How did Adam Smith feel about government intervention in capitalism?
At the time when Adam Smith wrote The Wealth of Nations, government in Britain was largely in the hands of the aristocracy. The upper classes in general had something of a snobbish disdain for commerce and trade. Most aristocrats subscribed to an ancient moral code whereby the ownership of land was seen as the most stable and most appropriate source of wealth for a respectable family.
These, then, were the people in charge of Britain's economic policy. It's no wonder that Smith wanted to keep their involvement in the running of the economy to an absolute minimum. Britain's growing commercial wealth and prosperity were much too important to be jeopardized by gentleman amateurs with no real understanding of how a modern economy actually works. Far better, then, to allow the spontaneous decisions of individual economic actors, freely interacting with each other in the marketplace, to determine questions of production and the allocation of resources.
Smith's defense of free-market capitalism can thus be seen as an expression of a rapidly developing bourgeois ideology, one growing in importance in the new society. The unfettered operation of the free market appeared to vindicate the values most dearly held by the increasingly prominent commercial classes. Their belief in the virtues of thrift, hard work, and private enterprise had led to a significant increase in the general prosperity of the country. What was good for the bourgeoisie was ultimately good for Britain.
But this prosperity was always under threat so long as aristocratic amateurs in government started meddling in something they neither fully understood nor even particularly appreciated. Hence Adam Smith's strictures against government intervention in the economy. That said, Smith wasn't opposed to government intervention per se; what he objected to was the wrong kind of intervention. What mattered most of all was the promotion of competition in the economy and, to this end, the creation of the appropriate legal and regulatory framework. And Smith wasn't sure that the current governing class was at all capable of doing this.
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.
In The Wealth of Nations, published in 1776, Smith argued that the government should intervene as little as possible into business. He saw that when wealthy corporations, as commonly happened, wrested tax incentives, monopolies, and other unfair advantages from governments, this impeded free trade and competition. Because a few companies received special favors, they did not need to run efficiently, and their unfair advantages discouraged other companies from competing with them. He maintained that if nations wanted to maximize their wealth, they needed to end this kind of interference. Instead, he believed in the "invisible hand" to guide people as to how and where to produce wealth. He argued that the government should restrict its role to education, defense, building infrastructure, and maintaining law and order.