Smith pointed out that government interference exacerbates political divisions and creates new conflicts and factions where none existed.
Left Smithians like to play up how much Smith denounced businessmen, merchants, and manufacturers to show that he was not enamored of private enterprise. And he certainly had some scathing remarks about their “mean rapacity” and “monopolizing spirit.” Left Smithians conclude from Smith’s remarks that he thought government could intervene and check unscrupulous merchants. Too often they miss the essential point that Smith usually condemns those merchants for seeking or receiving government‐granted privileges. The imposition that their rent‐seeking makes on other people’s free exercise of their faculties and property is the real source of Smith’s ire.
Government involvement in social affairs creates pernicious influences of faction and fanaticism. It corrupts amiable and social relations in society. Even commerce, which produces wealth through mutually beneficial exchange, can be hijacked by faction and fanaticism: “commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity.” Of course Smith acknowledges and even praises some government involvement in society—especially with respect to the rule of law. Within a basic framework of rules, the “mean rapacity” of merchants is limited in how much harm it can do. But when merchants begin using government to advance their personal interests, problems arise:
The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquillity of any body but themselves.
Smith does not condemn these merchants for pursuing income by honest means, whether greedily or moderately. He condemns them for pursuing income by dishonest means, including political means. These merchants were not only greedy, they also rapaciously advanced the spirit of monopoly by arguing for tariffs on foreign goods and bounties (subsidies) for export goods. They used government to limit competition and to give themselves special privileges.
Even the famous passage about businessmen always colluding against the public has a political element. Smith says that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices.” As a historical matter, he also claims that tradesmen in small towns often had “the corporation spirit, the jealousy of strangers, the aversion to take apprentices, or to communicate the secrets of their trade” and were able “to prevent that free competition which they cannot prohibit by bye‐laws” using “voluntary associations and agreements.” But government efforts to prevent private plots of collusion can be neither practical nor just.
Smith argues that governments should refrain from making matters worse. Although private collusion might restrict competition in limited cases, government enforcement can encourage or empower collusion restricting competition in broader settings and for longer periods of time. Smith calls the collusive protection of trades “incorporation.” He is criticizing guilds when he says:
In a free trade an effectual combination cannot be established but by the unanimous consent of every single trader, and it cannot last longer than every single trader continues of the same mind. The majority of a corporation can enact a bye‐law with proper penalties, which will limit the competition more effectually and more durably than any voluntary combination whatever.
The pretence that corporations are necessary for better government of the trade, is without any foundation. The real and effectual discipline which is exercised over a workman, is not that of his corporation, but that of his customers.
Government laws and regulations, far from preventing these plots against the public, encourage and increase them. Identifying and treating people in groups based upon their profession creates an easy avenue for merchants or tradesmen to find each other and form a lobby.
Smith also criticizes governmentalizing social affairs because it introduces laws and regulations which create new interests, thereby separating people from one another into opposing factions. For example, suppose my neighbor chooses to recycle and I do not. We have different preferences and beliefs and are free to act upon them as we see fit. But if someone introduces a referendum to require everyone in our town to recycle, my neighbor and I find ourselves with conflicting interests. We are suddenly at odds with one another, and perhaps even actively working against one another. The heated debates about government schooling illustrate that kind of conflict and division.
The moral corruption caused by faction and fanaticism can be seen most clearly in “the furious zealots” and their political leaders. People caught up in faction and fanaticism tend to reject anyone advocating moderation, patience, or compromise. Men of sober judgment, rare as they are, will not be respected or influential in such an environment:
In a nation distracted by faction, there are, no doubt, always a few, though commonly but a very few, who preserve their judgment untainted by the general contagion. They seldom amount to more than, here and there, a solitary individual, without any influence, excluded, by his own candour, from the confidence of either party, and who, though he may be one of the wisest, is necessarily, upon that very account, one of the most insignificant men in society. All such people are held in contempt and derision, frequently in detestation, by the furious zealots of both parties.
Besides relegating wise and prudent men to the sidelines, faction promotes “party‐men” who are ideologically extreme and unwilling to compromise. Not only that, the party‐man suspects anyone who does not have views as extreme as his own. Smith explains that
A true party‐man hates and despises candour; and, in reality, there is no vice which could so effectually disqualify him for the trade of party‐man as that single virtue. The real, revered, and impartial spectator, therefore, is, upon no occasion, at a greater distance than amidst the violence and rage of contending parties.
The political element to factionalism and fanaticism has important implications for Smith’s view of liberty and government. If creating new laws, rules, and regulations increases faction and fanaticism, it stands to reason that he would generally oppose more of them. Only extraordinary circumstances of public interest can justify new government intervention:
To hinder, besides, the farmer from sending his goods at all times to the best market, is evidently to sacrifice the ordinary laws of justice to an idea of publick utility, to a sort of reasons of state; an act of legislative authority which ought to be exercised only, which can be pardoned only, in cases of the most urgent necessity.
Here Smith clearly advocates a presumption of liberty. Government intervention sacrifices “the ordinary laws of justice.” Therefore, only “urgent necessity” to prevent harm or injustice on a grand scale can pardon new government restrictions on liberty.