Was Adam Smith a Libertarian?

A single blog post can hardly begin parsing Adam Smith’s works and ideas. What would he think about Obamacare or about the Federal Reserve? Would he look favorably on the administrative state or on entitlement programs like Medicare and Social Security? This is the first post in a series exploring Smith’s thought. I hope that the reader will eventually be able to bring Smith’s ideas to bear on these questions. To begin, I should lay out a basic framework for understanding Smith’s views on politics and economics.

Traditionally, Smith has been regarded as a staunch advocate of free markets and as a formidable skeptic of government intervention. That is the “traditional view.” Particularly in the last fifty years a “revisionist view” has surfaced and gained a substantial following. The revisionists, or “Left Smithians,” emphasize Smith’s skepticism towards commercial society (especially merchants and manufacturers), his praise of many government interventions, and his concern for the poor and marginalized. From there, they conclude that Smith would be friendly to the modern social-democratic welfare state. Also, they caricature the traditional view as believing that Smith was totally laissez-faire and only concerned with self-interest.

Smith falls somewhere between the revisionist view and the caricature. Exactly where he falls has a great deal of bearing on whether Smith can be considered a libertarian.

Let me separate libertarianism into two camps. One camp is heavily based on rights. It includes followers of Murray Rothbard, Robert Nozick, and Ayn Rand. These libertarians start from the premise of self-ownership and the non-aggression axiom: “I can do whatever I want as long as I don’t harm you or infringe on your rights.” In this strand of thought, all government intervention is illegitimate unless it punishes or prevents the violation of others’ rights.

The second category of libertarian thought expresses a more organic view of society while maintaining a healthy skepticism of the motives and efficacy of government action. This category includes followers of Friedrich Hayek, Milton Friedman, and James Buchanan. Advocates in this camp argue that markets usually work well and governments usually do not. Government action, however, may be warranted in limited contexts where strong public interests exist. But such contexts are rare. And in such situations we should rely on clearly defined rules to motivate and constrain political actors, not their own sense of altruism or “public-spiritedness.”

George Stigler has suggested that Smith thought advancing one’s material self-interest was the most important human motivation. In his own work, Stigler thought individual self-interest was the most important assumption about political action. As a result, he thought the government should almost never intervene in the market. Yet in The Theory of Moral Sentiments, Smith argued that people have many important motivations besides their material self-interest. Furthermore, he clearly advocated many government interventions in society—interventions that Rothbard and Rand would have ridiculed and that would have made the Nozick of Anarchy, State, and Utopia uncomfortable. So Smith cannot fit in this camp based upon his policy prescriptions.

But Smith also doesn’t fit in their camp because he disagrees with their axiom of natural rights. Throughout his works, Smith rarely spoke of rights and certainly never developed an extended argument about the purposes and limits of government based upon rights. Occasionally he talks about how people “own” their labor but that is the closest he gets to rights-theory.

The second camp of libertarian thought—which I prefer to call classical liberalism—is far more welcoming of Smith’s views. They are willing to grant that government should do a variety of things from providing public works to national defense. Smith’s three duties of government, plus a handful of “exceptions” to liberty to restrain egregious negative externalities, can fit in this camp. Smith’s defenses of markets and skepticism of government policy have many similarities with those of Hayek, Friedman, and Buchanan.

The concept of the invisible hand—that individuals justly pursuing their own ends often promote the public interest (“universal benevolence”)—is one of Smith’s more powerful ideas. A system of prices and exchange will generally lead to productive outcomes, even if people are primarily motivated by self-interest. But he also refers to the invisible hand in a moral sense where it leads to a wide distribution of necessary goods in society. Besides generating wealth, commercial society fosters certain virtues and restrains many vices. The “natural system of perfect liberty and justice” was Smith’s ideal.

But, he also realized that people have flaws and make mistakes. There might be a role for government in restraining, and even correcting, some of these mistakes. Government interventions were exceptions (or even compromises or failures) to his ideal system of natural liberty. Furthermore, Smith had a healthy skepticism of the benevolence and knowledge of political actors. He realized that special interests would lobby for protection and that individuals could take care of themselves much better than any government bureaucrat could.

His solution was greater decentralization and accountability in government projects like public education, toll roads, harbors, or even paving the streets of London. He emphasizes that these should be provided at the local level. Even though public works could be captured or corrupted by special interests, limiting them to localities meant that even when mistakes or abuses arose, the extent of the damage was limited. Problems in a single toll road are far less harmful than problems in all toll roads. Local projects have better accountability and there is a greater chance that those who benefit from the public good will also be the ones paying for it, “which is justice besides.”

Despite his exceptions to liberty, Smith has traditionally been thought of as a proponent of free markets for many reasons. One reason stems from his concerns about the corruption that comes from faction and fanaticism. People tend to make more biased, and therefore destructive, choices under conditions where faction and fanaticism are most likely to occur. Those conditions are usually found in politics. Political parties and political issues naturally divide people into factions and generate fanaticism. That is one reason why Smith would probably favor “degovernmentalizing” social affairs.

Another problem Smith discusses is the difficulty of political actors doing positive good for thegeneral public. They do not have access to the decentralized knowledge dispersed across the circumstances of millions of people, so there is no reason to expect politicians to make more informed decisions than private individuals will. But even if they had good knowledge, political actors rarely have altruistic motivations. They pander to special interests and often pursue self-aggrandizement. Smith often mentioned the conceit, vanity, pride, and arrogance of “men of system,” or “party-men.”

This is just the tip of the iceberg when it comes to Smith’s thoughts on liberty and government. I will expand upon the traditional view in my next post. Then I will write about Smith’s presumption of liberty in the face of his many exceptions to liberty. Finally, I will highlight many of his illuminating comments on the benefits of markets and the bungling of politics.