250 Years of the Invisible Hand of the Market: The Croatian Hybrid of Smith and Keynes

On March 11, 1776, The Wealth of Nations was published, a work by Scottish philosopher Adam Smith that forever changed the way we understand the economy. It has been 250 years since Smith described the mechanisms of the market, the specialization of labor, and the enigmatic ‘invisible hand’ — the idea that personal interest, in conditions of free competition, transforms into social benefit.

Smith believed that the primary regulator of economic relations should be the market, or the invisible hand of the market, rather than the state. Although the world has radically changed since the 18th century, Smith remains a fundamental author for understanding everything from global trade to today’s technological economy.

Productivity More Important than Money

The essence of Smith’s thought lies in the simple yet profound realization that true wealth does not lie in money, as mercantilists claimed, but in useful labor, or productivity. Productivity, in turn, grows through the division of labor, innovation, and open markets.

Smith lived at a time when manufactures and global trade were emerging; today we live in an age of artificial intelligence, digital platforms, and technological monopolies. Yet, the same questions remain: what drives growth? How to organize the market? When may — or must — the state intervene?

Comparisons with Keynes

This is where the comparison with another giant of economic thought begins: John Maynard Keynes. If Smith explained how the economy grows when everything works, Keynes explained 160 years later what to do when nothing works. Smith believes that the market returns to equilibrium in the long run; Keynes warns that it can get stuck in crisis for years.

Smith argues that competition and free exchange are the engines of prosperity; Keynes that the state must step in when demand collapses and people stop spending. Smith speaks of the long term; Keynes of saving the present.

Two authors, two centuries, and two different worlds — but together they form the foundation of modern economic policy: from free trade and fiscal stability to counter-cyclical measures we have seen during the pandemic, energy crisis, or inflation wave.

Domestic Libertarians and Keynesians

And where does Croatia fit into this story?

Today, the domestic economic scene is often divided between libertarians and Keynesians. The former call for a smaller state, lower taxes, deregulation, and strong market competition — invoking Smith’s principles. The latter advocate for an active role of the state, public investments, and protection of vulnerable groups — invoking Keynes.

Croatian economic policy over the past twenty years has actually been a hybrid: nominally market-oriented, but with a strong role for the state; open to markets, but with chronically weak competition; fiscally cautious, but with occasional strong state interventions (from bank bailouts to state subsidies for entrepreneurs and price controls).

With its entry into the Eurozone and Schengen, Croatia has made a strong institutional leap — Smith would welcome it as the removal of barriers, Keynes as a stabilizer of the monetary system. However, at the same time, the Croatian economy remains vulnerable: high real estate prices, concentrated markets, weak productivity growth, and dependence on the state in investment cycles.

In Search of Balance

Two hundred and fifty years after Smith, Croatia is still seeking its balance between the two poles of economic thought. Smith reminds us that without competition and innovation, there is no development. Keynes warns us that markets sometimes underperform and that the state must not stand aside. And today’s Croatia — with its small entrepreneurs, large chains, politically directed state interventions, tourism dependence, and rising apartment prices — stands precisely between the two.

Perhaps that is the greatest lesson of Smith’s anniversary: no extreme works in the long run. We need a clearer direction, wiser balance, and — as Smith would say — a society in which the free market and a smart state work towards the same goal: creating real, sustainable wealth.