In The Wealth of Nations, how is Smith both praiseworthy and suspicious of businessmen's ability to serve the public good?

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Smith realizes that if a modern economy is to prosper, it will do so through the efforts of businesses, not government. Smith understands that healthy, prosperous businesses will ultimately lead to a healthy, prosperous society with greater wealth and opportunity for all.

At the same time, Smith is completely clear-eyed about the various shenanigans that businessmen get up to in trying to protect themselves from competition. As Smith amply demonstrates, businessmen are not exactly the best adverts for a free market, as they're constantly looking for ways to game the system in their favor.

He's particularly scathing of how they come together and form conspiracies against the public: that is to say, how they routinely engage in anti-competitive practices such as cartels to keep prices artificially high, which prevent their companies from going to the wall. For Smith, such self-regarding behavior clearly does not conduce to the public good.

It's only if businesses adhere to the rules of the road, so to speak, that the public will benefit from their activities. Ultimately, it is free competition that will eradicate bad practices among businessmen. In turn, this will redound to the public good by bringing them the unalloyed benefits of the free market.

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Smith argues that voluntary exchange of businessmen's goods and services in a competitive and relatively free and open marketplace tends to keep prices lower and quality higher for consumers than would otherwise be the case in a heavily regulated market where government grants of monopoly privileges restrict aspiring market entrants from competing. Lower prices, higher quality, and a greater variety of services and goods serve the public interest, while excessive government interference causing higher consumer prices, lower quality goods and services, and a restriction of variety would hinder the public good.

Smith, however, was not an advocate of completely unrestricted markets or laissez-faire capitalism. He understood that businessmen left to their own devices would try to restrict competition, rig prices, and form cartels and monopolies against the public interest. Consequently, he argued that there is a limited yet critical role for prudent laws and regulations to prevent businessmen from promoting their own interests at the expense of the public. Instead of viewing the choice as one between no government intervention and a completely regulated and controlled economy, Smith sought to strike the right balance between market freedom and essential regulation. Smith, in fact, made numerous practical recommendations for the regulation of businessmen and markets in The Wealth of Nations.

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Smith does not exactly praise the abilities of businessmen to foster the public good; he just thinks that, given the ability to make their own decisions, these men will make rational ones that make economic sense. They will thus do more to foster the public good (in the sense that they will better the nation's economy) than if their decisions were mandated by a central authority that may not know or maintain their best interests.

Smith has no illusions that businessmen are motivated to make economic decisions based on their conception of civic virtue. They are motivated by profit, and the "invisible hand" that guides them to make decisions is essentially self-interest personified. Smith addresses this in various places throughout the book, including his discussion of "conspiracies" mentioned in the previous response. He also points out that almost every economic, wage-related regulation passed by Parliament bears the influence of businessmen: 

Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. 

Here Smith is writing specifically about laws passed due to the influence of guilds and other, similar organizations. He is arguing, essentially, that wages, like prices, are best left to the market. He has no illusions about the virtues of businessmen and is simply saying that they will behave as rational actors in a free market.

 

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While most people think that Adam Smith’s book, The Wealth of Nations is wholly pro-business, it really is not.  It is in favor of free enterprise and of competition between businesses, but it does not argue that businessmen themselves will want to do what is best for society.

To Smith, businesspeople do benefit society in important ways.  Most importantly, they make society wealthier.  They do this by accumulating capital and putting it to use in the economy.  It is the capital that businesspeople accumulate that allows them to create places of work like the famous pin factory that Smith discusses.  If it were not for businesspeople, this might not be possible.

However, Smith also worries about businesspeople.  He knows that it is good for society when businesses have to compete with one another.  However, he also knows that competition is not really good for business and that businesspeople will try to avoid it when possible.  Therefore, he warns us that businesspeople will always try to collude and to otherwise find ways in which to avoid competition and to increase (or at least maintain) their own profits.  As he says,

People of the same trade seldom meet together,… but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Thus, businesspeople can be bad for society.  They are good for society in that they bring greater wealth, but they can be bad for society because they will try to do things  that will increase the prices that the public must pay.

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