Adam Smith’s 25 arguments for the State’s role in market economy
I receive requests occasionally from readers to enumerate his arguments for the role of the State in a market economy:
However, it would be wrong
to draw from this the idea that Adam Smith as a Statist, or a social democrat,
or ‘egalitarian’. That reaction
mirrors those of see Smith as an extreme advocate of laissez-faire and the ‘night-watchman’
state. Both images are
attributions without foundation in understanding his pragmatism – what works
and what doesn’t – summed, I think, in the summary of his views as ‘markets
where possible, the state where necessary’.
Here is a list
extracted from Wealth Of Nations:
1
the
Navigation Acts, blessed by Smith under the assertion that ‘defence, however,
is of much more importance than opulence’ (WN464);
2 Sterling marks on plate and stamps on
linen and woollen cloth
(WN138–9);
3 enforcement of
contracts by a system of justice (WN720);
4 wages to be paid in money, not goods;
5 regulations of paper money in banking (WN437);
6 obligations to
build party walls to prevent the spread of fire (WN324);
7 ‘Premiums and
other encouragements to advance the linen and woollen industries’ (TMS185);
8
‘Police’, or preservation of the ‘cleanliness
of roads, streets, and to prevent the bad effects of corruption and putrifying
substances’;
9
ensuring
the ‘cheapness or plenty [of provisions]’ (LJ6; 331);
10
patrols
by town guards and fire fighters to watch for hazardous accidents (LJ331–2);
11
erecting
and maintaining certain public works and public institutions intended to
facilitate commerce (roads, bridges, canals and harbours) (WN723);
12
coinage
and the mint (WN478; 1724);
13
post
office (WN724);
14
regulation
of institutions, such as company structures (joint- stock companies,
co-partneries, regulated companies and so on) (WN731–58);
15
temporary
monopolies, including copyright and patents, of fixed duration (WN754);
16
education
of youth (‘village schools’, curriculum design and so on) (WN758–89);
17
education
of people of all ages (tythes or land tax) (WN788);
18
encouragement
of ‘the frequency and gaiety of publick diversions’(WN796);
19
the
prevention of ‘leprosy or any other loathsome and offensive disease’ from
spreading among the population (WN787–88);
20
encouragement
of martial exercises (WN786);
21
registration
of mortgages for land, houses and boats over two tons (WN861, 863);
22
government
restrictions on interest for borrowing (usury laws) to overcome investor prodigality
(WN356–7);
23
laws
against banks issuing low-denomination promissory notes (WN324);
24
natural
liberty may be breached if individuals ‘endanger the security of the whole
society’ (WN324);
25
limiting
‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’
turning into ‘famine’) (WN539); and
moderate export
taxes on wool exports for government revenue (WN879).
Contrary to
assertions that Adam Smith was a
firm advocate of laissez-faire’, apart from him never using those words (he
tended to avoid non-English language in his writing, despite being fluent in
Greek, Latin, French and Italian), his statements above suggest an extensive
programme of state intervention, some of them with longer-term more extensive
consequences (the leprosy suggestion).
2 Comments:
This is an interesting list.
Maybe it's just my bias, but it seems to me that Smith wouldn't find many of the public services the state provides now particularly objectionable, although I get the impression he'd be for more decentralisation. Do you think he'd support the NHS and welfare state?
Hi Unlearningecon
It would take a long article to set out speculation on what Smith would favour today.
We know what the favoured in his times. We know of his outlook and approach to problems, as he saw them. Pragmatic to a fault.
From that perspective, we can be sure he would study how the situation developed over the decades - few things suddenly happen in society (except natural disasters). Even ideas come over time.
He advocated an end to ambitions of Empire (last paragraph of WN); instead Britain build a new empire and colonialism in the 19th century. He suggested a substantial reduction in tariffs; they are still with us, reducing (too) slowly. He preferred markets where possible, the state where necessary; most of the world has various degrees of state capitalism.
He knew that measures by the state have a tendency to grow over time (from the political influence of legislators and those who influence them).
On the NHS, consider his suggestion of state action to treat 'loathsome diseases'. Who could doubt that this necessary action would grow where socially necessary under its own momentum? Markets in health provision are prevalent in most countries, but inequalities in insurance provision are uneven (blatantly so in some countries). State provision has it own problems - note the hostility of NHS employee groups to any market interventions in support of NHS provision, even where they agree (privately), and it is obvious that certain interventions in the market would be beneficial for patients.
On the welfare state, such redistribution policies were unknown in his days and were not agenda until the decades after he died, and were tentative too for much of the next century.
See Thursday's post on poverty today.
Gavin
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