Smith’s critique reached out beyond colonial monopolies to all kinds of unwanted government meddling in economic affairs. This is the second myth about Wealth of Nations, that in it Smith invented the notion of laissez-faire capitalism, in which the government has little or no role to play. In fact, the phrase laissez-faire comes from French economists, not Smith, who does not use the term at all. And contrary to the myth, Smith did see an important role for a strong national government. He saw it as necessary for providing a system of national defense, to protect the society and its commerce with its neighbors. It also must provide a system of justice and protection of individual rights, particularly the right to property: “[I]t is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labor of many years, or perhaps of many successive generations, can sleep a single night in security.” And it is needed to help defray the expenses of essential public works, such as roads, bridges, canals, and harbors.

Beyond that, however, Smith saw any other form of government interference as having all kinds of unintended consequences. History offered innumerable examples of governments and rulers, often with the best intentions, trying to change or adjust their nation’s economic life, with disastrous results. Roman emperors had attempted to regulate the sagging economy of the Late Empire, and had destroyed it instead. Spain had tried to maintain a monopoly on the flow of bullion from the New World, only to bankrupt itself. Smith worried that Britain and its policy in America was headed down the same road.

To Adam Smith, belief in a free market was not an intellectual dogma, but a basic lesson of history. It was time for rulers to learn from their mistakes, and let commercial society follow its own course:

All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way.... The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of society.

This is the Adam Smith with whom we are all familiar: the great prophet of free-market capitalism as a system of “natural liberty,” and the great enemy of any and all attempts to tinker with that system, whether for the sake of political power or social justice.

Arthur Herman

How the Scots Invented the Modern World (2001)
Chapter Eight “A Select Society: Adam Smith and His Friends” pp. 184f