What did Adam Smith think the state should do and why?
Ans:
Smith was very critical of the state, seeing it as corrupt and inefficient, arguing that the
government employees were being rewarded for doing very little and so were not
incentivised to work harder. He did however see some positive aspects of governments as
well, praising the ‘orderly, urgent and parsimonious administrations of Venice and
Amsterdam’. As a result, he did come up with three functions for the state- to provide
defence, to provide justice and to provide public works and institutions.
The first function of the state was to provide defence and to protect every citizen from
‘every other independent society’. Smith divided the society into four stages, hunters,
shepherds, agriculture and commerce. He argued that in the first three stages, the ‘able
bodied men’ can join the war, to defend their lands without much damage to their
economies (their farms). However in the commerce stage, a professional army is needed.
This is because it is the richest society, and so will be attacked first. Also in the commerce
society, division of labour has led to the ‘uniformity of his (citizen’s) life, naturally corrupts
the courage of his mind’, therefore making the commerce citizen unfit to be in a battlefield.
Thus a professional army is needed here the most and this can only be provided by the
state. This is therefore Smith’s first function for the state, reiterated through him arguing
that ‘defence is of more importance than opulence’.
However, it can be argued that in some ways, Smith might have argued for less interference
from the state, even in the case of defence. Smith felt that humans had a tendency to be
over optimistic for example and that they had ambition. Both of these features would mean
that humans were in general peace seeking people, and that there was no need for defence
from the state. Therefore, funding a professional army could be another evidence of the
state’s inefficiencies. Smith’s theory of absolute advantage, and international division of
labour mean that he expected a more economically and trade interlocked world, where
going into war would be too risky. As a result, the state could not be needed for defence
The second function for the state is that it should protect every citizen ‘from the injustice
and oppression’ from every other member. Smith believes that different stages of the
society requires different types of justice. For example, in the hunter’s stage, there is no
property, so there is no violence and therefore there is no need for a magistrate here.
However, in the shepherd’s society, there is property and so there is inequality and
violence. Property here gives us the need for governance and government and inequality
gives us a class (the rich class), suitable for governance. The rich class acquires authority,
and this makes it look like a convincing protector. In a more advanced economy however,
the sovereign’s means of support are replaced by a salaried judiciary, funded by taxation,
according to Smith. As a result, Smith saw the state playing a pivotal role in ensuring an
efficient judiciary, through the fact that taxes directly fund the judiciaries.
The third function is to provide public works and institutions, which are beneficial to the
society but are not profitable to the individual. One example would be education; which
Smith saw as one of the most important factors to economic growth. Education would be
provided by the state through building the infrastructure, but the teachers would have to
attract students, and the student’s fees would be paying for the teacher’s salaries. Smith felt
that this would lead to a more efficient teaching system, which would improve the economy
in the long term. Here is another clear role for the state, in the ‘progress to opulence’ as
Smith would call it.
However, it can also be argued that Smith’s argument for the state to provide public works
like education is ineffective. According to the model, the students would fund the teachers,
but this will push out the poor group of children who could not afford to pay for an
education. As a result, Smith’s function for the state to provide defence would lead to
greater inequality and would fail to the lead to the economic growth that he had promised.
The education aspect of public works cannot therefore be a viable function for the state.
In conclusion, although there are some arguments which show that Smith might have been
contradicting himself when he outlined these functions for the state, the three functions do
clearly outline clear, precise and specific roles for the state, which the market cannot
provide in order for economic growth to take place. Defence, justice and public works and
institutions avoid violence and oppression and provides the framework for the society’s
‘invisible hand’ to function and economic growth to take place.