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 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 restrictions, a critique he extended to all state monopolies and privileged companies. Far preferable, in his view, was free competition, which would protect consumers from price gouging and give all citizens an 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 “Evaluating the Evidence 17.2: Adam Smith on the Division of Labor.”)

In keeping with his 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.

However, Smith did not advocate unbridled capitalism. 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 acknowledged 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 1774, the reform-minded economics minister Anne-Robert-Jacques Turgot issued a law in the name of Louis XV, ordering the grain trade to be freed from state regulation. Two years later, another edict abolished all French guilds. The law stated:

Vociferous popular protest against these measures led to Turgot’s disgrace shortly afterward and the cancellation of his reforms, but the legislators of the French Revolution (see Chapter 19) returned to a liberal economic agenda in 1789. The National Assembly definitively abolished guilds 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. By the middle of the nineteenth century economic liberalism was championed by most European governments and elites.

Some artisans welcomed the deregulation espoused by Smith and Turgot, but many continued to uphold the ideals of the guilds. In the late eighteenth and early nineteenth centuries, skilled artisans across Europe espoused the values of high-quality hand craftsmanship and limited competition in contrast to the proletarianization and loss of skills they endured in mechanized production. Recent scholarship has challenged wholly negative views of the guilds, emphasizing the flexibility and adaptability of the guild system and the role it played in fostering confidence in quality standards.