The way Adam Smith evaluated the role of government in the economy is often misinterpreted. Recently I came across this comment by Terence Hutchison,
However, The Wealth of Nations was, as Viner emphasised, 'an evaluating and crusading book', which sharply criticised existing society and government, and argued strongly for changes in national policy' (1968, p. 326). Smith was crusading, of course, against the excessive activities of monarchical, aristocratic and highly nationalistic governments, and for a greatly expanding role for the invisible hand.This view seems to argue for anti-government view of Smith (or at least an anti-government-as-Smith-knew-it view). But Hutchison then adds,
At the same time Smith wanted to retain a wide-ranging economic agenda for government, the precise extent of which had to be decided by empirical, case-by-case studies. He would have rejected fundamentally any conjecture that the invisible hand, or any other system, could produce perfect efficiency for a real-world economy. In his ideas, thought and method, Smith -abhorred the perfection, or extremes, which 'the man of system' sought so eagerly to promote.Such a case-by-case method of evaluation looks somewhat like a Coaseian comparative institutional analysis approach.