The Role of Government According to Adam Smith, Essay Example

Many of the ideas that form the heart of modern capitalism are present in Adam Smith’s celebrated work, An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Widely understood as a primary influence on modern economic theory, much attention has been given to Smith’s theories and conclusions regarding the nature of such fundamental principles of economics as the division of labor, taxes, wages, and the idea of intrinsic barter. Smith’s ideas regarding the financial mechanics that underlie human society and, in fact, make modern society possible are straightforward and pragmatic in nature. That said, his extended explication of the interconnectedness of all branches of the economy makes for highly immersive and sometimes challenging reading. Many readers, lost in the financial and economic minutiae of Smith’s analysis may fail to grasp how his economic theories relate to politics and philosophy. Specifically in regard to the basic question of what role government should play in economics.

The overt thrust of Smith’s economic theories is that economies function best when they are founded on economic principles rather than on government intervention, regulation, or accumulation. That Smith feels government is a contaminating and even negative influence on the free-market is obvious in his readings. Smith’s attitude toward the government is consistent throughout his extensive theorizing and can be summed up to some extant by his observation of how “unnecessary it is for government to watch over the preservation of money,” (Smith, 1909, p. 340). this statement shows a primary trait in Smith’s posture toward government. he vies government as largely unnecessary in regard to matters of economics. Of course it is foolish to assume that, due to this fact, Smith thought that government should play no role in economics. This latter suggestion is outside of what Smith prescribes. however, Smith’s vision of what role government should play in economics allowed for a very narrow role for government, it did not call for the elimination of government involvement altogether.

Before moving toward a point by point account of what kind of role Smith envisioned for government to play in economics, it is crucial to develop a thorough understanding of Smith’s basic philosophy on the issue. In other words, Smith’s suggested economic models, definitions, and policies emerged out of an underlying philosophy. In fact, in regard to Smith’s vision of economic systems and his vision of human nature, he can be truly viewed as a philosopher who saw human nature expressed in economics. He saw that the free market actually reflected the basic principles of human nature. As such, the freedom for economies to grown and evolve in respect to human creativity and productivity was the main point of any economic system. Smith believed that people were, by nature, industrious and very adept at manufacturing goods and wealth. He observe that government is the one genuine threat to continued prosperity by remarking that “though the profusion of government must, undoubtedly, have retarded the natural progress of England towards wealth and improvement, it has not been able to stop it”(Smith, 1909, p. 287). This is because smith views government as a negative influence on economic growth.

The reason that Smith views government as a threat to economic growth is because in Smith’s estimation economic prosperity is the natural outcome of the labor of workers and the ingenuity of creative people. The noble-class of rulers, according to Smith threaten the economy through imbalancing the value of goods, by exploiting labor, and by starting and maintaining costly wars. Smith writes “It is the highest impertinence and presumption, therefore, in kings and ministers to pretend to watch over the economy of private people […] They are themselves always, and without any exception, the greatest spendthrifts” (Smith, 1909, p. 287). obviously, Smith’s opinion of government is one that shows a great deal of pessimism in terms of how reliable government can be with economic concerns. The only possible excuse for government intervention or influence over economic matters would be if this kind of influence and interference provided for a more just and reliable market. In Smith’s perspective, just the opposite is, in fact, the case. He insists that government stands in near opposition to the free-market. Therefore, the underlying philosophy that can be extracted from Smith’s theories is that he believed that people were innately capitalistic and therefore were best regulated by the economic systems themselves rather than by government.

What Smith sees as the most desirable is the establishing of an entirely free economy where the only true regulations are those which are those which rise out of basic functions such as supply and demand and the division of labor. When Smith states an opinion about the ability of the free market to better serve the needs of society, he is careful to contrast this with what he perceives is the function of government. Smith insists that “We trust with perfect security that the freedom of trade, without any attention of government, will always supply us with the wine which we have occasion for […] with all the gold and silver which we can afford to purchase. (Smith, 1909, p. 332). there is an irony in this observation that is backed up by Smith’s negative assessment of the function and expense of wars, especially those undertaken on foreign soil. The artificial stimulation or deprivation of an economy by the government is, by smith’s standards, the equivalent of directly limiting or denying the innate freedom that exists in all individuals.

Of course this bring us back to the point that Smith is actually engaging in a deeper philosophical theorizing than is immediately visible when approaching his economic ideas. His resistance to government intervention and involvement in the economy grows out of his basic belief in the efficacy of people left in a free market to conduct themselves productively and within bounds of reason and lawfulness that are dictated by the needs and demands of the market itself. This means that while government certainly has a role to play in relation to the economy, its role should be one where the influence of government is not in any way allowed to corrupt or pervert the natural flow of basic economic conditions such as supply and demand, labor, or the value of currency.

Keeping these observations firmly in mind as well as the basic idea that Smith views the free-market as an expression of human liberation, it is possible to better understand the narrow parameters in which Smith feels government should act in relation to the economy. In the first place, Smith views government as the protector and common enabler of the free-market. therefore, he advocates that fair taxes should be paid and that these taxes, used for the maintenence of government are analogous to the rent that is paid by tenants to landowners. In the analogy, each person organization or state that benefits from the government stands in a tenant relationship. Smith observes that “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities […]The expence of government to the individuals of a great nation, is like the expence of management to the joint tenants of a great estate” (Smith, 1909, p. 498). This insistence that taxes are just and necessary should not be confused with the idea that Smith is any way advocating the use of taxes as an attempt to influence of control the economy.

Rather, what Smith is proposing is that taxes be collected from recipients based on the degree to which they have been benefited or continue to be benefited from the existance of the government. the degree to which they have prospered dictates the level of taxes they should pay toward the maintaining of the government that has provided for their success. One apparent contradiction arises here and that is in regard to smith’s earlier insistence that government should play little or no role in the creation or preservation of wealth. It is easy to understand why some observers might misconstrue Smith’s ideas on taxes to mean that he somehow believed that it was government’s business to run economies.

Another function of government is indicated by the tax theories forwarded by Sith. This aspect has to do with the division of labor in an economy. while the ownership class will tend to become more fully and thoroughly educated, there is a risk, in Smith’s estimation, that the working class will fall into an non-intellectual or even anti-intellectual condition and will therefore suffer in terms of overall abilities due to the nature of their work. Smith therefore advocates that government must be watchful over the needs of its citizens and should be geared toward the welfare of people in general and not specifically concerned with the ins and outs of financial currents and flows. In other words, a government that provides for the education of its citizens, and particularly its workers, is a model that Smith might endorse, whereas a government that tightly regulated the amount of any particular commodity of good that could be lawfully produced would like meet with Smith’s disapproval. Smith makes his position clear when he writes that “The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same […] has no occasion to exert his understanding or to exercise his invention” (Smith, 1909, p. 419). Smith takes care to understand the human ramifications of economic policies.

The reason that Smith is concerned with the human considerations of economic policy is because he understands economics to be an expression of human nature. As such, there is a tendency in human nature, acknowledged by Smith, that allows for exploitation of labor and the misuse of economic policy for self-enrichment. The idea that personal enrichment, to the exclusion, or detriment of many others is just is, for Smith, a specious idea. In his view, the best economic systems serve the welfare of collective society. Since the economic systems are those which fund government through taxation, government is, in economic terms, “owned” by the people who make up the free-market.

This kind of perspective is also shown in Smith’s attitude toward wages and labor. he observes that in a natural state without any kind of social or political influence was the actual commodity of good that was produced by labor. Smith rightly observes that “The produce of labour constitutes the natural recompence or wages of labour.” (Smith, 1909, p. 68). However, the situation faced by modern society, even in Smith’s time, was much different than that which was postulated by Smith about the past. If, at one time, the reward for labor was, in a natural state, the thing that was produced through labor, modern society had radically altered this simple model. In modern society, labor and production was controlled by a group of elite owners. According to Smith, the small number of owners contributed to their ability to control certain economic aspects,. specifically workers’ wages.

The control over wages was due to the fact that the owners could organize together to create self-sustaining policies, while workers were prohibited by law from organizing to demand better wages. Smith writes that “The masters, being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, while it prohibits those of the workmen”(Smith, 1909, p. 70). His bitterness is apparent because he sees the value of labor as being that which sustains any society. Again, Smith’s economic perspective indicates a basic underlying philosophical position which advocates a degree of justice and freedom for all people regardless of their place in society and regardless of the interests of government. As mentioned previously, for Smith, the welfare of workers should be the conern of the government.

This is why he overtly laments that fact that “We have no acts of parliament against combining to lower the price of work; but many against combining to raise it.” (Smith, 1909, p. 70). Simple statements such as this one show that Smith was, undoubtedly, committed to the idea of workers’ rights and that fair wages should be part of any economic system. It also shows an area where Smith evidently feels government should have an influence over the economy. The basic reason that Smith advocates fair wages and worker’s rights is these are deemed necessary by him for the continuance of the economic system. If there is a class of prosperous workers, they are more likely to have children whoa re raised up as reliable workers and so on, perpetuating a solid working class. If, on the other hand, workers are kept in such a state of poverty that they are unable to adequately provide for themselves and their families, then the economy as a whole becomes threatened because its worker base will become less capable and reliable, which will, in turn lower the value of its goods and services.

Smith spells out this truth quite obviously when he writes “A man must always live by his work, and his wages must at least be sufficient to maintain him [or] the race of such workmen could not last beyond the first generation.” (Smith, 1909, p. 72). this blatant measuring of the economic value of multiple generations of human beings may seem callous on the surface. in fact, the observation is indicative of the deep regard that smith held for the common worker and the disdain he felt for economic policies that failed to provide adequately for the working class. His belief was that a strong working class was the heart of any economic system, due to the natural currents that existed in the supply and demand chain and also in regard to the division of labor.

While it would be an oversimplification to suggest that Smith’s view of the role of government in economics was that the government should regulate people but not money directly, it would be fair to suggest that Smith advocated a minimalist participation by government in economic systems. This is due to the fact that he not only distrusted government as wastrels in terms of spending, but because he held a fundamental philosophical belief about the nature of the free market. As the preceding discussion has clearly shown, Smith’s economic ideals indicate a deeper set of philosophical convictions. The most important of these convictions was that,a s an expression of human freedom, the capitalist system allowed for a natural evolution that was based on tee needs and capabilities of any given society. This is the reason that Smith was so adamant about calling for a much-reduced role of government in economic systems.

Smith’s beliefs about human nature are the primary influences over his ultimate understanding of economics. As such, his writings on economic theory must also be viewed as examinations of human nature and as inquiries into the rudiments of ethics and morality. the beauty of smith’s philosophical vision is that the free market can be observed as an ongoing expression of human freedom and human nature. Because Smith viewed economics as an extension of basic human nature, the influence of government, under his theories, must be limited in order to facilitate a true financial system that functions organically and is an outgrwth of the aggregate capabilities and capacities of a society.

References

Smith, A. (1909). An Inquiry into the Nature and Causes of the Wealth of Nations (C. J. Bullock, Ed.). New York: P. F. Collier & Son.