Adam Smith on the Role of Government

Here is what the father of economics had to say about the three roles of Government in the Market:

1. It should protect society against “the violence and invasion” of other societies.

2. It should provide and “exact administration of justice” for all citizens.

3. The Government has the duty of “erecting and maintaining those public institutions and those public works which may be in highest degree advantageous to a great society”, but which “are of such a nature that the profit could never repay the expense to any individual or small number of individuals.”  (Smith cited roads and schools as an example.)

Most of all Adam Smith declared that the Government should “let the market alone”.

Why this is interesting
These ideas are interesting because Adam Smith lays the groundwork for the basic ideas of a society based on liberty. He does not advocate anarchy nor the absence of Government, but rather the proper role of Government.

I tend to agree with this premise. There are certainly functions that are better satisfied by a Governing body aimed at benefiting everyone in an objective and non-biased way, while on the other hand the Government should almost completely stay out of the Market place (except for promoting fair play).

Perhaps this provides a good framework to begin thinking about our own Government.

In the time of Adam Smith there were no mega-corporations that could single-handedly effect the market, no businessmen as strong and as wealthy as an entire nation, yet Smith still saw the value of free markets and the dangers of those who may disrupt it. He saw the evil of monopolies, over regulation, and market manipulation. Yet he saw the brilliance of the market too – how when everyone works for their own self interest, fairly, it ironically serves to benefit society as a whole.

I think Adam Smith laid an excellent base for moderation when it comes to thinking about the role of government and the economy. Each serves their purpose and neither should be too powerful. Perhaps we can take some advice and use it to revamp our current system a little.

5 thoughts on “Adam Smith on the Role of Government

  1. Rattlesnake

    The solution for monopolies and overly large corporations is freer markets and smaller government, because that gives corporations less opportunity to influence society via the government. And, because newer businesses are more disproportionately affected by high taxes and regulations, large corporations like them so they don’t have to compete with the newer companies. Opponents of capitalism always say that it solidifies classes, but it actually does the opposite.

    1. Atticus Finch

      I agree with most of what you said, but the Market only works in the long run. It could take a decade to break up a well formed monopoly via the market. Basically, another industry would have to capitalize on the overly high prices and move in with lower prices thus giving competition to the monopoly.

      If the Government acts as a regulator it can actually keep the market more free. The government shouldn’t tax, or implement duties or fees on goods, but they can promote a free and open market by preventing monopolies from forming and enforcing contract law.

  2. Pingback: Adam Smith and the Proper Role of Government « unhampered market

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