Adam Smith and the Role of the State

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Adam Smith and the Role of the State

Adam Smith advocated for state intervention in the market in certain circumstances. His book, “The Wealth of Nations” did not only focus on a single ideology; it focused on multiple systems of thought. He discussed public finance in the last part of the book. Taking a look at his theory; it is obvious that most contemporary public economic concepts such as borrowing as finance tools, the economic effects of taxes, public expenditures, and public finance were first advocated for by Adam Smith.

According to Adam Smith, the purpose of the political economy is to enrich both the sovereign and the people. The market and the state are integral features of the political economy.  Both the state and the market have their weak points. The image created of Adam Smith as a fanatic of a private market that is purely controlled by free market forces is wrong and misconceived.  He acknowledged that market forces could not be left to control the economy on their own because of the monopolizing spirit and rapacity of manufacturers and merchants. Adam Smith does not advocate for exclusive state intervention. So long as merchants do not violate the laws of natural justice, they can be left to pursue their economic interests freely so as to build capital and industry.

The capacity of the society is the main source of employment and wealth in a state. Regulation may not increase the capital or industry in a state, but it may redirect it into a specific sector of the economy that is advantageous to the society.  The redirection of capital that Adam Smith talked about refers to the development of a monetary policy by the state or the use of commercial regulations to self-finance a budget deficit in an economy.