While visiting Adam Smith’s hometown of Edinburgh recently, the best lesson about free markets and empathy came from enjoying a chocolate orange cannolo (cannolo is the singular of cannoli).

I was in Scotland for a conference hosted by the Competitive Enterprise Institute. The conference took as its touchstone Adam Smith’s recognition that people desire “not only to be loved, but to be lovely.”

Smith’s ideas are too often reduced to a caricature that emphasizes economic efficiency and the ability of the “invisible hand” to create prosperity. At the core of Smith’s thinking is the understanding that markets and voluntary trade allow people to express themselves through innovation and empathy.

One moment in Scotland emphasized the pride of creation that entrepreneurs have and how that makes lives better.

I strolled down the Leith Walk and looked in the window of a tiny pastry shop with some amazing-looking cannoli. I asked the woman behind the counter about the different pastries. With real joy, she told me in her Scottish brogue about the various flavors.

I chose the chocolate orange cannolo and told her they all looked amazing.

She looked straight at me and said, “We make the best cannoli. We are beating the Italians at their own game.”

I love that. The pride of creating something fantastic. The competition to be the best makes us better. The desire to share her creation – and the joy of that creation – with others.

That is what free markets are about. Markets give people the opportunity to express who they are and be rewarded for that creation.

Adam Smith, one of Edinburgh’s most famous residents, understood that markets aren’t just about economic efficiency and prosperity.

In an essay last year, Ryan Young, a senior economist at the Competitive Enterprise Institute, wrote that Adam Smith was more interested in the way markets create empathy and individual dignity than he was in creating efficiency. Noting how trade requires cooperation, Young wrote, “you will not persuade anyone to trade unless you have enough empathy and compassion to engage with them on equal terms.”

It is not enough simply to want what someone else has. You could acquire it simply by stealing it or use the power of government to take it.

Markets require empathy and understanding. “You have to be able to have a two-way conversation with the other person, give and take,” wrote Young. “You not only need to say what you want, you have to listen closely to what others want.”

It takes courage and perseverance to start a business. Entrepreneurs risk their time and money to create something they love and, if it goes well, earn a good living. It is about more than just prosperity, though. For the woman who sold me her cannolo, it was about the ability to create something amazing and share it with others.

No government agency or program can offer that pride. That can only come from markets and the mutual empathy of voluntary trade.

The cannolo, by the way, was delicious.