What Would Adam Smith Think of AI?

If Adam Smith were to witness the rise of artificial intelligence and the increasing concentration of wealth in the hands of a few, he would likely have a complex response. Smith, often regarded as the father of capitalism, believed that economic systems should operate on the principle of self-interest, with individuals and companies freely pursuing their goals within a competitive marketplace. However, in a situation like the “Brazilization of America,” where a small elite controls the means of production, Smith would be concerned. In his view, the most efficient and just economies arise when individuals have the freedom to compete, when barriers to entry are low, and when no single group holds an unfair advantage. The emergence of AI, especially when controlled by a few powerful corporations, would challenge the foundation of Smith’s ideas about a functioning, competitive market.

Smith’s notion of the “invisible hand” was predicated on the idea that individuals, acting in their self-interest, would inadvertently contribute to the greater good of society. If businesses and individuals were allowed to pursue their own goals, the market would ensure that resources were allocated in the most efficient way possible. However, as AI technology advances and large corporations consolidate control, Smith would likely argue that this balance is disrupted. When only a few companies have the resources to develop and deploy AI at scale, it creates an environment where competition is stifled. Instead of the “invisible hand” distributing resources efficiently, the power of these companies becomes the deciding factor in the allocation of wealth and opportunities, leaving smaller players unable to compete.

In a scenario where AI and automation increasingly replace human labor, Smith might also express concern about the resulting displacement of workers. In his time, the wealth of a nation was closely tied to the productivity of its labor force. While he supported the idea of industrialization and technological progress, Smith believed that economic prosperity depended on a flourishing middle class—people who could purchase goods and services, thus driving demand and creating jobs. If the majority of work in an economy becomes automated and only a small segment of the population benefits from the efficiency of these machines, the purchasing power of the public is severely limited. For Smith, a healthy economy required more than just the accumulation of wealth by the elite—it required a broad base of consumers who could drive demand and sustain growth.

Smith also championed the idea of free competition as a fundamental element of economic success. He argued that when businesses compete, they are incentivized to innovate, lower prices, and improve their products to attract customers. In a world where AI is controlled by a few corporations, this kind of competition is significantly diminished. Rather than creating an environment where new businesses can emerge and innovate, these corporations use their dominance in technology and capital to stifle competition, driving smaller firms out of the market. In Smith’s view, monopolies and oligopolies would not only limit consumer choice but also diminish the incentives for businesses to innovate, eventually leading to stagnation. The “Brazilization of America” would, in many ways, represent a distortion of the principles of free markets that Smith valued.

The concentration of wealth and power in the hands of a small elite is another issue that Smith would likely find troubling in the context of modern AI. While he acknowledged that some degree of inequality was inevitable in any capitalist system, he also believed that excessive concentration of wealth could be harmful. Smith was wary of the ability of the rich to use their wealth to influence the government and manipulate markets in their favor. Today, as AI companies grow ever more powerful and influential, there is a real risk that the wealth and technological capabilities of a few corporations could allow them to exert outsized control over political systems and society. In this context, the “Brazilization” of America—the growing divide between a wealthy elite and an impoverished working class—would be a direct challenge to the kind of market Smith envisioned, where competition was open, fair, and based on merit.

Smith’s views on government intervention would also likely come into play in the discussion of AI’s role in the economy. While he was a strong proponent of limited government, Smith did acknowledge that the state had a role to play in ensuring that the market functioned properly. He argued that the government should act as a referee, ensuring that businesses adhered to rules that promoted fairness and prevented abuses. In the case of AI, Smith might argue that governments need to step in to regulate the monopolistic tendencies of powerful tech companies that use their resources to squash competition and increase inequality. In an economy dominated by AI and controlled by a few corporations, the role of the government in preventing market distortions and promoting fair competition would become more crucial than ever.

One of the key aspects of Smith’s economic theory was the idea that specialization and division of labor were critical to increasing productivity. In his time, industrialization allowed for the division of labor to such an extent that productivity soared, benefiting both producers and consumers. However, in an economy dominated by AI, Smith might worry that this specialization could lead to even more concentrated wealth. As AI replaces human labor in various industries, it could lead to the creation of a two-tier society—those with the skills and capital to manage AI systems, and those who are left behind by automation. This bifurcation would mirror the social and economic inequality seen in countries like Brazil, where a small elite enjoys immense wealth while the majority of the population remains trapped in poverty.

Despite these concerns, Smith was fundamentally an optimist about the potential of capitalism to create wealth and improve the living standards of society. However, he would likely argue that this potential can only be realized when the system remains competitive, when businesses are incentivized to innovate and improve, and when individuals have the opportunity to rise based on their talents and efforts. The “Brazilization of America,” where wealth and power are increasingly concentrated in the hands of a few and the majority are left struggling, would represent a failure of the capitalist system in Smith’s eyes. In a truly free-market economy, he would argue, the concentration of power in a few hands is inherently destabilizing, and without competition, the market cannot function efficiently or fairly.

Smith’s belief in the importance of self-interest might also be called into question in the age of AI. While he saw individuals pursuing their own interests as the driving force behind economic prosperity, AI has the potential to shift the nature of self-interest itself. With AI systems increasingly determining what products we see, what services we are offered, and even how we interact with each other, the economic landscape is being shaped by powerful corporations that can manipulate consumer behavior. In this context, Smith’s ideal of self-interest might be undermined, as individuals are subtly guided into purchasing decisions and behaviors that benefit large corporations rather than themselves. Smith would likely argue that if consumers and workers are no longer free to act in their own best interest—because their choices are shaped by algorithms and corporate strategies—then the very fabric of the free market is compromised.

The issue of inequality would be a major concern for Smith in a world where AI dominates the economy. While Smith acknowledged that some level of inequality was inevitable in a market-driven system, he believed that inequality should not be so extreme that it undermines social harmony or limits the opportunities for others to succeed. In the case of AI and the growing wealth gap, Smith might argue that the concentration of economic power in the hands of a few large corporations, along with the displacement of millions of workers by automation, would create a disconnected society. This growing divide could lead to social unrest and instability, which in turn could harm the economy as a whole. Smith would argue that economic systems work best when there is a large, stable middle class with enough purchasing power to keep demand high and the economy growing.

Finally, Smith would likely view the shift toward AI and automation as a potential failure of capitalism to evolve in a way that benefits everyone. While he saw capitalism as a means to generate wealth and improve living standards, he also understood that capitalism required checks and balances to avoid exploitation and excess. In the case of AI, where the means of production are increasingly controlled by a small group of wealthy elites, Smith might argue that the system has gone astray. Rather than creating a society where wealth is widely distributed and everyone has a chance to succeed, AI could become a tool that perpetuates inequality and entrenches the power of the elite. For Smith, the future of capitalism would only be successful if it remained competitive, open, and fair to all, which may be in jeopardy if AI is allowed to further concentrate power in the hands of the few.

In conclusion, while Adam Smith might acknowledge the efficiencies and innovations that AI brings to the table, he would also be wary of the consequences of its rise in an environment where the means of production are still controlled by an elite few. If AI were to become a tool for monopolistic behavior, stifling competition and driving wealth into the hands of a small group, it would be a perversion of the principles Smith espoused. For Smith, a thriving economy depends on widespread opportunity, competition, and a strong middle class—factors that seem increasingly threatened by the “Brazilization” of America and the concentration of power in the hands of AI-driven corporations.

Now that you read Adam Smith’s perspective, check out that of Karl Marx regarding AI.