Ideas: A History of Thought and Invention, from Fire to Freud

by Peter Watson

‘Capitalism’ is a term invented only at the turn of the twentieth century (as Kapitalismus, by Werner Sombart, the German economist and sociologist), and Smith would not have recognised either the word or the sentiment. His grasp of finance and banking was never especially strong and towards the end of his life he expressed profound misgivings ‘about the moral complexion of commercial society’.81 There is an irony here because Smith created an approach and a language that, ultimately, divorced economics from what most people mean by morals. But he himself felt that allowing absolute freedom of economic activity was itself a form of morality. Among other things, his book was a morally-outraged attack on the monopolistic practices of the grain trade.82 He championed the interests of the consumer against the monopolists, identifying consumer demand as the engine for the creation of wealth.83 We should not forget that state intervention in the eighteenth century was very important to economic development and Smith never disagreed with this.84

Smith agreed with governmnt intervention in economic matters for moral reasons