How did Adam Smith feel about government intervention in capitalism?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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In general, Adam Smith was very much against government intervention in the economy.  He felt that, in capitalism, the economy should be allowed to run on its own without government interference.  Smith felt this for at least two main reasons.

First, Smith felt that government interference made countries poorer.  He felt that the economy could do a better job of finding efficiency and wealth through the “invisible hand” of the market.  Therefore, he felt that intervention actually weakened economies instead of making them stronger. 

Secondly, Smith felt that government intervention set up a situation in which business people would stop competing with one another.  He felt that businesses would start to band together to try to extract favors from the government.  They would cooperate with one another instead of competing.  When competition was reduced, consumers would suffer because prices would increase and quality would decrease.

For these reasons, Smith was strongly opposed to government intervention in capitalism.


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