The Proper Context of Business

Chapter 2 investigates the explanation Adam Smith gave in his famous Wealth of Nations (1776) for why some places are wealthier than others, and what political, economic, and other social institutions are required for increasing prosperity. The chapter discusses the conception of “justice,” as opposed to “beneficence,” that Smith offered The Theory of Moral Sentiments (1759), as well as Smith’s economizer, local knowledge, and invisible hand arguments from his Wealth of Nations that form the basis of his political economy. We look at the duties of government implied by Smithian political economy, including both what he argues government should do and what it should not do. We also look at empirical evidence to answer the question of whether Smith’s predictions on behalf of his recommendations have come true in the intervening centuries.