from introduction:

Many scholars tend to see Adam Smith’s theory as the fundamental groundwork for what has become the central paradigm in classic economic theory. Gary Becker claims that “the combined assumptions of utility maximizing behaviour, market equilibrium, and stable preferences, used relentlessly and unflinchingly, from the heart of the economic approach as I see it.” Smith’s theory states that if every individual would be free to pursue his own interest within a legal framework based on liberal values, the fulfilment of a collective interest would follow inevitably. Driven by self-interest, each human follows his disposition to “truck, barter and exchange”. Thus, the market can provide economic freedom and serve as mechanism of social control by harmonizing the actions of self-interested individuals. Yet, in the context of global commerce, the idea of a self-regulating market has found only limited fulfilment. Growing structural unemployment, rising inequalities and political resentment towards the elite now characterize many modern societies. In this essay, I will argue that there is an alleged misunderstanding in what Smith promoted as “system of natural liberty” in terms of its actual involvement of the state. Although he called for limitations on governmental activities, Smith had specific functions attributed to the state that were vital in maintaining a balanced system of natural liberty.