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Getting Adam Smith Right

Here’s a letter to the Wall Street Journal:

Jesse Norman is correct that Adam Smith was no anarchist (“What Adam Smith Knew About Trade Wars,” August 24). But Mr. Norman’s portrait of Smith as a centrist on the question of government intervention is flawed. Smith was far more skeptical of government intervention than Mr. Norman reveals.

The most obvious flaw in Mr. Norman’s portrait is his claim that Smith believed that what we today call crony capitalism is a market failure that “falls to government … to remedy.” In fact, Smith clearly understood crony capitalism to be a species of government failure. That Smith called on government to quit dispensing special privileges hardly counts as Smith endorsing active government intervention into the economy!

Another flaw is Mr. Norman’s failure to note that on the relatively few occasions when Smith conceded a potentially positive role for government intervention, he very often qualified these concessions with concerns about their practicality.

Here’s an example involving trade wars: immediately after conceding that retaliatory tariffs at home might “procure the repeal of high duties” abroad, Smith complained that the officials in charge of imposing such tariffs are “insidious and crafty” and are directed not by the long-term interests of the country but, rather, “by the momentary fluctuations of affairs.” Smith then explained that in practice the benefits and burdens at home of retaliatory tariffs seldom are distributed in ways that fair-minded people would judge to be just.*

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (Indianapolis: Liberty Fund, 1981 [1776]), p. 468. (See also here.)