Walk into any boardroom or economics 101 class and mention Adam Smith. You’ll hear about the "invisible hand." You’ll hear about deregulation and the magic of the free market. But if you actually sit down with the late Giovanni Arrighi’s massive, brain-bending book Adam Smith in Beijing, you realize we’ve been reading Smith all wrong.
Honestly, the version of Smith we use today is a caricature. We’ve turned a 18th-century moral philosopher into a 21st-century neoliberal mascot. Arrighi’s point—which is honestly kinda wild when you first hear it—is that the "real" Adam Smith would have looked at modern China’s state-guided growth and said, "Yeah, that looks about right."
He wasn't talking about the wild-west capitalism of Wall Street. He was talking about something else entirely.
The Myth of the "Invisible Hand"
Most people think Smith was the patron saint of "greed is good." Not even close. In The Wealth of Nations, Smith actually worried about the "unnatural" path of development he saw in Europe.
He saw a continent where merchants and big-money interests had basically hijacked the state to go on colonial adventures. It was messy. It was violent. And to Smith, it was inefficient.
Arrighi argues that the West didn't get rich just because of "free markets." It got rich because it combined capital with massive military power and territorial expansion. He calls this the "unnatural" path. It’s a bit of a slap in the face to Western ego, but the data is there. The European model relied on "extroversion"—grabbing resources from elsewhere to fuel growth at home.
China, for centuries, did the opposite.
They focused on "introversion." They built massive internal markets, improved agriculture, and kept their merchants on a relatively short leash. This is what Smith called the "natural" path to opulence. It starts with the land, moves to manufacturing for the locals, and only goes international once the home base is solid.
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Why Adam Smith in Beijing Matters Now
You've probably noticed that the U.S. and China are currently locked in a bit of a geopolitical staring contest.
Arrighi wrote this book back in 2007 (just before the global financial crisis, which he basically predicted), and his core argument was that we were witnessing a "terminal crisis" of American hegemony. He didn't mean America was going to disappear overnight. He meant the era where the U.S. could dictate the rules of the world economy was ending.
Why? Because the "American Century" was built on a model of high-cost military dominance and financialization. It’s expensive. It’s exhausting.
The Shift to the East
China’s rise isn't just a bigger version of what the West did. It’s fundamentally different.
- Labor over Capital: Instead of replacing workers with machines at any cost, the East Asian model (historically) focused on an "industrious revolution." They used human intelligence and labor more effectively.
- State Sovereignty: In the West, big corporations often tell the government what to do. In China, the state tells the corporations what to do. This is a massive distinction that Arrighi stresses.
- Non-Capitalist Markets: This is the part that trips people up. Can you have a market without being "capitalist"? Arrighi says yes. A market is just a tool for exchange. Capitalism is when the owners of capital gain enough power to control the state.
It’s a subtle difference, but it’s everything.
The "Great Divergence" Reimagined
For decades, historians have obsessed over why Europe took off in the 1800s while China stayed stagnant. They call it the Great Divergence.
Standard history says: Europe had freedom and science; China had a stuffy bureaucracy.
Arrighi says: Hold on.
He points out that Europe’s "success" was tied to constant warfare. Fighting with neighbors forced European states to get really good at three things: raising taxes, building better guns, and borrowing money. This created a "warfare-welfare" state that eventually birthed modern capitalism.
China, under the Qing dynasty, didn't have to fight for its life every Tuesday. It was a massive, relatively peaceful internal market. They didn't need the same kind of aggressive, outward-facing capitalist machinery.
But now? The tables have turned. The West is bogged down by the costs of its global empire, while China is leveraging that ancient "natural path" of internal development to leapfrog ahead.
Is China Actually "Smithian"?
This is where the debate gets spicy. Some critics, like David Harvey, argue that China is just as capitalist and exploitative as any Western nation. They point to the "dark side" of the boom: the environmental wreckage, the wealth gap, the grueling hours.
Arrighi wasn't blind to this. He admitted that China’s path isn't guaranteed to be "bright." But he insisted that the structural logic is different.
China’s government uses the market to achieve national goals—poverty reduction, infrastructure, tech sovereignty—rather than just letting the market do whatever it wants. If a billionaire gets too big for their boots in Beijing, they usually end up in "re-education" or worse. In Washington, they usually end up with a tax break.
That’s the "Adam Smith" part. Smith believed the state should be the "umpire" that ensures the market benefits society, not just the guys with the most gold.
What This Means for Your Portfolio and Your World
If you’re trying to make sense of the 21st century, you have to stop looking through the lens of 1990s "The End of History" optimism.
- Multipolarity is the new normal. The U.S. is no longer the only game in town.
- The "Washington Consensus" is dead. The idea that every country has to deregulate and privatize to succeed has been proven wrong by the East Asian experience.
- Markets are here to stay, but "Capitalism" might be changing. We are seeing a return to a world where states take a much more active role in the economy. Call it industrial policy, call it "Smithian" growth—whatever it is, it’s not the 1980s anymore.
Actionable Insights for the New Era
Stop thinking of China as a "communist" country or a "capitalist" country. Those labels don't fit well. Start thinking of it as a "Market Society" where the state maintains ultimate control.
Watch the "Belt and Road Initiative" not just as a power grab, but as China’s attempt to build a new global "natural path" of trade that doesn't rely on the U.S. dollar or the U.S. Navy.
Diversify your understanding of economic success. The Western model of "grow at all costs through debt and expansion" is hitting a wall. The models focused on internal stability, education, and "industrious" growth are the ones currently gaining ground.
Finally, go back and actually read Smith. Or at least read Arrighi’s summary. You'll find a thinker who was far more concerned with social harmony and the "natural progress of opulence" than the guys currently wearing Adam Smith ties on cable news.
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The shift from North America to East Asia isn't just a change in who has the most money. It’s a change in the very definition of how a successful society should be organized. We’re living through the sequel to the Industrial Revolution, and this time, the script is being written in Beijing, not London or Detroit.
To stay ahead, pay attention to how China balances its internal social stability against its global ambitions. That balance—the "Smithian" balance—will determine the next fifty years of global history. Focus on the move toward domestic consumption in China; it's the clearest sign they are following the "natural path" Smith described centuries ago.
Understand that the "War on Terror" and various Middle Eastern entanglements essentially accelerated the decline of the U.S. hegemony Arrighi analyzed. While the U.S. spent trillions on "unnatural" expansion, China spent those decades building the foundations of a new global trade architecture. This wasn't an accident; it was a choice of paths.
The next step for anyone in business or policy is to study the "hybrid" nature of this East Asian model. It’s not about choosing between "the market" and "the state," but about understanding how they can be fused together to create a different kind of economic power.