Category: Economics

The Other 250th Anniversary: Adam Smith and the Discipline of Markets

Portrait of Adam Smith, Scottish economist and moral philosopher.

Adam Smith, author of The Wealth of Nations and The Theory of Moral Sentiments. Public domain image via Wikimedia Commons.

In 2026, Americans will celebrate the 250th anniversary of the Declaration of Independence. That anniversary deserves attention. But there is another 250th anniversary worth remembering: the publication of Adam Smith’s The Wealth of Nations in 1776.

The two anniversaries are not unrelated. The modern case for political liberty and the modern case for economic liberty developed in the same historical moment. Both reflected suspicion of concentrated power. Both challenged inherited systems of privilege. Both assumed that ordinary people should have more freedom to make decisions without permission from distant authorities.

That does not mean Adam Smith should be treated as a simple mascot for free-market politics. He was not that. Smith was a moral philosopher as well as an economist. He understood self-interest, but he also understood vanity, overconfidence, monopoly, privilege, collusion, and the human tendency to justify one’s own advantage as public virtue.

That is one reason Smith remains useful. He does not fit comfortably into modern slogans.

Smith respected markets because markets allow people to cooperate without central command. They allow millions of people, each with limited knowledge, to produce, exchange, save, invest, specialize, and adapt. Prices carry information. Competition disciplines producers. Voluntary exchange allows people to pursue their own plans while often creating value for others.

But Smith did not worship businessmen. He famously warned that people in the same trade rarely gather without the conversation ending in some effort to raise prices or conspire against the public. That is not a minor aside. It is central to Smith’s understanding of political economy. Business interests often seek protection from competition. They may ask government for tariffs, subsidies, licensing rules, monopoly privileges, regulatory barriers, or other arrangements that protect incumbents at public expense.

Smith defended competition, not collusion. He defended voluntary exchange, not monopoly. He defended commercial society, not crony capitalism.

Markets Deserve a Presumption, Not Worship

CIVPAC’s view is not that markets always work perfectly. They do not. Markets can be distorted by monopoly power, externalities, public goods, asymmetric information, fraud, and poorly designed rules. They can also produce outcomes that society may choose to modify for distributional reasons.

But markets deserve a presumption in their favor because they do several things government usually cannot do as well. They coordinate dispersed information. They reward production that others value. They allow decentralized choice. They permit experimentation. They create incentives for efficiency and innovation. They also limit concentrations of power by allowing people to work, buy, sell, invest, and organize without asking government to allocate every opportunity.

This is where Smith connects to Friedrich Hayek and Milton Friedman.

Hayek emphasized the knowledge problem. No central planner can possess all the local, changing, practical information embedded in prices, preferences, technology, costs, and circumstances. Markets are not merely a moral preference. They are information systems.

Friedman emphasized the relationship between economic freedom and political freedom. If government controls employment, capital, prices, production, education, housing, and access to opportunity, political liberty becomes fragile. A person who depends on the state for livelihood is less free to dissent from the state.

Those arguments can be overstated. Monopoly power can threaten liberty. Fraud can undermine consent. Pollution can impose costs on unwilling parties. Government is also necessary to enforce contracts, protect property, maintain courts, provide public goods, restrain violence, and preserve the rules under which markets function.

But the connection between markets and freedom is real. A society that weakens market institutions too casually should not be surprised when it also weakens individual independence.

Economics Is Not Conservative, but It Is Disciplined

Some people think economics is inherently conservative. That is not quite right.

Economics can support many policies associated with the left. Externalities can justify environmental regulation or carbon pricing. Public goods can justify national defense, basic research, infrastructure, and disease surveillance. Asymmetric information can justify rules in insurance, finance, medicine, food safety, and consumer markets. Monopoly power can justify antitrust and utility regulation. Diminishing marginal utility of income and wealth can support progressive taxation and redistribution.

Progressive policy does not have to be anti-economic. It can be stated in economic terms.

But economics imposes discipline. It asks uncomfortable questions of every political tendency. What is the market failure? How large is it? Is the proposed intervention likely to solve it? What incentives will the remedy create? Who pays? What happens at the margin? Are we correcting an efficiency problem, redistributing income, protecting liberty, or responding to a government-created distortion?

Nor is it enough to show that a market is imperfect. Markets are imperfect because human beings are imperfect. Governments are made of the same material. Public officials, regulators, legislators, voters, interest groups, and experts all have incomplete information and imperfect incentives.

A market imperfection therefore does not automatically justify government intervention. The relevant question is comparative: is the proposed intervention likely to improve the result after taking account of government error, political capture, administrative cost, incentive effects, and unintended consequences?

That places a real burden of proof on intervention. The burden is not impossible to meet. Pollution, monopoly power, fraud, public goods, and severe information failures may justify public action. Distributional objectives may justify redistribution. But the imperfection should be substantial enough, and the remedy plausible enough, to justify replacing one imperfect process with another.

The status quo is not presumed perfect. It is merely presumed to be the condition that must be improved upon, not just criticized.

The Difference Between Market Failure and Market Dislike

This distinction separates CIVPAC’s approach from democratic socialism and Marxism.

Marxist analysis often begins from the premise that capitalism itself is inherently exploitative. In that framework, market outcomes are suspect because they are market outcomes. The central issue is not whether there is a particular externality, monopoly, information failure, public good, or government distortion. The central issue is ownership, class power, and control over production.

Some democratic socialists hold a softer version of that view. Others are closer to ordinary social democrats who accept markets but want more redistribution and regulation. But the instinct is often similar: market outcomes require political correction because markets are assumed to reflect unequal power rather than legitimate exchange.

CIVPAC begins differently.

We begin with the presumption that markets are valuable institutions. They are not perfect. They are not sacred. But they are essential mechanisms for coordinating human activity, transmitting information, dispersing power, and preserving individual choice.

That presumption can be overcome. Government intervention may be justified. But the justification should be explicit. Is the problem monopoly power? An externality? A public good? Asymmetric information? A distributional objective? A threat to democratic institutions? A government rule that prevents the market from functioning properly?

If the answer is only “we do not like the outcome,” that may begin a moral or political conversation. It does not complete an economic argument.

Smith Was Suspicious of Business Too

Smith’s understanding of markets was more subtle than many modern arguments that invoke him.

He knew that merchants and manufacturers often prefer protection from competition. They may present their private interests as national interests. They may seek rules that raise prices, restrict entry, or shift risk to the public. The fact that a business asks for a policy does not mean the policy is pro-market. It may be anti-market.

This is one reason CIVPAC is skeptical of both anti-business populism and business-friendly corporatism.

The anti-business populist sees corporate power and assumes the solution is to punish or restrict business. The corporatist sees business success and assumes the public interest is served by helping incumbent firms. Smith warns against both mistakes.

A market economy requires competition, not merely private ownership. It requires open entry, not protection for insiders. It requires rules of fair dealing, not favoritism. When businesses seek subsidies, tariffs, regulatory barriers, licensing restrictions, or protection from competition, they are not defending free markets. They are often trying to escape them.

Overconfidence Is Also Part of the Human Condition

Smith also understood something modern behavioral economics later formalized: human beings are overconfident.

He wrote of the “over-weening conceit” many people have in their own abilities and the “absurd presumption” people often have in their own good fortune. That observation helps explain why risky professions can become overcrowded and why people take chances that look irrational from the outside.

This matters for policy. Markets involve error. People misjudge. Investors chase returns. Entrepreneurs fail. Consumers overpay. Voters misunderstand. Politicians overpromise. Experts overestimate what they know.

The fact that people make mistakes does not prove that government should make choices for them. Government officials are also human. They have their own incentives, blind spots, overconfidence, constituencies, and institutional biases. The question is not whether markets produce mistakes. They do. The question is whether a proposed intervention is likely to reduce error or merely move it into a political process with weaker feedback and fewer exit options.

Markets do not make people wise. But they create feedback. Losses, prices, competition, entry, exit, and consumer choice discipline error in ways political systems often resist.

Housing as an Example

Housing policy illustrates why language discipline matters.

It is easy to say that America has a “housing shortage” or that housing is “unaffordable.” Those phrases are familiar. They may point toward a real problem. But they can also smuggle in assumptions.

Housing has not literally disappeared. In high-demand communities, housing can still be bought or rented by households with enough income or wealth. The more precise problem is that, in many jurisdictions, housing prices and rents have risen faster than residents, buyers, employers, and local governments would have expected only a few years ago. Housing therefore requires a larger share of income or wealth than many households reasonably planned for.

That is a supply-constrained price problem.

In many places, state and local governments have restricted the ability of housing supply to respond to demand. Zoning rules, permitting delays, parking mandates, density limits, environmental-review processes, and neighborhood veto points prevent markets from adjusting normally. When quantity cannot adjust, prices do more of the work.

A democratic-socialist interpretation may begin with the idea that housing is too expensive because capitalism treats homes as commodities and allows profit-seeking actors to exploit need. A market-oriented institutional interpretation asks a different question: what is preventing supply from responding?

The answer is often government.

That does not mean no government should act. It means government should act on the actual distortion. If government rules are preventing homes from being built, the solution is to reform those rules. Demand subsidies or symbolic attacks on disfavored buyers may be politically satisfying, but they do not solve the underlying problem.

This is the Smith-Hayek-Friedman lesson in practice. Let prices convey information. Let markets respond. Do not let incumbent interests use government to prevent competition. Intervene where there is a real market failure or distributional objective, but do not mistake every disliked price signal for proof that markets have failed.

The CIVPAC Standard

The lesson of The Wealth of Nations is not that business should always win. It is not that government should never act. It is not that inequality is irrelevant or that markets are morally self-justifying.

The lesson is that prosperity and liberty require institutions that channel self-interest toward useful production, competition, innovation, and exchange. Those institutions include markets, but also courts, property rights, contract enforcement, stable money, public goods, antitrust where appropriate, and rules against fraud, coercion, and favoritism.

CIVPAC’s standard is therefore straightforward:

Before government intervenes in a market, identify the problem.

Is it a market failure? A public good? An externality? Monopoly power? Asymmetric information? A distributional objective? A government-created distortion? Does the proposed remedy address the actual problem? What incentives and unintended consequences will it create?

That is not a left-wing or right-wing checklist. It is a discipline.

Smith’s anniversary is worth celebrating because he helped teach the modern world that free exchange, specialization, and competition can produce enormous public benefit without central direction. It is also worth celebrating because Smith was wise enough not to confuse markets with merchants, capitalism with monopoly, or self-interest with virtue.

The country could use more of that wisdom.

At a time when both parties are tempted by populist villain-hunting, economic nationalism, industrial favoritism, and distrust of institutions, Adam Smith remains a useful corrective. He reminds us that markets are powerful not because business is noble, but because competition disciplines self-interest. He reminds us that government is necessary, but also easily captured. He reminds us that ordinary people know things planners do not. He reminds us that liberty depends not only on elections, but on the ability of people to make choices in their economic lives.

The 250th anniversary of the Declaration of Independence will rightly celebrate political liberty. The 250th anniversary of The Wealth of Nations should remind us that economic liberty is part of the same inheritance.

Both require institutions. Both require discipline. And both require skepticism toward concentrated power, whether it comes from government, business, or movements convinced that they alone know how society should be ordered.

Housing Policy Should Address the Problem, Not Just Find a Villain

Multifamily housing being constructed next to a single-family home, illustrating housing supply and land-use reform.

AI-generated symbolic illustration of multifamily housing construction next to a single-family home.

The bipartisan 21st Century ROAD to Housing Act is a useful step in the right direction. It is not a complete solution to rising housing costs. No federal bill was likely to be. But the bill has one major virtue: it at least recognizes that the central problem is on the supply side.

That matters.

The Problem Is a Supply-Constrained Price Problem

CIVPAC uses terms like “housing shortage” and “housing affordability” cautiously. Housing has not disappeared. Even in the most high-demand communities, housing can still be bought or rented by households with enough income or wealth. The problem is more specific: in many jurisdictions, housing prices and rents have risen much faster than residents, buyers, employers, and local governments would have expected only a few years ago. Housing therefore requires a larger share of income or wealth than many households reasonably planned for.

That is the practical affordability problem. It is not best understood as a literal shortage. It is better understood as a supply-constrained price problem. Demand has grown in desirable regions, but state and local rules have often prevented supply from responding in a normal market fashion. When quantity cannot adjust, prices do more of the work.

That is why the ROAD to Housing Act deserves credit. Its better provisions focus on supply, financing, manufactured housing, permitting, federal program modernization, and regulatory barriers. Those are the right subjects. Housing costs cannot be reduced merely by giving buyers more money to bid for housing that public policy has made difficult to build. Nor can the problem be solved by finding unpopular buyers and keeping them out of the market.

For too long, housing policy has often leaned toward demand-side answers: subsidies, credits, assistance programs, and other tools that help some households pay more for housing. Those policies may sometimes be defended as redistribution rather than market correction. But if they are not matched by increased supply, they can push more purchasing power into constrained markets and increase prices for everyone else.

The stronger parts of the ROAD to Housing Act point in a better direction. They recognize that housing policy should make it easier to build, finance, renovate, and occupy homes. That does not mean the bill is transformative. It does mean that Congress is beginning to talk about the right side of the market.

The Investor Restriction Is Politically Attractive but Economically Weak

The bill also contains a provision that illustrates the political temptation both parties now face: restricting large institutional investors from buying additional single-family homes.

That provision is easy to understand politically. “Homes are for people, not corporations” is a powerful slogan. Progressives dislike Wall Street landlords. Populists of all stripes dislike large financial firms outbidding families. Both parties get to present themselves as standing up for ordinary homebuyers against distant corporate power.

Institutional investors are also more likely to be attracted to markets where supply is already constrained. They do not need to create the constraint. They can profit from it. If local rules prevent enough housing from being built in response to demand, expected rents and home prices rise. That is precisely the kind of market condition that attracts yield-seeking capital.

That does not make institutional investors the source of the problem. It means they may be responding to a problem that government restrictions have already helped create.

There are documented abuses by large corporate landlords, including deceptive fees, unfair security-deposit practices, poor maintenance practices, and aggressive eviction procedures. Those abuses deserve enforcement, just as similar abuses by non-corporate landlords would deserve enforcement.

The stronger public-policy concern would arise if large corporate landlords were able to use scale, local concentration, or political power to prevent other landlords — corporate and non-corporate — from competing against them. At this point, CIVPAC has seen no compelling evidence that this kind of exploitation of market power is the central cause of rising housing costs either locally or nationally.

Even where market power exists, the proper remedy is targeted: transparency, enforcement, and, where appropriate, antitrust action. It is not a broad limitation on corporate ownership as such.

As national housing policy, the institutional-investor restriction is mostly populist performance.

A sound market intervention usually begins with a market failure: an externality, a public good, monopoly power, serious information failure, or some comparable reason why voluntary exchange will not produce a good result. The institutional-investor restriction does not clearly meet that test. It is not obvious that large institutional ownership is the central source of rising housing costs nationally, and there is no strong evidence that corporate ownership is the main reason homes have become more expensive in high-demand communities.

The strongest argument against institutional investors is not that they explain national housing-cost increases. They do not. The stronger argument is more localized: in some markets, large investors may compete aggressively for lower-priced single-family homes that would otherwise be plausible first homes for individual buyers.

That concern should not be dismissed. But it still points back to supply. If entry-level homes, townhouses, duplexes, condominiums, and smaller rental units are difficult to build, then every buyer is forced into a more zero-sum contest over the existing stock. Corporate buyers are merely a surrogate for renters in this competition. The better remedy is to make it easier to build the kinds of housing that reduce that zero-sum competition.

The provision also does not directly create supply. It does not shorten the permitting process. It does not make local zoning less restrictive. It does not lower construction costs. It does not add infrastructure, train construction workers, approve duplexes, legalize apartments near transit, reduce parking mandates, or limit neighborhood veto power.

At most, it changes who may buy some existing homes. That may shift ownership from one class of buyers to another. But it does not address the underlying constraint.

It may also have costs. Many households need or prefer single-family rentals. They may be relocating, rebuilding credit, saving for a down payment, recovering from divorce, uncertain about employment, or unwilling to take on maintenance risk. A professionally managed rental home can serve a real market need. If policy discourages rental capital too broadly, it may reduce rental options, renovation investment, and future build-to-rent supply.

The current version of the proposal appears to avoid the most disruptive step: it does not force large institutional owners to sell homes they already own. That makes the provision less damaging. It also makes it less powerful. If institutional demand is already down in many markets and existing portfolios are not being disgorged, the near-term effect is likely to be modest.

A toothless symbolic provision may be better than a destructive symbolic provision. But CIVPAC prefers policy that addresses the problem directly rather than satisfying the public desire for a villain.

Government Rules Are a Central Part of the Problem

The deeper problem is closer to Ronald Reagan’s famous warning, though in a more precise form. In housing, government is often not merely failing to solve the problem. Government is a large part of the problem. More precisely, state and local governments have allowed zoning rules, permitting systems, parking mandates, density limits, environmental-review processes, and neighborhood veto points to restrict supply in places where demand is strongest.

The solution should address the problem. If the problem is that government has made it too hard to build homes, the answer is not primarily to punish one disfavored class of buyers. The answer is to make it legal, predictable, and economically feasible to build more housing.

That does not mean every community should look the same. Nor does it mean abolishing local planning. Local governments should still plan for infrastructure, schools, transportation, stormwater, parks, and neighborhood design. But local control should not become local veto power over a region’s housing needs.

Nor should the workforce-housing argument be overstated. In a functioning market, higher housing costs in high-cost areas should be reflected, at least partly, in wages. Employers that need workers in expensive labor markets should expect to pay more for them. Targeted housing subsidies can therefore become an indirect subsidy to employers by shifting part of the cost of attracting labor from businesses to taxpayers.

With a fixed housing stock, subsidies also do not necessarily reduce transportation burdens. They may simply change who lives closer to the job center and who is pushed farther away. That is why CIVPAC is cautious about policies that try to micromanage which workers live in which communities. The better question is whether government restrictions are preventing housing supply from responding to demand.

If state or local rules make it unnecessarily difficult to build, then prices do more of the adjustment than quantity. That is the distortion public policy should address.

The Hardest Reforms Are Likely to Be State Reforms

That is why the hardest and most important housing reforms are likely to occur at the state level.

States created most local governments and delegate much of their land-use authority to municipalities and counties. States can therefore set the rules under which local governments exercise that authority. They can limit exclusionary zoning. They can legalize accessory dwelling units. They can reduce minimum lot sizes. They can prevent excessive parking mandates. They can allow duplexes, triplexes, townhouses, and apartments in more places. They can require by-right approval when projects comply with clear standards. They can make it harder for localities to use process as a substitute for prohibition.

State-level reform is not merely deregulation. It is a correction of local political incentives. Local zoning is often democratic governance functioning exactly as incumbent property owners want it to function. Existing residents have votes, organization, and direct financial interests. Future residents have none of those advantages because they do not yet live there. That creates a predictable bias toward restriction.

A higher level of government therefore has a legitimate role in limiting the exclusionary powers of lower levels of government. This is not hostility to planning. It is recognition that local control should not allow municipalities or counties to impose regional costs by preventing normal market response.

The federal government can help. It can reform federal programs. It can support manufactured housing, rural housing, small-dollar mortgages, disaster recovery, and infrastructure. It can reward jurisdictions that allow more housing and stop subsidizing jurisdictions that refuse to grow. It can collect data, improve financing, reduce unnecessary federal delays, and use grants to encourage better local and regional policy.

But Washington cannot by itself solve a problem rooted in zoning maps, planning boards, environmental-review processes, parking rules, neighborhood vetoes, and local political incentives. The federal government can point the road. States have to clear many of the obstacles.

Praise the Direction, Not the Populist Theater

That is why the ROAD to Housing Act should be praised, but not romanticized.

Its strongest message is that rising housing costs in high-demand places require a supply-side response. That is an important bipartisan breakthrough. It suggests that both parties are beginning to understand that housing costs cannot be addressed simply by subsidizing demand or denouncing unpopular market participants.

Its weakest message is that institutional investors are a central cause of the problem. They are not. They may be a problem in some markets and should not be exempt from scrutiny. But the broad increase in housing costs was not created by corporate landlords. It was created by years in which construction was held below what less restrictive markets would likely have produced, combined with excessive land-use restrictions, infrastructure bottlenecks, rising costs, and political systems that gave existing residents too much power to block future residents.

CIVPAC supports the supply-side direction of the bipartisan housing effort. We welcome a housing debate that focuses on removing barriers to building more homes, improving financing, and making the market work better.

But policymakers should resist the temptation to treat housing policy as a morality play in which the problem is solved by identifying a villain. The country does not need more symbolic attacks on disfavored buyers. It needs more homes. And if government rules are a central reason those homes are not being built, then government reform has to be central to the solution.

The right test for housing policy is simple: does it make it easier to build, finance, and occupy more housing in places where people want and need to live?

By that standard, much of the ROAD to Housing Act deserves support. The institutional-investor restriction deserves skepticism. And the next stage of serious housing reform will have to happen where the most important barriers remain: in the state laws and local rules that determine whether housing can be built at all.The bipartisan 21st Century ROAD to Housing Act is a useful step in the right direction. It is not a complete solution to rising housing costs. No federal bill was likely to be. But the bill has one major virtue: it at least recognizes that the central problem is on the supply side.