As a laissez-faire economist, Adam Smith believed in the importance of the free, competitive market. However, he also recognized the importance of the state in maintaining order in society.
Adam Smith believed that it was the state’s duty to “protect society from the violence and invasion from other societies” (Sandmo, 2011, pp. 55). He analyzed four different stages of an economy and recognized that each stage required contrasting forms and levels of protection, more advanced economies needing the most. As Europe entered the industrial revolution, the rise of manufacturing meant that there was a definite need for government-funded defense. One reason why a professional army needed to be paid for was that a manufacturer could not leave his work. For members of the agricultural state of society, voluntary action was a possibility. If the war were to arise before the harvest, the men would not be away from work during a vital time (Smith, 1776). Unlike a farmer who can leave the weather to grow his crops, a manufacturer is the sole worker of his craft. If a carpenter, for example, leaves his woodwork to fight, it would never get finished. In addition to this, as the manufacturing industry developed, so did the art of war. Campaigns became longer and more challenging, which prevented workers easily being able to return to their career. Shepherds had a vast amount of spare time and could dedicate themselves to military responsibilities (Smith, 1776). On the contrary, the demanding hours of a worker in a commercial economy meant there was rarely a moment for relaxation, let alone for army training or war; a professional army would be far more skilled and ensure society’s protection.
An advanced economy is more likely to need national defense because it is far more likely to be invaded in the first place. As an economy develops, it becomes wealthier and more prosperous, qualities that are desired by potential invaders. Hunters, being the most primitive stage of an economy required no state-provided defense. As they rarely had any property or other assets, there was far less risk of being attacked (Smith, 1776). Smith recognized that having a skillful military is an invitation to be invaded (Reisman, 1998), but the pre-existing risk an advanced economy already faces makes it important that society is sufficiently protected. The evolution of more modern and dangerous firearms meant that more advanced training would be required in order to be under control of weapons. This level and intensity of training may only be viable for those whose sole career is the military (Smith, 1776). The scarcity of technical weapons during the earlier stages of society meant that training was not as vital. In addition to this, hunters in particular were exposed to similar tribulations to what they would face at war. Whether a hunter was defending his tribe or avenging the antagonist, a hunter was sufficiently protected by his own abilities and able to overcome these challenges. Thus, there was no need for a sovereign to prepare a hunter for war or assist him whilst he is fighting (Smith, 1776).
As much as Smith was in favor of the division of labor, he understood that there were damaging effects that would make the average worker “incapable of defending themselves” (Smith, 1776, pp. 698). In ‘The Wealth of Nations’, he goes onto explain that the monotony of a worker’s job could cause his “heroic spirit” to become “almost utterly extinguished” (Smith, 1776, pp. 541). Smith believed that it would be most effective if the state created a police force that obliged citizens to take part in the military to some extent or employ citizens to become a permanent member of the military (Smith, 1776). ‘The Wealth of Nations’ proves that a more industrial economy will require a professional military. The UK’s professional army is more important than ever considering the speed at which our economy is growing.
Adam Smith also thought that the state should be responsible for the administration of justice. He said in ‘The Wealth of Nations’ that the government should “protect, as far as possible, every member of society from the injustice and oppression of every other member of it” (Smith, 1776, pp. 708). Like defense, different stages of society required different kinds of justice, with more advanced economies requiring stronger degrees. In a rich and advanced economy, many people will own property, whether it be a home or land. Some people may own financial assets such as bonds. With wealth comes a risk of theft and other crimes such as fraud and therefore legal authority is very important. When society was made up of hunters, who owned little to no property, there was little theft and less need for a justice system. It was only “envy, malice, or resentment” that could “prompt one man to injure another in his person or reputation” (Smith, 1776, pp. 709). Shepherds, on the other hand, owned property and therefore, there was high inequality within the society. Civil government was created in order to defend the rich from the poor (Butler, 2007) who would band together to sabotage those who owned desirable assets. We could say that civil government is just a natural result of the conflict that arises when there is inequality within a developed economy (Butler, 2007). It was through the reassuring protection from the state that allowed the wealthiest of society to “sleep a night in security” (Smith, 1776, pp. 710). The UK is one of the most developed economies in the world and thus the legal authority is very important in ensuring each member of society is provided justice.
Adam Smith believed that the state should provide certain public goods. The state should be responsible for building and maintaining public works which are advantageous to society but not profitable to the individual. Public goods are non-excludable, meaning we are unable to stop someone from using this good and we cannot charge them to use it. A good example of a public good would be street lighting. It is important that the state should provide public goods due to the issue of the free-rider problem, where people can enjoy the benefit of a good whilst not paying anything towards it. There is no profit incentive for private individuals or groups of individuals to provide public goods due to the impossibility of charging the consumer; they can easily enjoy the good for free. If the government were not to intervene and supply them, these public goods would be under-provided or not provided at all (Sandmo, 2011) To illustrate his belief, Adam Smith compared the provision and maintenance of canals and roads. He suggested that canals may be sustained using the revenue gained by charging a small toll to all who choose to use it; the toll being proportional to the amount of damage the boat is likely to cause (Smith, 1776). If a canal is not maintained, it simply becomes impassable. If the public sector, whom is usually careless and inattentive, take on the responsibility of maintaining the canal, it will likely be left uncared for and unused. If a private owner maintains the canal, he can make a profit each time a consumer wishes to use it. It is for this reason that canals should be provided by the private sector. Roads, on the other hand, should be provided by the public sector. Unlike canals which are unusable if not managed, consumers will use roads even in their worst condition (Smith, 1776). Therefore, it is unprofitable to the private owner to maintain them properly. Smith also felt that the state should provide infrastructure for the education of the youth. The UK’s public sector today not only provides these educational facilities but is also responsible for implementing state education for every child. Although for the most part, the state provision of education is benefitting the UK, the government is struggling to afford the funding the sector needs.
In conclusion, we can determine that Adam Smith felt the state had three main responsibilities: national defense, administration of justice and provision of public goods. Although the UK’s public sector is perhaps larger than Smith’s ideal, today’s government has fulfilled each of his desired obligations. Smith believed that a minimal state is the best system for the efficient allocation of resources and I believe that the implication of Smith’s laissez-faire views is one of the leading reasons why the UK is one of the world’s most powerful economies.
- Butler, E (2007) ‘Adam Smith: A Primer’. Institute of Economic Affairs.
- Reisman, D.A. (1998). ‘Adam Smith on Market and State’. Journal of Institutional and Theoretical Economics (JITE).
- Sandmo, A. (2011). Economics Evolving: A History of Economic Thought. New Jersey, VIC: Princeton University Press.
- Smith, A. (1776) The Wealth of Nations: An Inquiry into the Nature and Causes of the Wealth of Nations (General ed.). Oxford, VIC: Oxford University Press.