitution, then a political union was inevitable.

To those concerned that such a union might end up damaging the British constitution, Smith argued that the contrary outcome was more likely. As Smith saw it, “there is not the least probability that the British constitution would be hurt by the union of Britain and her colonies. That constitution, on the contrary, would be compleated by it, and seems to be imperfect without it.” The biggest change, he thought, would be to the composition of the legislature in Westminster. “The assembly,” he wrote, “which deliberates and decides concerning the affairs of every part of the empire, in order to be properly informed, ought certainly to have representatives from every part of it.”^[42]

In his 1778 memorandum on Britain’s war with America, Smith expanded on his ideas of what a constitutional union might look like. As in The Wealth of Nations, his focus is upon the economic foundations of that union:

If the complete submission of America was brought about altogether by treaty, the most perfect equality would probably be established between the mother country and her colonies; both parts of the empire enjoying the same freedom of trade and sharing in their proper proportion both in the burden of taxation and in the benefit of representation.^[43]

Not only would this relieve Britain from the expense of maintaining a huge military force in North America, but Smith believed it would also provide “the leading men of America” — whether as members of a parliament for the whole empire, or as voters for such legislators — the sense that they were the peers of the leading figures in British public life. Smith insisted this mattered deeply, because “the principal security of every government arises always from the support of those whose dignity, authority, and interest, depends upon its being supported.” These Americans, he thought, would have “the same interest to support the general government of the empire which the Members of the British legislature and their electors have at present to support the particular government of Great Britain.”^[44]

Intriguingly, Smith suggested in The Wealth of Nations that, should such a union occur, it was likely at some point in the future that the empire’s epi-center would cross the Atlantic. This, Smith said (again, thinking in economic terms), would be the natural consequence of the population and economic growth of the 13 colonies eventually surpassing that of Britain. “In the course of little more than a century, perhaps,” he wrote, “the produce of Americans might exceed that of British taxation. The seat of the empire would then naturally remove itself to that part of the empire which contributed most to the general defense and support of the whole.”^[45] The locus of political power, in short, would follow the locus of economic strength — not the other way around.

Independence For America – And Britain

By 1778, Smith had become deeply pessimistic that any such union was a realistic possibility. There was, he conceded in his Memorandum, no party of any significance in Britain in favor of it.^[46] As for the Americans, Smith recognized that “In their present elevation of spirits [following their victory at Saratoga], the ulcerated minds of the Americans are not likely to consent to any union even on terms the most advantageous to themselves.”^[47]

This state of affairs, he argued, left British policymakers facing four ways in which the ruinously expensive war might be ended. One involved “the restoration, or something near to the restoration, of the old system:”^[48] in other words, the status quo ante bellum. Smith does not say whether he considers this a likely possibility, but it is safe to surmise that Smith thought that the mood of the Americans in 1778 made this option as equally unlikely as a constitutional union.

A second way to terminate the war was via the outright conquest of the colonies by military means, followed by rule by “a military government.” Though that might, Smith said, fit the “present humor of Great Britain,” and encounter “scarce any opposition in Parliament,”^[49] Smith did not consider it a viable long-term policy. Of all forms of government, Smith noted, “a military government is the one that the Americans hate and dread the most.” The financial cost of an indefinite occupation would also be prohibitive, and prolonged military rule, Smith believed, would make the Americans even less willing “to contribute to the general expense of the empire.”^[50] It would also condemn Britain to “the disgrace of being supposed to oppress a people whom we have long talked of, not only as of our fellow subjects, but as of our brethren and even as of our children.”^[51]

A third possibility, Smith proposed, is that the war might end “in the sub-mission of a part, but of a part only, of America; Great Britain, after a long, expensive and ruinous war, being obliged to acknowledge the independency of the rest.”^[52] In a certain sense, this was what transpired when Britain recognized the 13 colonies’ independence at the Treaty of Paris in 1783, but retained much of the rest of British North America (essentially a large portion of modern-day Canada) as well as Bermuda. Britain also found itself saddled with a public debt in 1783 that was even larger than the one which existed in 1776.

The fourth option outlined in Smith’s Memorandum but also canvassed in The Wealth of Nations was the most radical of all the ways forward. It was, Smith wrote, “the complete emancipation of America: not a single acre of land, from the entrance into Hudson’s Straits to the mouth of the Mississippi, acknowledging the supremacy of Great Britain.”^[53]

Giving America its independence and effectively withdrawing from the North American continent was not something that most Britons were in a mood to accept in 1776 or 1778. Smith, however, underscored the catastrophic costs associated with the continuance of the war. He also thought that the realism of the option of independence would become more obvious if British policy-makers were willing to ask themselves some hard economic questions about the war, the nature of the relationship between Britain and the 13 colonies, and what it meant to have an empire. If Britain was unwilling to effectively complete the project of an empire by investing it with the type of economic structures that such an enterprise required, then, Smith brusquely stated in The Wealth of Nations, “it ought to be given up. If any of the provinces of the British Empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should . . . endeavor to accommodate her future views and designs to the real mediocrity of her circumstances.”^[54]

This is strong language. Moreover, Smith recognized in his 1778 Memorandum that freely giving up an empire and effectively conceding that the war had been a serious error “would not, in the eyes of Europe, appear honorable to Great Britain.”^[55] Britain’s loss of face among the European powers would be considerable. The same choice, Smith stressed, would also “discredit the Government in the eyes of our own people.” In particular, those British political leaders associated with withdrawal from North America and the colonies’ independence “would have everything to fear from their rage and indignation at the public disgrace and calamity, for such they would suppose it to be, of thus dismembering the empire.”^[56]

Yet, however harsh these realities were, Smith was confident that the post-independence relationship between the two post-imperial nations would gradually become more tranquil, profitable, and even mutually advantageous.

As rancor slowly faded, Smith stated in his Memorandum that “the similarity of language and manners would in most cases dispose the Americans to prefer our alliance to that of any other nation.”^[57] In The Wealth of Nations, he had made a similar point. “By thus parting,” Smith wrote, “the natural affection of the colonies to the mother country, which, perhaps, our late dissensions have well nigh extinguished, would quickly revive.”^[58] That would provide an opportunity for Britain and the newly independent American colonies to reset their trading relationship in a manner free of mercantilist distortions and thus of greater profit to both countries over the long term.

Smith In Our Time

Lord North’s government did not embrace either of Smith’s radical proposals to put an end to Britain’s conflict with the 13 colonies. After the loss suffered at the Battle of Saratoga, North chose to argue in favor of restoring imperial relations to the status quo ante bellum via a negotiation with Congress. His initiative failed, lacking support from leading British politicians and King George III but also garnering complete disinterest from the Americans.

Smith himself had no illusions that the British government would embrace either of his preferred ways to end the war, establish a lasting peace, or open new opportunities for a flourishing of economic life and a faster pace of economic growth. The bitterness between Britons and Americans occasioned by the war made it improbable that “the leading men” in North America or Britain would seriously consider the constitutional union built upon the fiscal consolidation, free trade, and constitutional representation suggested by Smith.

Nor did Smith think that Britain would simply terminate the conflict, withdraw its forces from North America, and then work towards creating a friendly existence based on trade liberalization and a military alliance. Though Smith certainly believed that this would be in Britain’s long-term interests, he underlined that it would be “contrary to the private interest of the governing part of [the nation].”^[59] By this, Smith meant that those in power in London would be blamed for the loss of Britain’s North American empire and thus see their political careers end immediately and in disgrace. He also, however, had in mind those legislators “who would thereby be deprived of the disposal of many places of trust and profit;”^[60] that is, patronage and the ability that it gave British politicians of the time to dispense positions, favors, and privileges to their supporters.

What lessons then can we derive today from Smith’s engagement with the American question? Though today’s global economy is dramatically different from that of the eighteenth century, the insights which Smith brought to his investigation of the American situation remain pertinent in our time. Four such points are especially worth highlighting.

First, protectionist policies severely distort our perception of what is truly in the national interest. Smith’s analysis of how mercantilist doctrines and policies led to slower growth in Britain and North America, distorted trade flows, inflated costs, and promoted rampant cronyism contains a message for governments, legislators, and citizens today: that economic policies ostensibly designed to promote the national interest turn out to be highly sectional in their actual objectives and in the distribution of benefits. Smith showed that the ultimate beneficiaries of mercantilism were not consumers. Rather, it was those 1) politically connected enterprises like the EIC who had successfully secured privileges from the state and 2) the legislators who helped to enable and then protect these arrangements. In short, governments directly influenced by “shopkeepers” (or what we call special interests) tend to prioritize short-term, private gains over the nation’s economic welfare.

Second, interventionist economic agendas introduce unnecessary friction into international relations. Smith’s emphasis upon the manner in which mercantilist policies gradually sowed seeds of resentment between Britain and its colonies remains relevant today. Mistaken economic policies were not the only reason for the outbreak of war between Britain and its colonies. But Smith shows us how economic grievances, if left to fester and metastasize, can put otherwise friendly nations at odds, and contribute to the outbreak of political disorders and, in some instances, even war. The lesson for us today is clear: policies which distort international markets for political gain risk escalating economic frictions into broader, and more intractable, political conflicts.

Third, market-oriented economic reforms can provide solid foundations for the more peaceful conduct of domestic and international politics. Smith’s favored solutions to the American crisis — either 1) an economic and constitutional union based on free trade, fiscal equity, and commensurate representation in the legislature, or, 2) alternatively, an amicable separation — illustrate the potential for economic liberalization to create new possibilities for political measures to help mitigate geopolitical tensions.

Smith was not naïve about politics, nor the motivations of legislators. All of Smith’s writings on the subject of relations between Britain and the colonies stress the extent to which political realities — the ability of interest groups to bring pres-sure to bear on legislators, politicians’ fear of disgrace or electoral backlash, the lingering effects of memorable resentments, and such — obstruct clear economic and political thinking, thereby undermining the possibility of lasting fiscal, po-litical, and constitutional reforms. But Smith did think that the right economic choices could go some way towards transforming potential or actual adversaries into good political neighbors, thereby reducing the risks of conflict expressed as prolonged and expensive wars.

Fourth, and finally, rigorous economic analysis can help us solve complicated political and foreign policy problems. Smith’s approach to the American crisis reminds us of the value of bringing the economic technique that he championed in The Wealth of Nations to bear upon heavily disputed and complicated policy questions. By separating the economic aspects of the crisis from its political and foreign affairs dimensions, Smith was able to alert policymakers to specific considerations and longer-term trends that might otherwise have received less attention.

This is no guarantee that political leaders will necessarily pay attention to the conclusions of such analyses. Some legislators, as well as many business leaders, will have personal interests that are threatened by efforts to dismantle the neo-mercantilist structures that manifest themselves today in the form of protectionism, industrial policy, and other economic nationalist measures. Others will sincerely believe that the national interest demands that the state should act to force the economy’s development in particular directions. Even after Britain recognized America’s independence in 1783, it took a long time for Britain and the new American republic to resolve their differences over trade, in the Jay Treaty of 1794. Throughout the nineteenth century, special interests and sympathetic legislators lobbied hard in America for protectionist policies. The spread of free market ideas, thanks in part to the publication of The Wealth of Nations, was, in short, not enough to persuade significant numbers of people of the long-term problems associated with tariffs and other mercantilist policies.

In the face of those realities, however, The Wealth of Nations and Smith’s Memorandum of 1778 exemplify how economists — and the insights and truths conveyed by their social science — can highlight many factors, considerations, and evidence that would otherwise elude many policymakers. Moreover, they can also bring these reference points to the attention of wider audiences concerned about their country’s future and looking for analyses and answers untainted by the machinations of special interests. Such was the revolutionary service performed by Smith in his time, and it remains the core responsibility of economists in ours.

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Endnotes

[1] Andrew S. Skinner, “Adam Smith and America: The Political Economy of Conflict,” in Scotland & America in the Age of Enlightenment, eds. Richard B. Sher and Jeffrey R. Smitten (Edinburgh: Edinburgh University Press, 1990), 148.

[2] See Laura LaHaye, “Mercantilism,” https://www.econlib.org/library/Enc/Mercantilism.html, accessed January 31, 2026; and William R. Allen, “Mercantilism,” in The New Palgrave: A Dictionary of Economics, eds. John Eatwell, Murray Milgate, and Peter Newman, vol. 3 (London: Macmillan, 1987), 445-448.

[3] See John Darwin, Unfinished Empire: The Global Expansion of Britain (London: Bloomsbury Press, 2012), 12, 130, 151-3, 163-8.

[4] See H.S Bhatia, Military History of British India, 1607–1947 (New Delhi: Deep & Deep Publications, 1977), 15.

[5] T.A. Heathcote, The Military in British India: The Development of British Land Forces in South Asia, 1600–1947 (Manchester: Manchester University Press, 1995), 39-69.

[6] Adam Smith, The Glasgow Edition of the Works and Correspondence of Adam Smith, vol. II, An Inquiry into the Nature and the Causes of the Wealth of Nations, eds. R.H. Campbell and A.S. Skinner (Indianapolis, IN: Liberty Fund, [1776] 1981), vol. I, IV.iii.c.2, 488. [Hereafter WN]

[7] WN, vol. I, IV.iii.c.2, 489.

[8] Ibid.

[9] WN, vol. I, IV.ii3, 453.

[10] Ibid.

[11] Ibid.

[12] See WN, vol. II, IV.viii.49, 660.

[13] Ibid.

[14] Ibid.

[15] See John Keys, The Honourable Company: A History of the English East India Company (New York: Macmillan, 1994), 331-450.

[16] Adam Smith, “Letter to Andreas Holt,” in The Glasgow Edition of the Works and Correspondence of Adam Smith, vol. VI, The Correspondence of Adam Smith, eds. E.C. Mossner and I.S. Ross (Indianapo-lis, IN: Liberty Fund, 1987), Letter no. 149, 251. [Hereafter CAS]

[17] See Arthur Meier Schlesinger, “The Uprising Against the East India Company,” Political Science Quarterly 32, no. 1 (1917), 60-79.

[18] See Oliver Morton Dickerson, The Navigation Acts and the American Revolution (Philadelphia, PA: University of Pennsylvania Press, 1951).

[19] David Hume, “From David Hume,” in CAS, Letter no. 149, 186.

[20] Ibid., Letter no. 149, 185.

[21] See Donald Winch, “Adam Smith’s ‘politique coloniale’,” Cahiers d’économie politique 27/28 (1996), 41.

[22] WN, vol. II, IV.vii.b.40, 581.

[23] WN, vol. I, IV.i.32, 448.

[24] WN, vol. II, IV.vii.b.35, 579.

[25] WN, vol. II, IV.vii.c.55, 610. My emphasis.

[26] WN, vol. II, IV.vii.c.22, 596.

[27] WN, vol. II, IV.vii.c.43, 604.

[28] WN, vol. II, IV.vii.c.47, 607-608.

[29] WN, vol. II, IV.vii.c.44, 582.

[30] WN, vol. II, IV.vii.c.64, 615.

[31] WN, vol. II, IV.vii.c.44.

[32] WN, vol. II, IV.vii.b.49, 884.

[33] WN, vol. II, IV.vii.c.63, 613.

[34] WN, vol. II, IV.vii.39, 580.

[35] The scholarly consensus is that Adam Smith indeed wrote the memorandum. See G. H. Guttridge, “Adam Smith on the American Revolution: An Unpublished Memorial,” The American Historical Review 38, no. 4 (1933), 714-720; and David Steven, “Smith’s Thoughts on the State of the Contest with America, February 1778,” in CAS, Appendix B, 377-380.

[36] Verner W. Crane (ed.)., Benjamin Franklin’s Letters to the Press (Chapel Hill, NC: University of North Carolina Press, 1950), 72 n.28.

[37] See Lord Kames, Sketches of the History of Man Considerably enlarged by the last additions and corrections of the author, ed. James A. Harris (Indianapolis, IN: Liberty Fund, 2007), vol. 2, 395.

[38] WN, vol. II, V.iii.72, 935.

[39] WN, vol. II, V.iii.88, 944.

[40] WN, vol. II, V.iii.68, 933.

[41] WN, vol. II, V.iii.92, 947.

[42] WN, vol. II, IV.vii.c.77, 624,

[43] “Smith’s Thoughts on the State of the Contest with America, February 1778,” in CAS, Appendix B, 381.

[44] Ibid.

[45] WN, vol. II, IV.vii.c.79, 625-626.

[46] See “Smith’s Thoughts,” CAS Appendix B,382.

[47] Ibid., 381.

[48] Ibid., 380.

[49] Ibid., 381.

[50] Ibid.

[51] Ibid.

[52] “Smith’s Thoughts,” CAS Appendix B, 380.

[53] Ibid.

[54] WN, vol. II, V.iii.92, 947.

[55] “Smith’s Thoughts,” CAS Appendix B, 383.

[56] Ibid.

[57] Ibid.

[58] WN, vol. II, IV.vii.c.66, 617.

[59] Ibid.

[60] Ibid.

Americans often say inflation feels higher than what official statistics report. For most of economic history, inflation had a clear meaning: an increase in the supply of money. Rising prices were simply the consequence of inflation, not the definition. 

“Inflation is an increase in the quantity of money and credit,” Henry Hazlitt explained in Economics in One Lesson. “Its chief consequence is soaring prices.” 

In other words, as the economist Ludwig von Mises observed, inflation is a policy.

If you tune into CNBC or Fox Business today, however, you will hear inflation specifically used to discuss the increase in prices as measured by the consumer price index (CPI) or personal consumption expenditures (PCE). The difference may seem technical, but this definitional shift has changed the entire way we view monetary policy, economic inequality, and financial stability.

Over the course of the twentieth century, the monetary definition favored by economists such as Mises and Hazlitt was gradually replaced by a price-based definition. In a 2012 paper, monetary economist Claudio Borio argued that the economics profession had forgotten lessons of the past and had neglected the financial drivers of business cycles, particularly the roles of credit creation and asset prices.

Measurement of the CPI began on a small scale around World War I. It was expanded and revised around World War II, with further methodological changes occurring in the 1970s and again in the 1990s. These revisions introduced “substitution logic,” allowing the index to reflect consumers switching to lower-cost goods as prices rise. The result is an index that may not fully capture the cost of maintaining a consistent standard of living over time.

Because the definition of inflation has shifted from increases in the money supply to changes in prices, policy prescriptions that allow for large increases in the supply of money and credit may not meet immediate public backlash if consumer prices remain relatively stable. This can be politically convenient, as policymakers can increase the supply of money to fund politically popular initiatives while inflation appears contained in official statistics.

The Cantillon Effect, named after the Irish-French economist Richard Cantillon, explains that new money does not flow into the economy evenly. As money and credit are added to the system (from sources such as central banks and bank lending) the first people to receive new money benefit the most. Later recipients face higher prices, and the new money doesn’t go as far.

The first place the newly created money shows up is, perhaps unsurprisingly, in financial assets: stocks, bonds, real estate, and speculative investments. As the Adam Smith Institute explains, because the Federal Reserve distributes newly created money through banks as intermediaries (an effect sometimes known as “financing the financiers”) asset prices tend to react long before consumer prices.

As an example of this effect in practice, the S&P 500 averaged roughly 948 in 2009. At the time of writing in March 2026, it sits around 6700, an increase of roughly sevenfold. Meanwhile, the Minneapolis Fed reported the CPI at 214.5 in 2009 and 321.9 in 2025, a roughly 50 percent increase. In other words, asset prices increased considerably faster than consumer prices. Housing showed the same phenomenon. The S&P CoreLogic Case–Shiller Home Price Index rose from roughly 134 (at the post-financial-crisis low in 2012) to about 327 by the end of 2025, an increase of roughly 140 percent. Most of this growth in asset prices can be traced directly to loose monetary policy pushing new money into the economy from the top (central banks). 

By changing the definition of inflation to consumer price increases, we draw attention away from asset price inflation. This leads many Americans to assume that a 40-percent increase in home prices is normal, or simply a market outcome. A stock market detached from earnings is seen as investor optimism, not a distortion caused by monetary expansion.

Meanwhile, these inflationary policies price young families out of homes and pressure retirees into riskier assets just to preserve purchasing power.

Consumer price indices were never designed to capture increases in asset prices. Their focus on rising prices in consumer goods diverts our attention from assets such as real estate and equities, where vast amounts of capital are stored and invested, and which play a major role in wealth inequality.

When people say they feel that “inflation is higher than what’s being reported,” they are not delusional. Their intuition is picking up on measurable phenomena that are simply not captured in government-reported statistics.

If the goal of inflation measurement is to capture the social impact of money creation, asset prices must be included. A framework that ignores asset inflation systematically understates the cost of monetary expansion and obscures its distributional effects.

Redefining inflation from a monetary phenomenon to a consumer price statistic has allowed unprecedented money creation without corresponding accountability. The result is an economy marked by asset bubbles, growing inequality, and public distrust in official economic narratives.

Inflation didn’t disappear. Our definitions changed in ways that make it much harder to see.

If you’ve recently hitched a ride with Uber, Lyft, or any other rideshare company, chances are you spent more than you bargained for. That’s not just because of high gas prices. Unwanted auto insurance laws have hijacked the passenger seat for years, raising fares and passing the costs on to consumers. It’s due time for rideshare companies and local actors to kick these laws to the curb. 

In the early 2010s, the first transportation network companies (TNCs), such as Uber, debuted, but they faced significant insurance gaps. TNCs relied on drivers’ personal insurance, with commercial insurance options being an afterthought. They also didn’t insure drivers looking for customers, only drivers with a paying passenger in the vehicle.

Insurers weren’t innocent in this relationship, either. They tended to exclude drivers who used their car for rideshare purposes, and denied claims for accidents that occurred while using the app. When an Uber driver fatally struck a six-year-old girl in San Francisco that December, however, Uber and Lyft recognized the need for reform and expanded insurance for drivers waiting for ride requests.

Since mid-2014, states and companies have worked together to address insurance gaps, improve customer safety, and ensure affordable transportation services. Between 2014 and 2016, thirty-nine states guaranteed coverage from the moment a rideshare app is turned on. The push came from Uber, Lyft, and major insurers, which sought to standardize industry insurance requirements. Their success subsequently spread nationwide. By 2018, every state except Oregon had passed legislation making transportation network drivers or companies purchase relevant insurance.

TNCs saw more regulation-related costs, but Uber and Lyft users won big. In 2015, UberX customers got sixty cents of extra value beyond what they paid because the prices were below what they were willing to pay. The TNC-state relationship was friendly and innovative, enabling scaled operations and good prices.

Today’s environment for TNCs is far more hostile. The results are higher fares for all.

Some states force companies like Lyft to carry much higher insurance coverage than taxis and other commercial vehicles, which increases trip costs. For example, California Governor Newsom signed Senate Bill 371 late last year. The Bill kept the required insurance at $1 million per accident— a very steep limit — but did decrease uninsured driver coverage by 94 percent. Still, Uber reported that in California and New Jersey, “nearly a third of a rider’s fare goes toward state-mandated insurance costs.” Contrast that rate with those of Massachusetts and Washington, DC, where, because of simpler rules and lower rates, less than five percent of riders’ fares go to insurance.

The lesson? Areas with more relaxed insurance requirements prosper; heavily regulated areas struggle.

Surging personal injury claims and lawsuit abuse also drive up ride prices through premiums. A major culprit is no-fault insurance, which can pay out $50,000 per person after a crash in states like New York, regardless of who caused the accident. Sensing easy money, residents flood the system with false complaints. In 2024, The New York Department of Financial Services received 28,500 reports of no-fault insurance fraud, accounting for 75 percent of all fraud reports. Insurers like Geico are blasting New York health clinics for billing $1.8 million in false no-fault auto insurance claims. The cost is sent down to riders, with such exploitation costing every American over $1,400 yearly.

Broader economic trends do little to ease the pain. Since the COVID-19 pandemic, vehicle parts and repair costs have been more expensive, alongside rising post-crash medical costs. Nationwide premiums also jumped by an average of 55 percent during the Biden era. Since rideshare companies generate lots of business in cities and use vehicles that rack up mileage, insurance and repair costs are outpacing profits. The result is a handicapped industry on the defensive against state overreach and economic uncertainty. 

Rideshare companies and states must restore their working relationship to set clear rules and stabilize fares without sacrificing passenger safety. TNC insurance limits should match those for taxis so all vehicles function under the same standards. Doing so would make the system tech-neutral and dismantle the extra fees that bog down rideshare drivers.

States with no-fault insurance could retool their approach, too. They should look to Colorado, which ditched its no-fault laws in 2003. The following year, auto injury claim costs per insured vehicle plummeted by 27 percent, and liability premiums fell by 15 percent. Another model is Pennsylvania, which repealed its no-fault law and switched to limited tort and full-tort options in 1990. Over time, Pennsylvania fell out of the top 10 most expensive auto insurance states, ranking #39 as of 2019.

Taken together, lower regulatory and licensing per vehicle will make the rideshare market more competitive and slash prices. TNCs are in for the long haul, and, with revamped laws and regulations, they can continue contributing to and enhancing American transit.

Adam Smith (1723-1790) is widely considered to be the father of modern economics. There were precursors, such as the School of Salamanca and the French Physiocrats, but Adam Smith’s 1776 magnum opus, An Inquiry Into the Nature and Causes of the Wealth of Nations, was the first comprehensive treatise.

In this 250th anniversary year, much ink will be spilled – and with good reason – celebrating the legacy of Adam Smith. My purpose here is as joyous as it is modest: to share ten quotations that are particularly relevant today, and demonstrate Adam Smith’s enduring influence. I like to weave them into my lectures – on markets, on political economy, on constitutional economics, or on the moral foundations of capitalism. Adam Smith, in the versatility of his writings, was indeed a man for all seasons.

1. The Invisible Hand Acts

[B]y directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention… 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.

Perhaps the single best-known concept from Adam Smith, the invisible hand was famously picked up by the Austrian school of economics and its key lesson of spontaneous order. FA Hayek, especially, noted the importance of phenomena that were “the result of human action, but not of human design.” Alas, interventionists of all stripes still think they can supersede the invisible hand of the market. 

2. People Are Not Pawns

The flip side of the invisible hand involves social and economic engineering. Adam Smith was prescient in describing the psychology of social engineers, those self-proclaimed experts who believe, in their hubris, that they can run an entire economy.

The man of system…is apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.

3. Collective Action Can’t Be Imposed

The “man of system” quotation is long enough that it bears cutting in two. In the second part, Smith laments the unintended consequences of social engineering. If the policymaker is cautious and respects both human nature and local knowledge, the results can be a marginal improvement over the status quo (this is the basis of Buchanan and Tullock’s theory of collective action through the state).

“If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”

4. Markets Coordinate Effort

Adam Smith’s key theoretical contribution is the division of labor. But this is not merely an economic model, to be calculated with production charts by eager students of microeconomics. For Smith, it is something more, an instrument of cooperation to overcome the limitations of human beings:

This division of labor, from which so many advantages are derived, is not originally the effect of any human wisdom… It is the necessary, though very slow and gradual, consequence of a certain propensity in human nature…, the propensity to truck, barter, and exchange one thing for another.

The division of labor solves a social problem: 

It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made. All the members of human society stand in need of each others’ assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices.

But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.

5. Self-Interest Actually Helps Everyone

Smith was excited about the potential for markets to align incentives. In another famous quip, he reminded us that markets transform private interest into public harmony:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

 In more recent terms, we are reminded of Deirdre McCloskey and Art Carden (both fellows of AIER). The title of their book speaks for itself: Leave Me Alone, and I’ll Make You Rich: How the Bourgeois Deal Enriched the World.

6. Permissionless Societies Creates Prosperity

The bourgeois deal has alternately been described in Physiocrat ARJ Turgot’s plea: “laissez-faire, laissez-passer” (let us act, let us pass). Ever the professor of moral sentiments (and not just the founder of modern economics), Smith was quick to show that the bourgeois deal was instrumentally good, indeed – but it was also the grounding for a free society: “Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way.”

7. Cooperation Connects Us

Smith’s first major work, The Theory of Moral Sentiments (1759), predated The Wealth of Nations by almost two decades. While demonstrating how markets advance the public good by appealing to and channeling private interests, Smith made it clear that human beings are fundamentally creatures of cooperation:

How selfish ‘soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

8. Individual Responsibility… With Limits

While emphasizing the importance of individual responsibility, Smith was also realistic about the limitations of what human beings could do. He warned:

The administration of the great system of the universe… is the business of God and not of man. To man is allotted a much humbler department, but one much more suitable to the weakness of his powers, and to the narrowness of his comprehension; the care of his own happiness, of that of his family, his friends, his country: that he is occupied in contemplating the more sublime, can never be an excuse for his neglecting the more humble department.

In a similar spirit, Ludwig von Mises explained in his 1927 book, Liberalism: “[classical] liberalism limits its concern entirely and exclusively to earthly life and earthly endeavor. The kingdom of religion, on the other hand, is not of this world. Thus, liberalism and religion could both exist side by side without their spheres’ touching.” Smith, Mises, and the classical liberal tradition stand as a foil against the busybodies – on the right and on the left – who would attempt to administer the universe through temporal means.

9. Collusion Threatens Competition

If Smith was worried about the political “man of systems”, he was also worried about business colluding against the consumer, instead of serving the market through competition. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…”

Smith cautioned us, however, against state efforts to prevent industry collusion: “It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice… ” But he did offer a solution, in the form of more free trade, and fewer regulations to discourage competition: “But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”

10. Institutions Drive Economic Growth

I am an institutional economist. I first came to economics from a preoccupation with economic development and ending (or at least abating) poverty. With economist Robert Lucas (if not with the same success), I am obsessed with such questions. When observing that some countries are rich and others poor, and that some grow slowly and others quickly, he commented: “I do not see how one can look at figures like these without seeing them as representing possibilities. Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia’s or Egypt’s? If so, what, exactly? If not, what is it about the “nature of India” that makes it so? The consequences for human welfare involved in questions like these are simply staggering: once one starts to think about them, it is hard to think about anything else.”

International development is infuriating, for two reasons. First, it has been a massive failure – well, international aid has been a massive and expensive failure; behind the futile efforts of the men and women of systems, markets have been plugging along, and poverty has fallen radically in the past 200 years. Second, because the recipe for growth is so obvious. It works every time it’s applied, from the US and Western Europe in the early 1800s to China after Mao’s death and India after the end of the licensing raj, and to every country that embraced globalization and market reforms. It’s the recipe that Smith offered as early as 1755, twenty years before The Wealth of Nations, and well before the Enlightenment ideals were translated into economic policy: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice, […the] rest being brought about by the natural course of things.” (This quotation is thought to come from a transcript of a 1755 Adam Smith lecture, from Dugald Stewart’s lecture notes.)

In more modern language, peace is obvious, as is low and transparent taxation. A “tolerable administration of justice” might be translated as rule of law. Taken together, we have economic freedom, which is closely correlated with growth and wealth. Instead of fancy macroeconomic policies, imposed from the top down by the men and women of systems, the New Development Economics proposes a radical and simple solution. Focus on microeconomics, institutions, incentives, and the transmission of knowledge in the Austrian tradition.

Smith warned us what happens when the basic conditions for economic growth are ignored by conceited policymakers and politicians: “All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.”

Tyranny is the midwife of poverty; liberty, of prosperity.

As a college student with little understanding of how money works, Caleb Hammer racked up thousands in credit card debt, an outsized car note, and private student loans. That’s when he discovered the previous generation of financial advice personalities: Dave Ramsey, Graham Stephan, and Robert Kiyosaki, author of Rich Dad, Poor Dad. He absorbed their lessons, stabilized his spending, accelerated his earnings, and dug himself out of debt. 

“Now my mission is to have the conversations that I wish someone had with me over a decade ago,” he says of his YouTube channel, where more than 500 applicants have now submitted their spending situations to his tough-love, line-by-line audit. 

Hammer’s social media rise has been meteoric: his top-ten-ranked YouTube series, Financial Audit, has collected billions of views, and its most watchable moments are repackaged for Facebook, Twitter, and TikTok. The message of fiscal discipline and personal responsibility seems to be reaching new audiences. The YouTube channel has three million subscribers and now offers premium subscriptions, a user community, and branded budgeting software.

Hammer’s success demonstrates demand for financial accountability and education, and provides vivid examples of how personal choices create needless financial crises. His content capitalizes on internet discourse and the economy of attention, using moral outrage and entertainment value to present lessons that Americans desperately need.

Hammer deliberately leans into controversy and games the attention algorithm by getting special permission from his guests to create unflattering thumbnails that call them “moron,” “loser,” and “liar.” 

It’s a considerably spicier format than those of Dave Ramsey and Suze Orman, who emphasized conservative social values along with financial responsibility. While Hammer condemns “BS purchases” and living beyond one’s means, he doesn’t specifically suggest how people ought to conduct themselves beyond their financial choices. Still, guests submitting all their financial statements provide plenty of opportunity for Caleb’s vivid criticisms: “You are behind on your mortgage and you DoorDashed Wendy’s? You creature.”

The episode content can be explosive. Married couples learn about each other’s debts and spending habits for the first time. Gamers spending the rent money on digital goods get a serious setting straight, as do Disney-obsessed parents spending their kids’ college funds and ex-sugar-babies trapped in cycles of payday borrowing. Viewers get vivid warnings against traps like sports betting and compulsive shopping, but also of bad debt, insidious “pay in four” installment plans, and predatory car loans. 

For Hammer’s guests, the results are undeniable. As an incentive to submit to this ritual humiliation, they receive financial counseling, mental health care where appropriate, free access to his budgeting and investing software, and a handcrafted budget designed to get them out of debt and onto firm financial ground. They also get a huge helping of accountability on a very public stage (the faint of heart ought not wander into the comments section) after signing the show’s many disclaimers, waivers, and consent agreements.

Of the self-selecting applicants who appeared on Hammer’s Financial Audit program in 2024, “the average guest had paid off $22,807 of debt in 12 months [after the audit], and the median had paid off $12,000 in 8 months.”

When Private Choices Have Public Consequences

While growing his audience and creating his central messages of personal finance, Hammer hasn’t revealed much about his personal politics. But combing through the spending habits of struggling citizens reveals uncomfortable truths about modern poverty: self-defeating behavior often plays a role. His content consistently emphasizes how individual financial decisions ripple outward, affecting not just the spender but also lenders, family members, and, at times, taxpayers.

Particularly, Hammer articulates how the fungibility of money results in taxpayers footing the bill for bad decisions (not to mention family and friends who lend to or rely on the irresponsible interviewees). Of one resident of a rent-stabilized apartment who spent frivolously elsewhere, he groaned, “Great. Thanks, City of Seattle, everyone’s rents went up endlessly to subsidize her Hawaiian vacation.” The comment is partly rhetorical flourish, but it reflects a broader theme of the show: financial irresponsibility rarely exists in isolation.

Of one guest’s refusal to get a better job, he wailed, “She is holding back our civilization! Our GDP would be double if we didn’t have these types of people.” When the guest pushed back, arguing that her reckless spending stimulates the economy and contributes to GDP, he slumped onto the desk, whimpering, “No, you’re right, we do need morons like you to go spend more than they have.” 

The show has a general appeal to schadenfreude or morbid fascination, but his guests aren’t total outliers. Financial insecurity becomes a way of life for many, and we end up publicly subsidizing that situation in cases where we should not. 

Access to Information ≠ Behavior Change

What makes Hammer’s success notable is not just the spectacle, but the substance. He is delivering a form of basic financial education — budgeting, delayed gratification, the mechanics of compounding — that isn’t taught systematically in schools. While some educators resist attempts to replace traditional economics courses with personal finance, Hammer’s content suggests the broad social value of starting with everyday, individual incentives.

The basic principles of personal finance function less like technical knowledge and more like civic virtues: defer gratification, differentiate between wants and needs, spend less than you earn, and pay back what you borrow. 

A layer of added complexity, still readily accessible in plain language, reveals how compounding works (for you or against you), and how to avoid accumulating debts and account fees that sap away your savings. Hammer repeatedly emphasizes the time element of savings and investing: his median guest has already lost at least a decade of potential compounding, which can shrink potential retirement income by half. 

Guests don’t end up on Hammer’s Financial Audit after making good money decisions. That wouldn’t fulfill his format. But for those who don’t have to undo years of damage, many other YouTube channels offer endless, free advice, from financial fundamentals to advanced insights for experienced investors.

The abundance of information has exposed a deeper problem. Anyone with an internet connection can access high-quality financial advice suitable to their situation. The harder challenge is behavioral — helping people recognize good advice and, more importantly, act on it.

Hammer’s format, equal parts education, confrontation, and entertainment, appears to bridge that gap.

“People come in for the tea,” he says, using the Gen Z shorthand for gossip. “They exit with the finances.”

His rapid rise suggests the future of financial literacy will depend as much on engagement and emotion as on information.

Whose side is Silicon Valley on anyway?

That’s what Secretary Hegseth may be wondering, given Anthropic’s refusal to grant the US military autonomy over its Claude model — a stance that makes the company an abject outlier in Silicon Valley. Many tech firms are eagerly building alliances and selling services to the federal government. Government contracts are booming, and patriotism is the new subscription software service. 

Elon’s leadership of the Department of Government Efficiency (DOGE) is the highest profile example of bringing tech talent into the government. Although DOGE overpromised a trillion dollars of cuts and underdelivered, it still helped reduce the size of the federal workforce and pared back egregious waste at the State Department. Elon has also played a role in geopolitics by offering Starlink services to Ukrainian military forces and putting a hundred or so US government satellites into orbit via SpaceX.

But Silicon Valley’s realignment behind American interests extends well beyond Elon’s network of companies. Anduril, a major tech defense firm founded by Palmer Luckey, is supplying the US military with relatively cheap next-gen hardware and software. And the meteoric rise of Palantir, headed by Alex Karp, has been revolutionizing government intelligence and law-enforcement operations.

President Trump has aggressively courted the CEOs of Silicon Valley — and not without reason. These are the titans of the US economy managing companies worth trillions of dollars and employing millions of people. They are also on the cutting edge of technological innovation and, therefore, driving the process of creative destruction. And some key tech leaders were instrumental in helping Trump win the 2024 presidential election.

Elon Musk was the most visible and well-known tech CEO campaigning for Trump, but a large number of others, from Peter Thiel to Joe Lonsdale to Larry Ellison, and many more — pejoratively called the “tech bros” — also threw their support behind Trump. Huge swaths of the crypto community backed Trump because he promised clear, fair regulation for their industry.

This support for Trump from the tech and crypto industries represents a remarkable departure from the political status quo in Silicon Valley. San Francisco, Berkeley, and tech companies have long been bastions of Democratic and Progressive ideology. And to be fair, they remain deeply blue. The “vibe shift” or realignment towards the political right has mostly been limited to corporate executives, founders, and venture capitalists. The employees of Amazon, Apple, Meta, Alphabet, and dozens of other big tech companies remain committed to Progressive ideology by roughly a 3:1 margin.

Tech executives have moved towards the political right for two reasons: energy and self-preservation. The explosion of AI has changed the technology game and ended the era of ‘pure’ software. Silicon Valley can no longer remain insulated in the world of bits; its advancement now depends entirely on the world of atoms. More than at any time in its existence, Silicon Valley needs a physical presence to advance. 

Beyond insatiable energy needs, the shift into hardware — rocketry, EVs, and autonomous drones — has forced tech companies into the same regulatory thicket that entangles the rest of the industrial economy. They must confront all the red tape created by government bureaucrats, but strongly lobbied for and supported by the political left.

Why would Google or Microsoft have cared about restrictions on nuclear power or fossil fuel utilization in the 2000s? Why would they be concerned about the EPA and other regulatory agencies choking off the development of new mines or the production of refined rare earth minerals? Their business was driven by coding and by programmers. They were only constrained by their access to talent, their customer base, and their ingenuity.

Fast-forward to the early 2020s, and the world has shifted in important ways. The push for electrification and the development of the solar panel industry has revealed the importance of the world of atoms. Silicon Valley cannot program its way to electric vehicles, solar panel production and distribution, or advanced batteries. They need inputs and refining know-how that are in rare supply in the US due to decades of tightening bureaucratic regulations.

Then there is the issue of artificial intelligence (LLMs) revolutionizing the technological infrastructure. AI represents a major advance in computing. But building and operating these models requires advanced semiconductor technology, large outputs of these advanced semiconductors, and most importantly, electricity to power these semiconductors in data centers. And so the tech companies that have inhabited the world of bits for decades have rediscovered that they depend on silicon. And they also depend on the electrons powering that silicon.

Which brings us back to the issue of realignment. Silicon Valley companies have discovered that they need inordinate amounts of electricity to drive their technology forward. But they have a problem: many politicians and regulators have been warring against energy development for decades in the name of protecting the planet. The US electric grid is old and relatively inefficient. Most legacy utility companies have tied their own hands at the demand of climate crusaders — retiring coal and gas power plants or, in the case of Germany, shuttering nuclear power plants.

Most of the data centers that tech companies want to build cannot tap the existing electrical grid without raising retail electricity rates or straining current power supplies. They also cannot rely solely — or even primarily — on wind or solar power, because these sources are intermittent and battery storage remains prohibitively expensive. Yet politically, wind and solar were treated as the only acceptable options under the Biden administration and in deep-blue states like California. The Trump administration and Republicans offered a necessary corrective, promoting all forms of energy development and advancing a policy of energy abundance.

Silicon Valley’s rightward shift has another cause: self-preservation. The Democratic Party has lurched dramatically left over the past twenty years. In the 1990s and 2000s, blue states like California would tax businesses and the wealthy more heavily than red states, but they weren’t seeking aggressive confiscation and redistribution of wealth. Now they are. The success of Democratic-Socialists in New York City and in Seattle, as well as the proposal to tax people’s wealth, not just their income, are symptomatic of Democrats’ leftward shift.

Perhaps more alarming is the perceived authoritarianism of the left, which began with pandemic-era lockdowns and has since evolved into aggressive enforcement of speech codes and militant identity politics. Rebellion and protest began erupting within tech companies. This political and cultural shift has sent a message to tech executives loud and clear.

Rather than simply bearing higher taxes to support broader welfare programs, and otherwise being respected or at least ignored, wealthy founders and venture capitalists have discovered that they are hated by left-leaning constituencies. The reaction to Elon and DOGE is instructive.

People were so outraged by him and his politics that they vandalized Teslas and firebombed dealerships. The open hostility in rhetoric towards wealth, success, and productivity caused leaders in Silicon Valley to reassess the political landscape — resulting in significant political migration to the Republican Party and physical migration to red states.

This realignment is still in its early stages. Whether this shift is transitory remains to be seen. But at the very least, being a Republican is no longer a mark of shame among the leaders of Silicon Valley, though it may still be among the rank and file. We are also in the early stages of the physical realignment caused by confiscatory tax proposals in California and other states, labyrinthine bureaucratic regulation, and general hostility to entrepreneurship and business. California alone has seen several billionaires relocate in the past few months, including the founders of Google and Meta.

Nothing guarantees Silicon Valley and San Francisco will remain the center of the tech world. In fact, if history is any indication, industrial and creative centers often change locations — just ask anyone living in Detroit or Chicago in the mid-twentieth century, or in Scranton, Pennsylvania, in the late nineteenth century. This might be a bit premature, but we are heading for a Silicon Rust Belt on the West Coast replaced by Silicon Prairie or Silicon Hills. If that materializes, it won’t be because of trade policy or unfettered capitalism. It will be because of political and regulatory failure.

It was a brutal winter in New England. Many mornings, I got out of bed to fire up our snowblower and tackle the latest round of snow. When the wind was blowing, I often got snow blasted right back in my face.

I could have fought reality, but instead I came to see—as the burnt-toast theory suggests—that inconveniences (like burnt toast) can lead to positive outcomes.

While snowblowing, I don’t have to wait too long for positive opportunities to crop up. As I settle into a rhythm, my mind stills, and ideas often arise for the essay I’m writing. Morning exercise takes the form of snow removal. If you enjoy skiing, or, as my wife and I do, getting out in the woods on snowshoes, the cold, snowy winter offered other advantages, too.

Although the burnt toast theory originally appeared on TikTok, it does have a resemblance to the butterfly effect in chaos theory—the idea that small changes can produce large effects. And it certainly reminds us of the ancient Taoist parable of “The Old Man Lost His Horse,” in which the initial event of a poor farmer losing his horse brings perhaps good tidings.

The qualifier “perhaps” is important because the “everything happens for a reason” rendition of the “burnt toast” theory can seem hollow in the face of inevitable human tragedy. The Taoist farmer is wise enough to know that he doesn’t know what may be right around the corner.

Psychologists such as Dr. Brianne Markley and Dr. Alexandra Stratyner note that the burnt toast theory encourages “reframing,” which helps individuals view minor setbacks not as failures but as protective or redirecting events. This shifts our mindset from frustration to curiosity and acceptance, thereby increasing our resilience. 

By recognizing that we cannot control every outcome, we ease the anxiety of micromanaging our lives. The upside is learning equanimity in life’s circumstances, from ordinary annoyances to major disruptions, something the Stoic philosophers practiced two thousand years ago.

The Stoics

You may have thought the Stoics were above being impacted by burnt toast. On the contrary, they practiced their philosophy on small events so they would be better equipped to handle major life events. 

Upon waking, Marcus Aurelius told himself, “Today I am going to meet a busybody, an ingrate, a bully, a liar, a schemer, and a boor.” (Meditations, 2.1)

The Philosopher King was not complaining. This was another chance to put his philosophy into practice. He reminded himself that his daily work was to change his mindset about the “wrongdoers”: “I know that these wrongdoers are by nature my brothers, not by blood or breeding, but by being similarly endowed with reason and sharing in the divine.” Marcus didn’t avoid taking necessary action in the world, even while he recognized his common humanity with “wrongdoers.”

He continually admonished himself to be a better practitioner: “Strive to be the man your training in philosophy prepared you to be… Stop all this theorizing about what a good man should be. Be it!” (Meditations, 6.30 and 10.16)

Do you think it would be easier if life didn’t serve up burnt toast? You are not alone. Marcus wrote, “Everyone dreams of the perfect vacation—in the country, by the sea, or in the mountains. You, too, long to get away and find that idyllic spot.” (Meditations, 4.3)

“How foolish you are,” Marcus observed, since “at any time you are capable of finding that perfect vacation in yourself.” 

This is what Stoic philosophy trains us to do. It teaches us to live by our values and purpose, and to furnish our minds so that even “the briefest inward glance brings peace and ease.” 

This is the goal, even when life delivers us pain, injustice, and daily struggles. 

‘A Veritable Fortress’

In essence, the burnt toast theory serves as a modern proxy for the Stoic recognition that our distress stems not from the event itself, but from our judgment of the event. “Free from passions, the mind is a veritable fortress,” Marcus reminded himself. (Meditations, 8.48)

French philosopher Pierre Hadot called Marcus’s fortress an “inner citadel.” “Burnt toast” — a metaphor for the setbacks we encounter in our daily lives—can be the catalyst for finding this inner strength, leading to less focus on external outcomes and more control over our own reactions. Some contend that burnt toast thinking could lead to a lack of responsibility, but Stoicism is the antidote to this fear. 

Born into slavery, Epictetus became one of the most celebrated Stoic philosophers. He asked himself, “How much longer will you delay before you think yourself worthy of what is best, and transgress in nothing the distinctions that reason imposes?” (Handbook, 51.1)

He chided himself, asking, “Are you still waiting for more theory before you practice what you preach? What kind of teacher, then, are you still waiting for, that you should delay any effort to reform yourself until he appears?” Epictetus makes it clear that our delay is a failure to realize our potential.

The challenges of life, big and small, Epictetus argued, are our personal Olympic events: 

If you come up against anything that requires an effort, or is pleasant, or is glorious or inglorious, remember that this is the time of the contest, that the Olympic Games have now arrived, and that there is no possibility of further delay, and that it depends on a single day and single action whether progress is to be lost or secured. (Handbook, 51.1.2)

The Stoics constantly urged us to build robust habits by putting our values into practice every single day. Their advice is timeless because they didn’t tell us to think only positive thoughts, which is impossible. Instead, we are to focus on training for our personal Olympics as we respond to our burnt toast. 

Putting a practical philosophy into practice is not an easy path through life. Seneca, in his Letters on Ethics, emphasizes that virtue is a good you must commit to immediately. In letter #37, he wrote, “There is no better way of binding yourself to excellence of mind than the promise you have given, the oath of enlistment you have sworn: to be an excellent man.”

Seneca added, “Only as a joke will anyone tell you that this is a soft and easy branch of service.” 

Epictetus stressed the power of building good habits through action: “Every habit and capacity is supported and strengthened by the corresponding actions.” (Discourses, 2.18.1)

It should be obvious, for example, “If you want to be a good reader, read; if a good writer, write.”

On the other hand, “if you lie in bed for ten days, and then get up and try to walk a fair distance, you’ll see how weak your legs are.”

Here is the lesson: We become what we do.

Epictetus demolished the “I’ll do better tomorrow” excuse. He instructed, “When you lose your temper, you should recognize not only that something bad has happened at present, but also that you’ve reinforced the habit, and you have, so to speak, added fresh fuel to the fire.” (Discourses, 2.18.5)

The lesson: “If it would be good for you to pay attention tomorrow, how much better it would be to do so today, so that you may be able to achieve the same tomorrow also, and not put it off once again until the following day.” Today — not tomorrow — is your Olympic event. (Discourses, 4.12.21)

When you let your emotional horses out of the barn, you won’t easily call them back. Epictetus warns, “Don’t you realize that when you’ve let your mind roam free, it is no longer in your power to call it back, either to decorum, or to self-respect, or to good order?” (Discourses, 4.12.6)

Watch your mind and notice that a twinge of annoyance can escalate into full-blown fury if left unchecked. Learn for yourself how timeless Epictetus’s advice remains. 

The drive to bring jobs back to American soil is a compelling political instinct. But soundbites aside, Washington’s campaign to engineer domestic employment through tariffs, subsidies, and executive pressure reveals a fundamental misunderstanding of how markets and jobs actually work.

Jobs represent ever-evolving responses to consumer trends, resource development, market expansion, technological change, and entrepreneurial imagination. Some of today’s occupations — prompt engineer, EV charging station technician, dispensary budtender, app developer — couldn’t have been imagined a decade or two ago. Others, like food delivery drivers, household organization consultants, or telehealth coordinators, exist because consumers have demanded greater convenience and care. 

The gig economy itself — a phenomenon barely imaginable before the smartphone — reflects exactly this kind of market-driven reinvention of work.

Value Is Discovered, Not Decreed

Carl Menger, in his 1871 Principles of Economics, argued that value is not an intrinsic property of goods or industries but a subjective judgment made by individuals based on their own needs and circumstances. And since needs and circumstances change, so too does the perception of value. Consider something as simple as diapers: a parent of young children assigns great value to a reliable brand like Pampers; that same parent, a decade later with grown children, assigns it none. The product hasn’t changed. The person’s needs have. 

Friedrich Hayek understood why this matters for policy. In his 1945 essay “The Use of Knowledge in Society,” he argued that the information needed to allocate resources effectively is not concentrated in any one place — it is dispersed across millions of individuals, embedded in local conditions, personal preferences, and fleeting circumstances that no central authority can fully observe or anticipate. 

Consider Play-Doh. The product now beloved by children worldwide began as a wallpaper cleaning compound. The putty almost faced extinction when vinyl wallpaper rendered it obsolete, but fortunately, a schoolteacher recognized that the non-toxic compound was ideal for children’s crafts. The product was rebranded and relaunched as a toy in the 1950s, and jobs associated with Play-Doh shifted from industrial cleaning supply manufacturing to creative play and childhood education. In 2024, the company rolled out Play-Doh Imagination Curriculum, complete with programming and educational materials that “have been developed by leaders in play and imagination, whose experience spans more than 40 years of expertise in qualitative research, inclusive design and creative arts.” Entrepreneurial adaptation drove the transformation — and no federal agency could have predicted it, let alone planned for it.

Consider PetSmart. When it was founded in 1986, PetSmart was a straightforward pet supply retailer. Today, the bulk of its economic activity lies less in product sales and more in services: grooming, training, boarding, veterinary care, and pet adoption events. This shift emerged because pet owners increasingly embraced their animals as family members and demanded services to match. PetSmart’s mission — to “help everyone experience more joy with pets” — reflects a broader cultural transformation. The most common reason for pet ownership today is pleasure and companionship, a far cry from the functional role animals once played. The jobs followed the values.

Consider Peacock. NBC’s streaming platform takes its name from the network’s famous multicolored feathers logo, developed in 1956 as a promotional tool to encourage Americans to upgrade to color television. Fast forward seventy years, and the consumption of home entertainment has generated an entire ecosystem of streaming-age employment: content creators, data engineers, and digital rights managers. These are not jobs that were moved from somewhere else — they were invented. As the broadcast industry shifted to streaming, the labor market transformed along with it.

Creative Destruction Is Not a Problem to Be Solved

The continuous process by which employment positions and old industries are dismantled to make room for new ones was coined by Joseph Schumpeter as “creative destruction.” In Schumpeter’s framework, the entrepreneur is the engine of economic transformation — an active disruptor who recombines resources in novel ways to meet emerging demand. The churn of job categories is not a market malfunction; it is the market working exactly as it should.

The 1991 film Other People’s Money dramatizes this tension with unusual clarity. Danny DeVito plays “Larry the Liquidator,” a Wall Street corporate raider targeting a small, family-run New England wire and cable company. His argument is unsentimental but economically coherent: the company is inefficient, copper wire is being replaced by fiber optics, and the capital locked inside it would generate far more value elsewhere. In the film’s pivotal shareholder meeting speech, Larry puts it plainly:

You know, at one time there must’ve been dozens of companies making buggy whips. And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. Now how would you have liked to have been a stockholder in that company? You invested in a business and this business is dead.

Just as the car replaced the need for buggy whips, so too will new innovations generate obsolescence for some of today’s products and positions. This is why the current push to repatriate manufacturing jobs through tariffs and executive pressure commits what some might recognize as a category error: treating the economic snapshot of a previous era as a permanent template for what American employment should look like. The jobs being chased are not lost — they have been superseded.

Protectionist measures also misread the supply chain reality of modern manufacturing. The components of consumer goods routinely cross borders dozens of times before final assembly. Tariffs inevitably raise costs for both producers and, ultimately, for consumers. Diapers illustrate the point concretely. The modern disposable diaper sold in American stores sources its superabsorbent polymers primarily from manufacturers in Japan and Germany, relies on globally distributed production for its adhesives, elastic components, and fluff pulp, and moves through an international logistics network before landing on a store shelf. It is, in every meaningful sense, a product of globalized supply chains — and it is better and cheaper for it. And given the rising costs of raising kids, parents need all the help they can get.

You Can’t Mandate a Better Economy Into Existence — But Entrepreneurs Can Build One

The cost of protectionism, however, goes beyond higher consumer prices. When governments insulate old industries, they do not merely slow destruction — they slow creation. The capital and labor locked up in a subsidized, tariff-protected sector are unavailable to the entrepreneurs building the next economy. Protection does not preserve prosperity. It mortgages it.

Now, none of this is to say that economic transitions are painless. They are not. Workers in disrupted industries face real hardship, and a society that cares about its members will want to ease those transitions. But the core lesson from Menger, Hayek, and Schumpeter must not be lost. Value is determined by individuals acting on their own preferences and the entrepreneur’s restless recombination of resources is the true engine of prosperity. The best employment policy, therefore, is one that removes obstacles to innovation rather than erects obstacles to change.

The jobs of tomorrow have yet to be realized. But one thing is certain: they will create value that no industrial policy could have molded or modeled. Giving entrepreneurs room to operate, rather than burdening them with the cost of propping up yesterday’s economy, is not indifference to American workers. It is the greatest service we can render.