Chapter 6: Theory of

Capitalism

Hobbes Versus Smith

Proponents of a strong and
redistributive state
Thomas Hobbes (divine right of kings)
Karl Marx (dictatorship of the proletariat)
John Rawls (state must redistribute
income)

Proponents of a limited state

John Locke (Social contract and natural
law)
Adam Smith (Invisible hand and limited
government)

Thomas Hobbes, The

Leviathan, 1660
So that in the nature of man, we find three
principal causes of quarrel. First,
competition; secondly, diffidence; thirdly,
glory.
The first maketh men invade for gain; the
second, for safety; and the third, for
reputation. The first use violence, to make
themselves masters of other men's persons,
wives, children, and cattle; the second, to
defend them; the third, for trifles, as a
word, a smile, a different opinion, and any
other sign of undervalue, either direct in
their persons or by reflection in their
kindred, their friends, their nation, their
profession, or their name.

Hobbes continued

If a covenant be made wherein neither of the parties

perform presently, but trust one another, in the
condition of mere nature (which is a condition of war
of every man against every man) upon any
reasonable suspicion, it is void: but if there be a
common power set over them both, with right and
force sufficient to compel performance, it is not void.
For he that performeth first has no assurance the
other will perform after, without the fear of some
coercive power.
But in a civil estate, where there a power set up to
constrain those that would otherwise violate their
faith, that fear is no more reasonable; and for that
cause, he which by the covenant is to perform first is
obliged so to do.

Hobbes continued
The only way to erect such a common power
(is) to appoint one man, or assembly of
men, to bear their person; and therein to
submit their wills, every one to his will, and
their judgements to his judgement. This is
the generation of that great LEVIATHAN, or
rather, to speak more reverently, of that
mortal god to which we owe, under the
immortal God, our peace and defence. For
by this authority, given him by every
particular man in the Commonwealth, he
hath the use of so much power and strength
conferred on him that, by terror thereof, he
is enabled to form the wills of them all.

John Locke (1632-1704)

The people cannot delegate to government the power to do

anything which would be unlawful for them to do
themselves. ... whenever the Legislators endeavor to take
away, and destroy the Property of the People, or to reduce
them to Slavery under Arbitrary Power, they put themselves
into a state of War with the People, who are thereupon
absolved from any farther Obedience, and are left to the
common Refuge, which God hath provided for all Men,
against Force and Violence. Whensoever therefore the
Legislative shall transgress this fundamental Rule of Society,
and either by Ambition, Fear, Folly or Corruption, endeavor
to grasp themselves, or put into the hands of any other an
Absolute Power over the Lives, Liberties, and Estates of the
People; By this breach of Trust they forfeit the Power the
People had put into their hands, for quite contrary ends, and
it devolves to the People, who have a Right to resume their
original Liberty.

Locke Government as a Social

Contract
Legitimate government is instituted
by the explicit consent of those
governed. Those who make this
agreement transfer to the
government their right of executing
the law of nature and judging their
own case. These are the powers
which they give to the central
government, and this is what makes
the justice system of governments a

Adam Smith 1776

The invisible hand:
Every individual...generally, indeed, neither
intends to promote the public interest, nor knows
how much he is promoting it. By preferring the
support of domestic to that of foreign industry he
intends only his own security; and by directing
that industry in such a manner as its produce
may be of the greatest value, he intends only his
own gain, and he is in this, as in many other
cases, led by an invisible hand to promote an end
which was no part of his intention.
The Wealth of Nations, Book IV Chapter II

Adam Smith continued

The statesman who should attempt to
direct private people in what manner they
ought to employ their capitals, would not
only load himself with a most unnecessary
attention, but assume an authority which
could safely be trusted, not only to no
single person, but to no council or senate
whatever, and which would nowhere be so
dangerous as in the hands of a many who
had folly and presumption enough to fancy
himself fit to exercise it.
The Wealth of Nations, Book IV, Chapter II

Adam Smith continued

It is the highest impertinence and
presumption, therefore, in kings and
ministers, to pretend to watch over the
economy of private people, and to restrain
their expense... They are themselves
always, and without any exception, the
greatest spendthrifts in the society. Let
them look well after their own expense,
and they may safely trust private people
with theirs. If their own extravagance does
not ruin the state, that of their subjects
never will.
The Wealth of Nations, Book II, Chapter III

Adam Smith continued

It is not from the benevolence of the
butcher, the brewer, or the baker,
that we expect our dinner, but from
their regard to their own interest. We
address ourselves, not to their
humanity but to their self-love, and
never talk to them of our necessities
but of their advantages.
The Wealth of Nations, Book I
Chapter II

Adam Smith cont

According to the system of natural liberty, the
sovereign has only three duties to attend to ...
first, the duty of protecting the society from the
violence and invasion of other independent
societies; secondly, the duty of protecting, so far
as possible, every member of the society from the
injustice or oppression of every other member of
it, or the duty of establishing an exact
administration of justice, and thirdly, the duty of
erecting and maintaining certain public works and
certain public institutions, which it can never be
for the interest of any individual, or small number
of individuals, to erect and maintain...
The Wealth of Nations, Book IV, Chapter IX

F. A. Hayek:
The curious task of economics is to
demonstrate to men how little they
really know about what they imagine
they can design.

John Rawls

Moral and Political Philosophy

Theory of Justice, 1991
Social contract
Veil of ignorance