If Smith's moral rhetoric belies the conventional view of him, his political economy does so even more. His opposition to mercantilism is generally read as a criticism of government regulation and a defence of laissez faire. It is that, and much more, for his objection to mercantilism is not only that it inhibits a progressive economy by interfering with the natural processes of the market; it is also unjustly biased against workers. "Our merchants and manufacturers complain much of the bad effects of high wages . . . They say nothing concerning the bad effects of high profits . . . They are silent with regard to the pernicious effects of their own gains."

According to the mercantilist doctrine, low wages are both natural and necessary: natural because the poor would not work except out of dire need, and necessary in order to maintain a favourable balance of trade. As the popular writer and economist Arthur Young put it: "Everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious." Even Hume, not a mercantilist, believed that in years of scarcity, when wages are low, "the poor labour more, and really live better, than in years of great plenty, when they indulge themselves in idleness and riot." Excessively low wages, they agreed, would be counterproductive, providing no incentive to work. But this was an argument for subsistence wages, not high wages.

Smith, on the other hand, took a positive view of high wages, defending them as in the best interests of society as well as the labourer.

The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives. A plentiful subsistence increases the bodily strength of the labourer, and the comfortable hope of bettering his condition and of ending his days perhaps in ease and plenty animates him to exert that strength to the utmost. Where wages are high, we shall always find the workmen more active, diligent, and expeditious, than where they are low.

High wages encouraging the "propagation", as well as the "industry", of people — in effect, Smith was refuting in advance Malthus's "principle of population". For Malthus, high wages lead to an increase of population, and because population grows "geometrically" and the food supply only "arithmetically", the result is the inevitable "misery and vice" of the lower classes. In Smith's expanding, "progressive" economy, high wages have the opposite effect. There the demand for labour keeps abreast of the supply, and wages remain high even as the population increases. So far from "misery and vice", the labourer enjoys a "plentiful subsistence" and the reasonable expectation of "bettering his condition".