Week Three: Economic Modernity, Liberalism & Adam Smith - 8/10/2026

Modernity & Enlightenment Re-cap

Development of ‘modern’ European societies (Berman - 16th to 20th centuries).

Range of interconnected cultural, political, intellectual & socio-economic changes with different time-scales.

  • Cultural: Science & decline of religious authority, individualism

  • Political: Nation-State, rights of man, French & American revolutions.

  • Intellectual: the Enlightenment, Social theory/sociology.

  • Whose modernity?

Today…

The socio-economic formation of modernity.

  • The emergence of the modern (capitalist) economy.

  • Adam Smith & his Wealth of Nations (1776).

  • Links in today’s economy.

(Pre-modern) Feudalism

  • Agricultural/Rural Economy.

  • Relations of land ownership, status, bondage, loyalty/honour.

  • Lord, Vassal, Fief.

Feudal Hierarchy

  • King/Ruler

  • Nobles/Lords/Knights

  • Merchants/Craftsmen/Artisans

  • Peasants/Serfs

Lasted from the 9th century to the 15th century.

(Modern) Capitalism

  • Private property (especially over the means of production) & ‘free’ (commodified) labour.

  • ‘Commodity’ production - most production is for exchange/trade (& profit) not just for use.

  • Money-based (‘free’) market economy.

  • Started to emerge in the 17th and 18th century.

  • Began when Feudal economic structures broke down with the Enclosure, Modern Banking and the rise of Mercantillism.

  • Colonialism also had a large part of shaping Capitalism e.g. investing in companies such as British East India and Slave Plantations.

  • Modern Capitalism was created in the 19th century.

A New Commercial Society

  • Age of Enlightenment & Commerce

  • Commercial society to England (from late 17th to late 18th century).

  • Vast increase in total wealth of society.

  • Economic life speeded up (political & cultural life), but large differences in wealth & lifestyle.

  • Expansion of the market & the rising Bourgeoisie.

  • Mercantilism development in Britain and the Netherlands.

  • Industrial Revolution - new innovation such as Steamships, Waterways, and Industrial Machinery.

Socio-Economic change

  • Industrial Revolution (late 18th to mid 19th Century).

  • Urbanisation.

  • European expansion & colonial/slavery.

  • Enclosure and the privatisation of Land with the rise of Yeomanry.

Modern Industrial Economy

Through the 19th century: from agricultural to industrial.

Commodity production:

  • Early 18th century: mostly Household, workshop & craft.

  • 19th Century: becomes mostly factory based.

  • Impact on gender relations.

  • Importance of Lancashire Cotton Industry.

Adam Smith

  • 1723-1790, Scottish ‘Enlightenment’ philosopher & (political) economist.

  • Founder of Classical economics (& modern economic thought).

  • Theory of moral sentiments (1759) & Wealth of Nations (1776).

  • Anti-Mercantilism.

  • Other Classical Liberals - John Locke, Montesquieu & John Stuart Mill.

The Stage view of history

‘There are four distinct states which mankind passes through: firstly, the Age of Hunters: secondly, the Age of Shepherds; thirdly, the Age of Agriculture; fourthly, the Age of Commerce’. Smith Lectures of Jurisprudence.

  • The Enlightenment brought the idea of history throughout historical stages.

Age of Hunters: Hunter-gatherers, semi-Nomadic societies, Early agrarian society.

Age of Shepherds: Bronze age societies and traditional societies.

Age of Agriculture: Feudal society and medieval societies.

Age of Commerce: Modern society, Industrial society.

Freedom & the Market

Smith’s Wealth of Nations

Freedom from old (feudal) power relations.

  • Free labour

  • Free markets

Human needs & self-interest

How is social order possible (given such self-interest)?

  • Decisions made by ‘ordinary people’, rather than Kings or state laws, can provide social order.

  • Importance of entrepreneurs.

‘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. We address ourselves, not to their humanity, but to their self-love of our own necessities but of their advantages’ - the Wealth of Nations.

The Competitive Market

  • Producers/Consumers enter in the market for individual advantage.

  • (Self-regulating) market mechanism - allocates goods/resources via supply & demand.

  • Market price via supply & demand.

  • ‘Natural’ price of commodity = cost of bringing the commodity to market (rent, materials, labour & profit).

The ‘invisible hand’.

  • individual & national wealth

Wealth ‘trickles down’.

Small Government (‘liberalism’) is best:

  • State merely administers justice & provides legal protection of liberties and private property.

  • But some state provision where the market might fail (e.g. ‘public goods’ of education, health etc).

‘By pursing his own interests, he frequently promotes that of society more effectually than when he really intends to promote it’ - The Wealth of Nations (Book IV, Chapter II).

The Division of Labour

  • From ‘local’ economy to (inter)national.

  • (Specialised) division of labour between trades.

  • Division of labour to make a particular commodity e.g. pin-making.

  • Increase in availability of commodities.

  • Division of labour depends on the market.

  • Dangers of the division of labour?

Later Influences

  • Links to contemporary ‘neo-Liberalism’.

  • Historical context since Smith, e.g. decline of liberal capitalism (late 19th/Early 20th Century).

  • Great depression, war and the ‘post-war consensus’ (Keynesian welfare state).

  • 1970s onwards - Stagflation.

  • Neo-liberal theory (Hayek, Friedman, Mises) & politics (Thatcher, Reagan, New Right).

  • Privatisation, Deregulation, Market/competition, Individuals (Not ‘society), ‘Less government is better government’.

  • Enhance boom and bust - Minksy cycle (2008) recession.

  • Buying out competitors.

  • Neo-liberalism can also be called ‘Market Fundamentialism’.

  • Increase of importance in the FIRE sector (Finance, Insurance and Real Estate).