How did Adam Smith feel about government intervention in capitalism?

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teachersage's profile pic

teachersage | (Level 3) Senior Educator

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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.

pohnpei397's profile pic

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.