Sunday, March 07, 2010

More of Adam Smith's Views of State Actiity

Scott Sumner, who taught economics at Bentley University for the past 27 years, earned a BA in economics at Wisconsin and a PhD at Chicago. His research has been in the field of monetary economics, particularly the role of the gold standard in the Great Depression. He also writes a lively Blog, The Money Illusion (“A slightly off-center perspective on monetary problems”) HERE

Adam Smith did favor laissez-faire”

Mark Thoma recently linked to a Gavin Kennedy post that argued Adam Smith did not favor laissez-faire. I don’t agree. The evidence cited was a one page list of government interventions that Smith favored. The US, by contrast, has enough government interventions to fill a New York City phone book, if not a small library. And the US is regarded by the Europeans as “unbridled capitalism.” Even Hong Kong intervenes in far more ways than Adam Smith contemplated. Of course Smith was not an anarchist, he did favor some government intervention in the economy. But relative to any real world economy, his policies views were extremely laissez-faire.”

“I see this as a common cognitive bias. The Gavin Kennedy list posted by Thoma certainly looks impressive, but when you think more deeply about the issue it is a trivial set of policies. I’m reminded of what happens when I discuss Singapore, which usually ranks number two in the world in lists of economic freedom. People will often respond by telling me about all the ways the Singapore government intervenes. My response is “so what?” They could intervene in a 1000 different ways and still be vastly more laissez-faire than the US government. Laissez-faire is a relative concept, and always has been. I’ve read The Wealth of Nations, and Adam Smith is clearly a pragmatic libertarian.

“The evidence cited was a one-page list of government interventions that Smith favored.”

Yes, that’s why Viner listed the numerous examples of government interventions. They amount to a lot more than can be summarised a single page and the compromise notions that Smith was laissez-faire in the meaning of the term.

Smith never used the phrase ‘laissez-faire’. His association with the idea was an invention in the 19th century and was widely promoted by modern economists from the mid-1950s. About this time Smith was also widely promoted as the author of the notion of there being “an invisible hand” in the market. Both inventions are false.

We can agree that Smith was pragmatic about policies but whether he was a pragmatic libertarian remains problematical.

It’s not clear why the items in the list from Smith’s Wealth Of Nations and hi Lectures on Jurisprudence are “trivial” in Ron Sumner’s opinion, other than when he looks around the incomparably richer 21st-century United States than were the 13 British colonies in 1776 when Smith was writing.

There were hundreds of miles of inter-city roads in need of construction and repair; scores of harbours that needed to be built and dredged; thousands of bridges in need of construction; hundreds of towns that need to be paved and have street lighting in place; thousands of ‘little school’ constructed and staffed with state-registered teachers; scores of palliative care hospitals established for those afflicted with ‘loathsome diseases’; scores of depots for stamping clothes with government quality marks; a network of post-offices established and organised; and likewise for all the other activities that Smith envisaged should be funded and managed by the state.

In practice this took near on a century to be introduced in Britain. Set against the size of commercial society in 18th-century Britain, the state sector was not ‘trivial’ in any meaningful sense. Nor is it today. On one thing we surely can agree: neither 18th-century Britain with its colonies in North America was not a laissez-faire economy nor are the 21st-century territories that descended from them.

Adam Smith was not a laissez-faire ideologue.



Blogger Don said...

I'm on your side in this debate. I notice a lack of quotations by Smith and lot of "Smith believed...". As I've said before, the same thing happens with Burke. The problem is simple. Burke writes:

"[It is one of the finest problems in legislation, and what has often engaged my thoughts whilst I followed that profession, "What the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual discretion." Nothing, certainly, can be laid down on the subject that will not admit of exceptions, many permanent, some occasional. But the clearest line of distinction which I could draw, whilst I had my chalk to draw any line, was this:"

He then gives a general viewpoint that I agree with. But it is amazing how many people, right after reading the prefacing remarks, use Burke to pronounce views that admit of no exception. There's an inability to acknowledge the political sensibility that is evidenced in his views and writings. The same problem occurs with Smith.

Don the libertarian Democrat ( Burkean Whig, if that is less contentious )

4:51 pm  
Blogger Gavin Kennedy said...


If the lack of direct quotations applies to Lost Legacy in my comments it is almost entirely because I am under cosh at present with too many obligations with pressing deadlines, plus the severe difficulties of three house moves in a row.

This will change in due course.


9:22 pm  
Blogger Lorenzo said...

Scott Sumner has returned to the issue here. There seems to be a little bit of you and he talking past each other, as SS does not seem to believe that Smith was any sort of ideologue.

1:48 am  
Blogger Don said...


It does not apply to you.

Take care,


4:16 am  
Blogger Richard H. Serlin said...

It's very sad how the right has perverted the image of Adam Smith to have a prestigious figurehead for their ideology. It wasn't always thus.

If you're not a twenty-something, you may remember the great Life books. For younger readers see:

These were educational books of high scholastic quality and famous photography.

My parents had a dozen of them in our basement, and I used to love to read them. I have the one on the United States from 1965.

It's amazing after being bombarded with a generation of perverting propaganda on Adam Smith to see him in a 1965 book being given as an example of someone against laissez faire:

"The total laissez faire advocated by classical 19th century economists found relatively few partisans in the United States, where the view that the economy functions within a frame of laws had usually prevailed. Concerning the government's economic role, Americans have tried to stay close to the teachings of the 18th century economist Adam Smith, who, sounder than his disciples, wrote in The Wealth of Nations: 'The sovereign has...the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it...and...the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual or small number of individuals, to erect or maintain.'"

I have a scan of this at:

The quote is on the second page, second from last paragraph.

I mean look at the end of that quote! "The sovereign has... the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual or small number of individuals, to erect or maintain." If politician said that today, the Republicans would call him a socialist, or worse!

You also might want to take a look at the graphic on the top of the first page of the scan. It's amazing how much the Republicans have made us regress over the last generation.

4:51 am  

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