Last month marked 300 years since Adam Smith, the Scottish philosopher and founder of economics, was born.

Smith's classical liberal thinking and influence on the structure of the current democratic capitalist economic system is an incredible one, but often it is maligned and misunderstood. The incentive-based free enterprise economic ideas associated with Smith’s “obvious and simple system of natural liberty" alleviated poverty for billions of people, but Smith also believed in an important role for limited government.

Smith's famous " invisible hand" from, An Inquiry into the Nature and Causes of the Wealth of Nations, shows that people respond to incentives and create positive value for others. Smith writes that a man in a market “intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." Markets in general can be thought of as systems of markets coordinated by prices which, through mutually beneficial exchange, create wealth and alleviate poverty. His ideas of natural liberty weren't exclusive to landowners or factory workers, the concepts undergirding free exchange benefit everyone.

It's no coincidence that the Western economic liberalization in the 18th and 19th centuries spread to many other parts of the world in the 20th century, exponentially increased prosperity, and eliminated poverty for billions of people.

Liberalized economies–featuring limited governments with legal frameworks that promote rule of law and protect property rights–create value for the poor as well as the rich. Relaxing occupational licensing, for example, removes unnecessary barriers to market entry for workers and entrepreneurs like barbers and decorators.  Another liberal reform is the reduction of land use regulations and municipal zoning laws that respectively promote job growth and make housing more affordable so laborers can find work and live near new jobs.

While Smith is sometimes viewed as a proponent for completely unbounded free market anarcho-libertarianism, this is a mistake. In Part V of The Wealth of Nations, he lays out a framework for taxation and limited government. Smith very much supported simple linear flat taxation to fund the needs of the state. Smith believed some government was essential to protecting property rights and keeping the rule of law, writing "It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labor of many years, or perhaps of many successive generations, can sleep a single night in security."

Smith strongly opposed feudalism, the illiberal medieval economic system that  featured wealthy lords and impoverished serfs Smith was pro-worker in a free market sense, arguing that uninhibited workers in cooperation with capital owners could voluntarily work together to produce something greater to the benefit of all society, something lost in today's economic dialogue.

In his own day, Smith rejected mercantilist orthodoxy that led countries to hoard large amounts of gold and drastically limit trade because they thought wealth was zero-sum: if a good was valuable, it was imperative to keep it. Smith, of course, championed free trade, jettisoning tariffs and other protectionist policies to provide cheaper goods for the poor and realize more productive work for all countries involved.

While Smith is occasionally associated with neoclassical economists who in the late 20th century built and over-relied on simple models of rational expectations, he laid the groundwork for behavioral economics in his lesser-known book, The Theory of Moral Sentiments. One of the greatest strengths of behavioral economics is taking experimental evidence seriously and moving beyond what intuition we can simply divine from models.

It's not always clear what works in economics. Recognizing that individuals are more complicated than simple models is something we owe to Smith, which has led to a wave of research that seeks to understand and help those least fortunate among us, by testing what works to alleviate poverty and create wealth. Abhijit Banerjee and Esther Duflo's terrific book Poor Economics, for example, is a worthy heir to Smith’s vision for a better world.

Much of the global economic growth that has improved the lives of large swaths of humanity is owed to the founder of economics. Happy 300th birthday, Adam Smith!