What Did Adam Smith Think the State Should Do and Why?

        What did Adam Smith think the state should do and why?

Adam Smith,who lived between 1723 and 1790,is still today one of the most important founder of modern economy. In the Wealth of Nations he wrote about key elements of the modern economy and in his second important piece of work, “The theory of moral sentiments”, he wrote about human being, trying to explain his view of how human mind interacts with others. He has to be considered nor only an economist neither just a social psychologist, he could be called a philosopher, a connoisseur of human being from every point of view.  Said that, he was considered as one of the first who coined the term “mercantile system” in order to explain the government approach in which a system finds its richness by restraining imports and encouraging exports. Because of his theories, he did many criticism to mercantilism. Indeed, he was advised as one of the founder of free market economics, an opposite vision to the mercantilism theory. He really believed in a State with various duties that should avoid any type of restriction to the market. His Theory was related to the “laissez faire” concept because of his “invisible hand” content, but he never used the term within his theory about the way in which state should manage society.

                 “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest”. This quote, from the Wealth of Nations, helps us understanding what was the invisible hand concept for Smith. In fact,the producers, don't think about the happiness of their customers but primarily about their own interest and is thank to their self-interest that goods arrive to clients. Smith believed that not just less government intervention was needed within the market: in order to reach a better economic situation the important thing was to provide people the freedom of making choices. The invisible hand explains how a free market gives the maximum human happiness but it's pretty different from the “laissez fair” concept, even if it literally means “let it be”: something that seems related to the natural order of the Smith's society. Those who believed in Laissez-faire thought that with a limited role of government,the businessmen freedom of making choices,there would have been a naturally free-market economic system based on competition; they believed in the achievement of national income as the main purpose that could have maximize, without any external intervention, people's pleasure. Smith theory generally agreed with their principally ideas such as the free-market and a little pressing government but for example he believed that businessmen would limit competition instead of base their society on it: his theory had some basic concepts shared, but it was different in many details with the laissez-faire one.
        Adam Smith strongly believes in free-market. He justified his theory with different points. He argued that a market without any Government intervention encourages the division of labour increasing the economic benefits, develops new markets and new network transport. Then, thanks to the invisible hand, markets find their balance between supply and demand without the need of any external input.

                 Moreover, Smith's theories didn't exclude completely the state, the free-market concept doesn't involve the absolute absence of the state: it just restricts its interventions. In the wealth of nations Smith highlights why state was not always useful and helpful for the citizens and in this quote we can see one the criticism he did to the government, especially talking about property : “Civil government so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor or of those who have property against those who have none at all”.  He thought that there was a conflict between private an general public interests that should have been solved by the state. He evidenced a lot of incoherence between what was the main object of the state and what it really did. Smith's main purpose was to guaranteed the termination of the negative activities done by the state. He believed there was a definite line between government's activities in harmony with the natural order of his “ideal society” and those that injured the general interests of society.  That's why, as well as saying where the state should avoid its interventions, he identified three principal state's duties, fundamentally for the society's order : protect the society from the violence of others, establish an exact administration of justice and maintaining certain public institution and certain public works. As we said he gave an important role to the property, seen as something that must be respected and defended from neighbor and foreigners,that's why Defence was in fact a fundamental goal to reach for him. Of course, he admitted the need of tax citizens in order to permit government makes its intervention. He thought that taxes should be raised proportionally to the ability to pay of each person but, in Smith opinion, capital should be saved from taxes because of its fundamental function in the society: to increase nation's productivity.