At the same time that cottage industry began to infringe on the livelihoods of urban artisans, new Enlightenment ideals called into question the very existence of the guild system. Eighteenth-century critics derided guilds as outmoded and exclusionary institutions that obstructed technical innovation and progress. One of the best-known critics of government regulation of trade and industry was Adam Smith (1723–1790), a leading figure of the Scottish Enlightenment (see “The International Enlightenment” in Chapter 16). Smith developed the general idea of freedom of enterprise and established the basis for modern economics in his groundbreaking work Inquiry into the Nature and Causes of the Wealth of Nations (1776). Smith criticized guilds for their stifling and outmoded restrictions, a critique he extended to all state monopolies and privileged companies. Far preferable was free competition, which would best protect consumers from price gouging and give all citizens a fair and equal right to do what they did best. Smith advocated a more highly developed “division of labor,” which entailed separating craft production into individual tasks to increase workers’ speed and efficiency. (See “Primary Source 17.3: Adam Smith on the Division of Labor.”)

In keeping with his deep-seated fear of political oppression and with the “system of natural liberty” that he championed, Smith argued that government should limit itself to “only three duties”: it should provide a defense against foreign invasion, maintain civil order with courts and police protection, and sponsor certain indispensable public works and institutions that could never adequately profit private investors. He believed that the pursuit of self-interest in a competitive market would be sufficient to improve the living conditions of citizens, a view that quickly emerged as the classic argument for economic liberalism.

In the nineteenth and twentieth centuries Smith was often seen as an advocate of unbridled capitalism, but his ideas were considerably more complex. Unlike many disgruntled merchant capitalists, he applauded the modest rise in real wages of British workers in the eighteenth century, stating: “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.” Smith also observed that employers were “always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labor above their actual rate” and sometimes entered “into particular combinations to sink the wages even below this rate.” While he celebrated the rise in productivity allowed by the division of labor, he also acknowledged its demoralizing effects on workers and called for government intervention to raise workers’ living standards.9

Many educated people in France, including government officials, shared Smith’s ideas. In 1776 the reform-minded economics minister Anne-Robert-Jacques Turgot issued a law abolishing all French guilds. The law stated:

Vociferous protests against this measure led to Turgot’s disgrace shortly afterward, but the legislators of the French Revolution were of the same liberal mind-set and disbanded the guilds again in 1791. Other European countries followed suit more slowly, with guilds surviving in central Europe and Italy into the second half of the nineteenth century.

Many artisans welcomed the economic liberalization espoused by Smith, but some continued to uphold the ideals of the guilds. In the late eighteenth and early nineteenth centuries, skilled artisans across Europe espoused the values of hand craftsmanship and limited competition in contrast to the proletarianization and loss of skills they endured in mechanized production. Recent scholarship has also challenged some of the criticism of the guilds, emphasizing the flexibility and adaptability of the guild system and the role it played in fostering confidence in quality standards. Nevertheless, by the middle of the nineteenth century economic deregulation was championed by most European governments and elites.