The Online Library of Liberty

A project of Liberty Fund, Inc.

• Literature of Liberty a Review of Contemporary Liberal Thought
• Editorial Staff
• Associate Editors
• Editorial
• Bibliographical Essay: William Marina, Revolution and Social Change: the American Revolution As a People's War
• I: Autonomy
• Paternalism
• Autonomy Vs. Cooperation
• Selfish Benevolence
• Self-esteem and Helpfulness
• Self-responsibility
• Democracy and Self-esteem
• Obedience Vs. Self-ownership
• Self-determination
• Freedom and Learning
• Intolerance Vs. Self-actualization
• II: Civil Liberties
• Liberty In America
• State Schooling and Freedom
• The Right to Bear Arms
• An Armed Militia
• The Right to Die
• Pornography
• Ideology and Justice
• III: Political Economy
• Adam Smith's Achievements
• Smithian Scholarship
• Smith As Political Economist
• Protectionism Vs. Free Trade
• Protectionism and Politics
• Say's Law of Markets
• Political Decentralization
• Information Costs
• Free Market Banking
• Income and Motivations
• IV: Values
• Social Determinism and Objective Values
• Relativism
• Health and Objective Values
• Ought Vs. Is
• Values In Research
• Rights Vs. Right Judgment
• Prima Facie Values
• Fetal Rights
• The Greatest Good Or Number?
• Politics and Objective Values
• Ontological Values
• V: Justice
• Justice, Lockean Rights, and Liberty
• Justice and Adam Smith
• Rawls's Social Contract
• Rawls's Methodology
• Justice and Social Welfare
• Compensatory Justice
• Nozick's Legal Code
• Legal Justice and Coercion
• Justice, Punishment, and Deterrence
• Justice and Self-actualization
• VI: Property
• Liberty, Property, and Social Welfare
• Prima Facie Rights
• Lockean Property and Social Welfare
• Nozick, Taxes, and Property
• Locke Vs. Women's Property
• Indian Property Rights
• Kant On Property
• Just Price and Balancing Rights

Adam Smith's Achievements

Ronald H. Coase

• University of Chicago Law School

“The Wealth of Nations.” Economic Inquiry 15 (July 1977): 309–325.

A bicentennial reevaluation of Adam Smith's Wealth of Nations (1776) impresses us with this classic's keen analysis and broad range of economic questions it so admirably discusses. Smith's insight into economics unveiled the importance of the market economy's pricing mechanism as a means of coordinating a complex society which benevolence alone could not coordinate. Reliance on self-interest creates, through the “invisible hand,” an intricate division of labor. In turn, this division achieves “the cooperation and assistance of great multitudes.”

Through self-interest, this remarkable self-regulating market produces the laws of supply and demand, competition, abundance, and prosperity. Indicting the mercantilism of his own age, Smith exposed governmental efforts to improve and regulate the economy as generally perverse:

Every man, as long as he does not violate the laws of justice [should be] perfectly free to pursue his own interest his own way, and to bring both his industry and capital into completion with those of any other man.... The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of society.

(Wealth of Nations, Modern Library Edition: 1937, p. 651.)

Government tampering with the complexities of the market fails because it lacks both the knowledge and motivation to do a good job in regulating and coordinating the economic system. In addition, governments display a corrupt propensity to be influenced by those whose self-interest stands to gain from advantageous regulation. Smith would limit government to only three duties: to protect society from domestic and foreign aggressors; to establish a legal system of justice defining everyone's rights; and to provide a minimal number of public works and public institutions (e.g., roads, bridges, and canals). Smith might have challenged the need for government construction of such public works in the light of the modern capital market. Yet even within his presuppositions, he argued that such public works should be financed by payments from consumers rather than by subsidies or grants from public revenue.

Smith's view of America and of the contemporaneous American Revolution runs as a minor theme through his Wealth of Nations, accompanying the major theme of the self-regulating pricing system. Smith was both a liberal and a clearsighted realist when he discerned the probable success of the American colonies in breaking away from Great Britain. He viewed the motivation behind the American leaders not so much as a thirst for liberty or democracy, as a quest for position and status. Accordingly, he devised a conciliatory plan that would appeal to the revolutionaries' political ambition: he offered them representation in the British Parliament in proportion to colonial contributions to the revenues of the British Empire. Eventually the Americans could expect two results from their economic power: that the capital of the British Empire would cross the ocean to America, and that an American would be elected Prime Minister. Had his sanguine plan been adopted, America would now rule England and Smith would be celebrated as an American founding father.