Reform

A major task of the state is thus to ensure that the conditions of economic freedom are in fact satisfied, so far as possible, by sweeping away all legal and institutional impediments to it. Generally speaking, these obstructions can be condensed to four main groups. First, there is the problem that, in all societies subject to a course of evolution, 'Laws frequently continue in force long after the circumstances, which first gave occasion to them, and which could alone render them reasonable, are no more' (Stewart, 1793). In such cases, Smith suggested that arrangements that were once suitable but are not anymore so should, ideally, be detached, quoting as examples the rules of succession and necessitate, laws that had been suitable in the feudal era but now had the result of limiting the sale and development of land.

Secondly, Smith brought attention to particular institutions which had their source in the past but still controlled active support, for instance the privileges of conglomerates with regard to the domination of trades and the control of dealerships. Such regulations were disapproved of on the basis that they were both unwise and unfair: unwise in that controls over qualification for entry to a trade were an infringement of 'this most sacred property which every man has in his own labor' (Stewart, 1793); unfair in that regulations of apprenticeship constitute no guarantee of competence. Smith emphasized that such regulations adversely affect the operation of the market mechanism, and pointed out in this connection that 'The statute of apprenticeship obstructs the free circulation of labor from one employment to another, even in the same place. The exclusive privileges of corporations obstruct it from one place to another, even in the same employment' (Becker, 1976). In a very similar vein, he remarked on the problems offered by the Poor Laws and Laws of Settlement, and he summed up his appeal to government in these words:

break down the exclusive privileges of corporations, and repeal the statute of apprenticeship, both of which are real encroachments upon natural liberty, and add to these the repeal of the law of settlements, so that a poor workman, when thrown out of employment either in one trade or in one place, may seek for it in another trade or in another place, without the fear either of a prosecution or of a removal. (Stewart, 1793).

Thirdly, Smith opposed positions of privilege, such as domination powers, that he regarded as essentially creatures of the law. The establishment is again symbolized as unwise and unfair: unwise in that a monopoly position was one of opportunity and lead, and consequently 'contrary to that justice and equality of treatment which the sovereign owes to all the different orders of his subjects' (Stewart, 1793); unjust in that the prices at which goods so controlled are sold are 'upon every occasion the highest that can be got' (Mitchell, 1949). 'The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate' (Hopfl, 1978). He further said that monopoly is 'a great enemy to good management' (Stewart, 1793), and that it had the extra defect of limiting the flow of capital to the trades exaggerated because of the legal barriers to admission that were concerned.

Finally, we may usefully distinguish Smith's objection to monopoly in general from his disapproval of one phrase of it: that is, the mercansystem that he explained as the 'modern system' of policy, best tacit 'in our own country and in our own times' (Stewart, 1792). Here Smith considered regulations that defined the trade relations between one country and another and which, he felt, often reflected the state of animosity between them. In this context he examined a policy that sought to produce a net inflow of gold by means of such 'engines' as bounties on exportation, drawbacks, and controls over imports. Smith proposed taxes on the trade and sale of alcoholic beverages with the intention of discouraging the multiplication of breweries (Stewart, 1793) and disparity in rates on alcohol and spirits so as to decrease the sale of the second (Skinner, 1979). To take another example, he advocated taxes on those proprietors who demanded rents in kind rather than cash, and on those leases that lay down a certain form of farming. In the same area,...

Smith is here suggesting that the state is justified in intervening to offset the consequences of ignorance, lack of knowledge, or lack of forethought on the part of individuals or groups of individuals. Smith was also well aware, to take a second point, that the modern account of the 'circular flow' was based on paper money and on credit-in outcomes, a scheme of 'dual circulation' concerning a myriad of dealings linking manufacturers and merchants, traders and consumers (Stewart, 1793), transactions that would involve cash at the level of the household and credit (at the level of the firm). It is in this context that Smith backed control over the price of interest, placed in such a way as to make sure that clear-headed people are generally preferred, as loaners, to 'prodigals and projectors' (Stewart, 1793). He was in addition willing to control the small note matter for the welfare of a stable banking structure. To those who opposed this proposal, he responded that the interests of the community requisite it, and summarized that 'the obligation of building party walls, in order to prevent the communication of fire, is an infringement of natural liberty, precisely of the same kind (with) the regulations of the banking trade that are here proposed' (Mitchell, 1949).
Even though Smith's monetary analysis is not thought of as being among the most robust of his contributions, it should be kept in mind that the spectator of the collapse of major banks in the 1770s was deeply aware of the troubles generated by a complicated credit structure. It was in this circumstance that Smith expressed a very general standard, explicitly that 'those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical' (Whately, 1832).