December, 2010

Adam Smith’s Approach to Public Policy

Astounding Deviation or Artful Moderation?
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Recent academic work has attempted to change the interpretation of Adam Smith from the founder of free market economics to a proponent of something much more akin to the modern welfare state. In a well known article Jacob Viner even claims that Smith’s departures from liberty were so great that an index of them would have astounded Smith. I suggest that Smith’s polite rhetorical strategy – represented by his explicit praise of the moderate rule Solon – has been under-appreciated. This paper aims to examine the Wealth of Nations with Smith’s polite approach in mind. I show that Smith’s interventionism was more limited than some suggest, and that some of the interventions contravened the liberty principle only mildly. I also show that virtually all of the interventions entertained or endorsed by Smith were part of the status quo in Scotland at the time. The approach also provides potential explanations for some of Smith’s well known inconsistencies, such as his endorsement of restriction in banking and lending at interest.

Continue reading at SSRN.