Adam Smith's theory makes a strong argument for the assertion that a free market will provide overall good for society, but, as de Tocqueville points out, it provides little or no protection for the poor. Smith's picture of human nature given in The Theory of Moral Sentiments suggests that people would do good and take care of the weak because of characteristics of their nature. Unfortunately, this image contrasts with the picture of the individual which emerges from his economic argument in Wealth of Nations and is a generally unsatisfying answer.
In attempting to define liberty, Adam Smith is mostly concerned with negative liberty, or freedom from constraint, especially market constraints. According to him, in a free market, as long as they are not fettered by government regulation, actions are guided toward the public good as if by an invisible hand. Furthermore, the economic sphere is the determining section of society. Therefore from his economic model, he derives his argument for the best role of government and asserts that the resultant society will be the best overall for civilization.
Since he defines the individual as sovereign (within the laws of justice), and he defines liberty as freedom from constraint, his argument begins with the individual, defining a man's labor as the foundation of all other property. From this it follows that the disposition of one's labor, without harm to others, is an inviolable right which the government should not restrict in any way (Smith 215). He uses his economic theory to support his belief that this limitation on government action creates the most overall good for society.
First, he defines all prices as being determined by labor (Smith 175). Since labor causes raw materials to have value, Smith asserts that labor confers ownership, but when stock is used there must be something given for the profits of the investors, so labor resolves itself into wages and prices (185). The support for the free market lies in the way the prices are determined and the inner workings of the market. The prices ultimately come from the value of labor. A capitalist will want to produce as much as possible, in order to make the greatest profit, therefore his demand for labor will rise. As the demand for labor rises, wages will rise. As more people begin working to meet the increased demand for labor, production will rise, and prices will fall. Following this argument, in a free market, everybody is working for his or her own personal gain, but maximum production occurs, which increases overall wealth and prosperity. If the government interferes by setting minimum wages, charging prohibitive taxes, or regulating prices, it interrupts the natural flow of the market. Therefore, Smith argues that the market prices of wages and of goods should be regulated by the market rather than by the government.
Smith then identifies three classes of people who develop from capitalism: laborers, landlords, and capitalists. Each of these groups act purely out of self-interest, and for this reason Smith does not think any of them will be able to effectively rule with the good of society in mind. The laborers are incapable of comprehending "that the interest of the labourer is strictly connected with that of the society..." (Smith 226). The landlords are the most impartial of the classes and...