Sociology

The Real Adam Smith: Beyond "The Invisible Hand"

Adam Smith supported free markets but argued for government-funded education, progressive taxes, and regulation to protect the public from business conspiracies, a balanced vision often omitted.

T Jackson

01 Jan 2026 — 4 min read

Photo by Johnny Briggs on Unsplash

Abstract:

Adam Smith supported free markets but argued for government-funded education, progressive taxes, and regulation to protect the public from business conspiracies, a balanced vision often omitted.

Most people think of Adam Smith as the "father of capitalism" who described and supported the market’s "invisible hand." He’s often seen as someone who thought government should stay out of the economy and as a 100% free-market advocate. But that is not true. Looking at Smith’s writings, we find he cared about society’s well-being. He supported markets and the role of government, especially in helping the poor. Here are three parts of his thinking that people often miss.

1. Government’s Duty: More Than Police and Army

Adam Smith thought free markets were the best way for a country to grow richer. Still, he didn’t think the government should do nothing.

In his famous book, The Wealth of Nations, he described three primary duties of the state:

National defense
A system of law and justice.
Providing specific "public works."

What did Smith mean by "public works"? He named things like roads, bridges, canals, and harbors. These help business and trade, but private companies might not build them. He also included public education, which was unusual for his time. Smith worried that factory work could make people ” as stupid and ignorant as it is possible for a human creature to become.” He believed this was a problem for society, not just for workers. Smith wanted the government to fund small schools in every area so even the poorest children could get a basic education. This shows he cared more about people’s well-being than about profits.

Smith also accepted the "poor laws" of his time, which were basic welfare programs for people who were poor, sick, or old. He did criticize parts of these laws, but he believed society should not let its most vulnerable people go hungry. For Smith, a "limited government" still had the job of ensuring society was healthy, fair, and well-functioning.

2. Fair Taxes: Asking More from the Rich

Adam Smith had clear ideas about how to pay for these public services. He is known for his four rules for good taxes: they should be fair, easy to understand, simple to pay, and not expensive to collect.

The first rule, fairness, is especially important. Smith said people should support the government "as nearly as possible in proportion to their respective abilities." In other words, people should pay taxes based on what they can afford. He even said, ”It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”

This means Smith supported progressive taxation, in which the rich pay a higher rate, especially on luxury goods. A progressive tax increases as income goes up, while a proportional tax is the same percentage for everyone. Smith thought progressive taxes were fair because the wealthy benefited more from peace, safety, and public services. He wanted taxes to be low to help businesses, but he also believed the rich should pay a bigger share than the poor. This is very different from the idea that he wanted no rules for the rich.

3. A Skeptic of Business Power, Not Its Cheerleader

Adam Smith's wisdom showed that he did not trust business owners, even though people often think he supported them. He frequently warned that merchants and factory owners would try to change the rules to their own advantage.

Smith famously wrote, ” People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” He thought business owners naturally wanted less competition and lower wages. He was suspicious of policies proposed by business lobbyists and believed that what helped business owners was often not in the public's interest.

This is why Smith thought of society as a whole. He supported government regulation/laws to protect the public from greed. For example, he favored laws about product quality to protect buyers from fraud. He also agreed with laws to protect borrowers from unfair lending practices. While he believed in market competition, he was smart enough not to entirely trust business leaders.

Conclusion: A Balanced Vision

Many people think of Adam Smith as a supporter of capitalism, but that’s not the whole story. The real Adam Smith had a balanced view. He believed free markets could create wealth and improve lives, but he also thought the system needed a strong base. This included a government that offered important services like education and fair taxes that asked more from the rich. He also believed businesses needed regulation to stay honest and protect everyone.

Smith wasn’t a socialist. Plus, he didn’t think of the government as the enemy. As a practical thinker, he dreamed of a fair society. If we fail to acknowledge his support for public education, fair taxes, and his warnings about the abuse of business power, we miss the real Adam Smith.

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