Adam Smith wrote in an era when industrialization was only just emerging, and his views on government intervention can’t be fairly compared to the contemporary strain of laissez-faire championed by Milton Friedman. Smith believed in letting markets work to allocate resources efficiently, but he also considered it the government’s role to provide public goods, prevent monopolies, and ensure basic fairness.
His moral philosophy, as laid out in The Theory of Moral Sentiments, places much more emphasis on empathy, social responsibility, and the importance of maintaining a moral framework than many of today’s self-described free market proponents would acknowledge. To claim that Smith fully endorsed a hands-off approach to every aspect of the economy ignores the nuance that runs through his work. He saw government regulation as necessary to keep competition fair, safeguard society from corporate abuses, and protect those who are most vulnerable. He championed freedom in commerce, but he did not call for an abdication of government responsibility to uphold justice and maintain social welfare.
Milton Friedman, by contrast, emerged in the mid-twentieth century, at a time when industrial capitalism had already produced massive corporations, more complex financial markets, and great concentrations of wealth. His approach to laissez-faire, which has often been described as neoliberal, had to contend with enormous private power, and in practice tended to concentrate more on cutting regulations than on balancing the scales between labor and capital. Friedman’s proposal for a negative income tax indicates he recognized that pure reliance on the market might fail to mitigate the worst effects of poverty. Indeed, he understood that society should provide a minimum standard of living for the poor, which is at odds with the simplistic idea that private enterprise, if simply left alone, would solve all social challenges.
But it’s also true that, in practice, many of the policies influenced by Friedman downplayed labor rights, weakened worker protections, and contributed to rising inequality. Without adequate regulation, capitalism spirals into cycles of exploitation, environmental degradation, and severe inequality. In the nineteenth century, laissez-faire economics left factory workers in horrendous conditions, toiling in unsafe environments for meager pay. Government intervention particularly in the form of labor laws, health and safety standards, and anti-monopoly regulations became necessary to avert social catastrophes and prevent revolutions.