Front Page Titles (by Subject) Smith and Utilitarian Economic Freedom - Literature of Liberty, October/December 1978, vol. 1, No. 4
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Smith and Utilitarian Economic Freedom - Leonard P. Liggio, Literature of Liberty, October/December 1978, vol. 1, No. 4 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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Smith and Utilitarian Economic Freedom
“Adam Smith and Natural Liberty.” Political Studies (UK), 25 (1977): 523–534.
Adam Smith grounds the system of natural liberty analyzed in The Wealth of Nations in a utilitarian moral theory. This utilitarian strain generates the reasons Smith used to justify departures from the laissez-faire principle. In Smith's system of natural liberty, a market economy is a mechanism whose inputs include man's natural (normal) desire to get the best return for his labor, capital, and land. The market's outputs (consumable products) are maximized when our choices as to how to deploy our economic resources are not thwarted by laws attempting to influence those choices. Natural liberty deployes resources “naturally” because the economic advantages of different courses of action are unaffected by laws designed to redirect labor and capital. This does not mean unaffected by all laws, since security and justice require a legal framework which affects the profitability of many types of economic behavior, but Smith believed that these laws are compatible with natural liberty.
The Wealth of Nations presents the system of natural liberty as instrumentally valuable for material progress and hence, as a utilitarian device. Smith emphatically denies that the economic agent acts out of utilitarian considerations beyond his own benefit. However, Smith's overall evaluation of the economic system depends on how far it maximizes human satisfactions—as God intends that it should—a position which may be called contemplative utilitarianism.
The standard of natural justice (which ideally determines the positive law of a country) is determined by sympathetic spectators' reactions to acts which cause resentment among men. Smith claims that such immediate moral sentiments tend to establish and maintain natural liberty prior to any consideration of its utility, so that justice does not originate in men's utilitarian calculations. However, he also believes that justice is a prerequisite for any society.
If Smith allows that the ultimate justification of justice—and thus of economic liberty—is essentially utilitarian, and if he assumes that an intelligent and impartial spectator can appreciate the social benefits of restraining injustice, why does he refrain from overtly endorsing a utilitarian approach to morality and politics? The reason that Smith's utilitarianism is contemplative and never practical lies in his sociological conservatism. Smith believed that effective law must reflect the judgments of the ordinary citizen, who does not appreciate long-term consequences. Smith retreated from the direct practical application of utilitarianism because no scheme which relies on the citizen or the politician acting consciously on utilitarian principles has any hope of success.
Smith's contemplative utilitarianism, coupled with his sociological conservatism, restricts legal and political reforms to those which are in harmony with the citizen's immediate moral sentiments. This, and the instrumental rather than an intrinsic character of Smith's liberalism, appear in his theory of political obligation and are supported by his natural theology.