THE INTELLECTUAL BACKGROUND: SMITH AND LIST

In his famous formulation of the proper role of government in promoting the wealth of nations, Adam Smith limited public activities to three functions:

1. “protecting the society from the violence and invasion of other societies”;

2. “protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice”;

3. “erecting and maintaining those publick institutions and those publick works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expence to any individual or small number of individuals.”

Throughout The Wealth of Nations, an occasional exception to Smith's limited functions appears, but by and large he sees little role for the state. He also saw little role for corporations, particularly those receiving any type of government support. He had little use for public education or for many types of public works – he advocated private operation of roads and waterworks, for example. So we can see in a nutshell the fundamental attitude not only of Adam Smith but also of the classical and neoclassical traditions that have followed in his formidable wake. The market will suffice to almost all things, so the role of government is to create the minimal facilitative conditions, then step back. Treat market imperfections on an ad hoc basis, as they arise.