The Wealth of Nations

Smith outlines the three fundamental duties of government that justify taxation: defense, justice, and public works. He traces how military organization evolved from hunter-gatherer societies where everyone was a warrior, to shepherd societies with mobile armies, to agricultural societies requiring professional standing armies. This evolution reflects economic development—as societies become more specialized and wealthy, they become both more vulnerable to attack and more capable of funding professional defense. Smith argues that justice systems must be independent from executive power to prevent corruption, noting how historically judges who depended on fees and gifts from litigants created systemic bias. He advocates for fixed salaries funded by the state to ensure impartial justice. For public works like roads, canals, and education, Smith favors user fees where possible—tolls for roads, tuition for schools—because this ensures services are built where needed and maintained efficiently. He's particularly critical of universities that pay professors regardless of student satisfaction, arguing this destroys incentive for quality teaching. Throughout, Smith demonstrates how institutional design shapes human behavior: when people's income depends on serving others well, they perform better than when guaranteed payment regardless of effort. This chapter reveals how the invisible hand operates in government services—proper incentives align individual self-interest with public benefit, while poor incentives create waste and corruption. Smith's argument here remains foundational: productive economies are built not on hoarded gold or royal decree, but on the free exchange of labor, goods, and ideas — guided by competition and tempered by the moral sentiments that bind society together.