Why Adam Smith’s ‘Liberal Plan’ Still Matters

Smith lays out a classical liberal foundation for our pursuit of public policy—and his ‘liberal plan’ is still worth our attention

By Erik Matson

In American political discourse, we usually associate the word “liberal” with progressivism and the Democratic Party. But the earliest political sensibilities called liberal in English were a far cry from progressivism. Rather, classical liberalism centers on a presumption of liberty and a skepticism of the governmentalization of social affairs.

The political sensibilities that became widely known as liberal in Britain by the end of the 18th century find their clearest expression in what Adam Smith called “the liberal plan of equality, liberty and justice.” What exactly was Smith’s plan—and why did he choose to describe that plan as liberal?

Examining these questions helps us understand the nature of liberalism in its original political sense and its ethical grounding in considerations of human flourishing. Such understandings reinforce an increasingly neglected—but imperative—point in contemporary political discourse: Freedom serves the common good of humankind.

What is the Liberal Plan?

Smith discussed his liberal plan in his celebrated 1776 book, “An Inquiry into the Nature and Causes of the Wealth of Nations.” The plan lays out a set of specific reforms of 18th century British commercial policy and an orientation in public policy generally. Smith sometimes referred to the British commercial system of his day as the mercantile system, and its governing philosophy aligns with what is now called mercantilism.

The British mercantilism of Smith’s day weaponized commercial policy in an effort to increase national power, plenty and status on the world stage. A main goal was increasing the nation’s stocks of precious metals, to the detriment of foreign powers, to ensure the means to finance war. The policy levers used to accomplish this goal were, among others, domestic subsidies to encourage exports and import restrictions. Both policies aimed to draw precious metals into the country, thereby maintaining a “favorable” balance of trade.

Trade restrictions worked in tandem with schemes of empire. Such schemes cashed out in colonization efforts and government-sponsored trade companies, such as the East India Company and the Hudson Bay Company, aimed at wealth extraction in foreign corners of the world. Smith, along with his friend David Hume, dismantled the logic of mercantilist philosophy and illustrated the destructive effects of its recommended policies. “The Wealth of Nations” as a whole reads, as Smith described it in 1780, as “a very violent attack upon the whole commercial system of Great Britain.”

In place of extant British policy, Smith looked to bring about his liberal plan,” which targeted reforms in such policy areas as occupational choice, domestic trade and international trade. Smith favored, for example, abolishing the Elizabethan Statute of Artificers, which controlled entry into certain trades through long apprenticeship requirements (something not unlike present-day occupational licensing requirements for, say, barbers). He believed the market provides sufficient feedback on worker quality; moreover, he judged preventing individuals from trying their hand in trades of their choosing to be a “manifest encroachment upon the just liberty both of the workman, and of those who might be disposed to employ him.”

On the international trade front, he demonstrated that wealth consists not of stocks of precious metals, but of real goods and services. By illustrating the remarkably beneficial effects of the domestic and international market process, Smith made a case for repealing duties on foreign imports and removing subsidies and protections for inefficient domestic industries.

More than a call for specific policy reforms, the liberal plan captures Smith’s general orientation or philosophy in matters of public policy. Equality, liberty and justice each bear multiple meanings. But for Smith, in the context of his liberal plan, they seem to be as follows:

Equality indicates equality under the law: Laws are known to the members of society and enforced in a uniform manner. It is such equality that “by securing to every man the fruits of his own industry, gives the greatest and most effectual encouragement to every sort of industry.”

Liberty indicates freedom within the rules of justice. We might call this negative or “mere-liberty,” in distinction to richer, positive conceptions of freedom. This characterization of liberty is apparent when Smith writes of several economic restrictions as “evident violations of natural liberty, and therefore unjust.”

Justice in the liberal plan, as the previous quote illustrates, is something like the reciprocal of mere-liberty. It corresponds to what Smith calls in his other great book, “Theory of Moral Sentiments,” “commutative justice,” which enjoins each to abstain from the person and property of others, and to keep his contracts.

Politics is a delicate matter—more art than science—so Smith held his commitments with a degree of flexibility. It is best, therefore, to describe the orientation of the liberal plan as a presumption of liberty within the rules of justice as the superior policy option. Regard for tradition, custom and exceptional circumstances must not be dismissed, but policies that would violate liberty bear the burden of proof.

What is ‘Liberal’ about the Liberal Plan?

In Smith’s time, liberal was often used to mean munificent, generous or charitable. To be liberal was to possess the virtue of liberality. If we adopt that definition, it might seem odd at first glance that Smith decided to describe both his intended policy reforms and his plan of equality, liberty and justice as liberal. Smith’s plan suggests very little in the way of a social safety net. It condemns wage and price controls. It calls for the abolition of occupational licensing regulations. It sees sprawling administrative bureaucracies as opportunities for state capture. Subsidies and trade protections for domestic industry are, with very few exceptions, condemned.

So where is the liberality? One part of the answer, I think, is that Smith believed his plan to further ends of which a liberal person ought to approve—ends that include high wages for an increasing population, a generous production of provisions, and increased comforts for ordinary people. Put another way, his plan is metaphorically liberal in that were its results a consequence of an intelligent design, that designer could be said to exhibit the virtue of liberality.

This sort of metaphorical thinking comes across in Smith’s discussion of grain speculation. The speculator in grain intends his own gain when he holds back supply in times of bounty to sell for profit in times of dearth. But in pursuing his own gain, he inadvertently alleviates supply shocks, preventing dearth from becoming famine. To a distant spectator, Smith writes, the speculator behaves as a “prudent master of a vessel” might, by holding back in times of excess to ensure sufficient provision in times of need. In channeling individuals incentives, the free market in grain promotes ends that could be called liberal and generous, as if they had been brought about by an invisible hand.

The same point is evident in Smith’s discussion of banking. Notwithstanding his advocacy of certain financial regulations, he declares: “Free competition obliges all bankers to be more liberal in their dealings with customers.” Why? The sentiments of bankers do not obviously become more generous and munificent in a competitive environment. But competition does encourage bankers to offer credit at lower rates, providing ordinary people with readier access to goods and services. A liberal person who professes to care for the good of the many ought to approve of these ends. Had they been brought about by design, again, we could properly ascribe a degree of liberalness to the designer.

Discussions of grain speculation and banking in “The Wealth of Nations” both illustrate what we might call the enrichment aspect of Smith’s liberal semantics. It is the liberal plan of equality, liberty and justice that facilitates economic growth by allowing for an extended division of labor, encouraging capital formation and unleashing innovation. It is due to incremental movements toward something like the liberal plan that afforded “the industrious and frugal peasant” of Europe a higher living standard in Smith’s day than “many an African King.”

Observing connections between Smith’s use of the word liberal and his ideas about economic growth highlight an underappreciated focus in early classical liberalism on the good of the many. The liberal plan is principally about freedom, and freedom is about the good of humankind—the social good is served much more effectively by individuals to pursue their interests their own way rather than by government fiat. Within the rules of justice, as Smith beautifully illustrates over the course of his work, each person’s desire to better his or her condition prompts people to bring their capital and industry into competition and cooperation with others. Led by an invisible hand, exchange and competition—within the rules of justice—enrich humankind.

Technology and the organization of industries have changed since the 18th century. Changes, like some of those brought about in recent decades by the digital revolution, sometimes call for new policy measures for the sake of things like political stability and national security. But the presumptions and sensibilities of Smith’s liberal plan ought still to be promoted. Economic freedom, now as much as ever, serves our national interest and the interests of humanity generally in a way that the schemes of politicians and bureaucrats cannot possibly match.

Liberal Presumptions

Some conservatives have turned against free trade as a consumeristic philosophy. This past summer, Robert Lighthizer depicted free trade as accomplishing only increases in trivialities like “Christmas lights and toys,” and “tennis shoes and garden tools.” Lighthizer’s comments come in the context of some remarks on trading relationships with China. That is a complicated matter, but nonetheless, such comments elide the point that free trade is valuable not just in its material effects, but as a part of freedom generally.

Freedom—letting each “live and let live,” as C.S. Lewis puts it—is generous. This too, I think, is part of the reason Smith calls his plan liberal. In allowing people to pursue their own interests their own way, Smith’s plan gives “width to the facts and interpretations” of a diverse array of human activities. His plan assumes that individuals are best suited to care for themselves—and most properly entrusted with their own care. Such assumptions indicate respect for human dignity, agency and responsibility, and they can be appropriately described as liberal.

Smith’s liberal plan eschews attempts to micromanage the “industry of private people, and [direct] it towards the employment most suitable to the interest of society,” not just because the state completely lacks the knowledge and abilities to do so effectively, but because such government intervention is gross paternalism. Like his teacher Francis Hutcheson, Smith decries governments meddling in family affairs and treating individuals like children and fools.

The machinations of most economic interventions, like those characterizing the French regime under Jean-Baptiste Colbert, are “illiberal and oppressive” for Smith, in part because those interventions stifle economic growth and prevent ordinary people from bettering their conditions. But those regulations are also illiberal and oppressive in that they tread on the judgment and dignity of individuals, presuming that they are but pieces on a chessboard without their own free will.

In allowing individuals to pursue their interests as they choose, Smith’s liberal plan by no means requires us to approve of all choices and lifestyles. The liberal plan does not depreciate public discussions of religion and virtuous living; indeed, the liberal plan can only flourish in a social order in which individuals possess and cultivate a certain set of virtues—justice, prudence, tolerance, respect for rules, reciprocity, promise-keeping and so forth. Smith explicitly gives custom and tradition an integral place in his moral system.

The liberal plan, however, calls us to promote and sustain the conditions of a free society primarily through voluntary religious association and cultural entrepreneurship rather than with the coercive power of the state. To do so is not only to respect the agency and dignity of the individual, but to protect ourselves from the dangers and inefficiencies that lurk in governmentalizing our social affairs.

Tending to Smith’s ideas shores up our understanding of liberalism as a philosophy, at least at its origin: concerned with the good of the many, and committed to the belief that that good is most effectively served by freedom and respect for the dignity of the individual. In making such points, Smith’s liberal plan warrants our continued attention.

This essay is the first in a series on the importance and legacy of Adam Smith 300 years after his birth.