Question

what respect might Adam Smith be called an advocate of laissez-faire? On what basis might one challenge this label?

Answer 1

Laissez-Faire is the non-interference of the government in economic matters. When government completely lets the markets decide everything, then that policy is laissez-faire.

Adam Smith, in his book wealth of nations, talked about 'consumer sovereignty and the invisible hand'. What he meant was that each individual should be free to make the best possible decisions under the circumstances and that the 'invisible hand' of market forces will always result in the most efficient of outcomes for the society as a whole. In his view the ideal economy was which self-regulates and results in the satisfaction of economic needs of everyone. The invisible hand of market will lead everyone to do the best for the economy, by way of each person pursuing his/her own individual interests. People, on their own, will produce the goods they need and when they need it. One part of society will need it (the consumers) and the other (producers) will supply it. He thought that this was the most efficient way and that the government should not interfere in this process. As this theory is literally what laissez-faire is, it can be argued that in this aspect Adam Smith advocated laissez-faire.

On the other hand, it is important to note that Smith always emphasized that actions taken in self-interest should always be within ethical boundaries. He had this term called 'impartial spectator', which he used for community and social standards. He said that all self interest should be within these guidelines and that any action that violated these was not really in society's interests. So we can see that he was not arguing for true laissez-faire, but rather market efficiency within acceptable moral standards. In this sense we can argue that he was not for true laissez-faire and can challenge this label.