Summary
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.
Coming Up in Chapter 31
Having established what government should spend money on, Smith now turns to the thorny question of how to raise that money. The next chapter explores the sources of public revenue and the principles of fair taxation.
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An excerpt from the original text.(~500 words)
OF THE EXPENSES OF THE SOVEREIGN OR COMMONWEALTH. PART I. Of the Expense of Defence. The first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force. But the expense both of preparing this military force in time of peace, and of employing it in time of war, is very different in the different states of society, in the different periods of improvement. Among nations of hunters, the lowest and rudest state of society, such as we find it among the native tribes of North America, every man is a warrior, as well as a hunter. When he goes to war, either to defend his society, or to revenge the injuries which have been done to it by other societies, he maintains himself by his own labour, in the same manner as when he lives at home. His society (for in this state of things there is properly neither sovereign nor commonwealth) is at no sort of expense, either to prepare him for the field, or to maintain him while he is in it. Among nations of shepherds, a more advanced state of society, such as we find it among the Tartars and Arabs, every man is, in the same manner, a warrior. Such nations have commonly no fixed habitation, but live either in tents, or in a sort of covered waggons, which are easily transported from place to place. The whole tribe, or nation, changes its situation according to the different seasons of the year, as well as according to other accidents. When its herds and flocks have consumed the forage of one part of the country, it removes to another, and from that to a third. In the dry season, it comes down to the banks of the rivers; in the wet season, it retires to the upper country. When such a nation goes to war, the warriors will not trust their herds and flocks to the feeble defence of their old men, their women and children; and their old men, their women and children, will not be left behind without defence, and without subsistence. The whole nation, besides, being accustomed to a wandering life, even in time of peace, easily takes the field in time of war. Whether it marches as an army, or moves about as a company of herdsmen, the way of life is nearly the same, though the object proposed by it be very different. They all go to war together, therefore, and everyone does as well as he can. Among the Tartars, even the women have been frequently known to engage in battle. If they conquer, whatever belongs to the hostile tribe is the recompence of the victory; but if they are vanquished, all is lost; and not only their herds and flocks, but their women and children become the booty of the conqueror. Even the greater part of those who survive the action are...
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Intelligence Amplifier™ Analysis
The Road of Incentive Alignment - Why Good People Do Bad Jobs
When rewards disconnect from desired outcomes, even well-intentioned people deliver poor results because human behavior follows incentive structures, not stated intentions.
Why This Matters
Connect literature to life
This chapter teaches how to identify when someone's rewards don't match your needs, predicting poor service or conflicted advice.
Practice This Today
This week, notice when service feels off and ask: How is this person paid, and does that reward helping me or something else?
Now let's explore the literary elements.
Terms to Know
Standing Army
A permanent military force maintained during peacetime, paid by the government rather than only assembled during wars. Smith traces how societies evolved from everyone being a warrior to needing professional soldiers as work became more specialized.
Modern Usage:
Today we see this in how countries maintain full-time military forces, and in businesses that keep permanent security staff rather than hiring protection only when needed.
Hunter-Gatherer Society
The earliest form of human organization where people survived by hunting animals and gathering plants, with no permanent settlements. Smith uses this to show how military needs change as societies develop economically.
Modern Usage:
We still see this pattern in how small startups operate - everyone does multiple jobs including 'defense' (handling problems), versus large corporations with specialized security departments.
Pastoral Society
Communities based on herding animals like sheep or cattle, more advanced than hunters but still mobile. Smith shows how these societies could move their wealth (livestock) when threatened, making them natural warriors.
Modern Usage:
Modern nomadic workers like traveling nurses or remote tech workers mirror this - they can move when conditions change and often develop strong self-reliance skills.
Division of Labor
The economic principle where people specialize in specific jobs rather than everyone doing everything. Smith argues this makes societies wealthier but also more vulnerable, requiring professional defenders.
Modern Usage:
This is everywhere today - we have specialized doctors, mechanics, teachers instead of everyone knowing all skills, which makes us dependent on each other and systems.
Public Revenue
Money collected by government through taxes, fees, and other sources to fund essential services. Smith analyzes what governments should spend money on and how to raise it fairly.
Modern Usage:
This shows up in debates over tax policy, government budgets, and what services should be publicly funded versus privatized.
Sovereign Duties
The three essential responsibilities Smith identifies for any government: defense against foreign enemies, administration of justice, and maintaining public works that benefit everyone.
Modern Usage:
We see this framework in modern debates about what government should do - military, courts, infrastructure - versus what private companies should handle.
Characters in This Chapter
Native American Tribes
Example society
Smith uses them to illustrate hunter-gatherer societies where every man is both hunter and warrior, requiring no government expense for military preparation since survival skills and fighting skills overlap completely.
Modern Equivalent:
Small family businesses where everyone wears multiple hats
Tartars and Arabs
Example society
Represents pastoral societies that are more advanced than hunters but still mobile, able to move their wealth (herds) when threatened and naturally suited for warfare due to their nomadic lifestyle.
Modern Equivalent:
Freelancers or gig workers who can adapt quickly to changing conditions
The Sovereign
Central authority figure
The ruler or government Smith analyzes throughout the chapter, examining what duties justify their existence and taxation. Smith evaluates their performance based on how well they fulfill essential functions.
Modern Equivalent:
The CEO or manager whose job is to provide value that justifies their authority and salary
Key Quotes & Analysis
"The first duty of the sovereign, that of protecting the society from the violence and invasion of other independent societies, can be performed only by means of a military force."
Context: Smith opens his analysis of what governments must do to justify their existence
This establishes defense as the most basic government function - without security, nothing else matters. Smith is building his argument for what taxes should pay for by starting with what everyone agrees is necessary.
In Today's Words:
The government's most important job is keeping us safe from outside threats, and that requires having an army.
"Among nations of hunters, every man is a warrior, as well as a hunter."
Context: Describing the simplest form of society where military and economic roles overlap
Smith shows how economic development changes military needs. In simple societies, survival skills and fighting skills are the same, so defense costs nothing extra. This sets up his argument about why advanced societies need professional armies.
In Today's Words:
In the most basic societies, everyone who can hunt can also fight, so they don't need a separate military.
"His society is at no sort of expense, either to prepare him for the field, or to maintain him while he is in it."
Context: Explaining why hunter-gatherer societies have no military expenses
This highlights Smith's key insight about how specialization creates costs. Simple societies get defense for free because fighting and surviving use the same skills, but complex societies must pay specialists.
In Today's Words:
These simple communities don't have to spend money training soldiers or paying them during wars because their regular life skills are the same as fighting skills.
Thematic Threads
Class
In This Chapter
Smith shows how economic development creates class specialization—wealthy societies can afford professional armies and independent judges while poor societies cannot
Development
Building on earlier chapters about division of labor, now applied to government functions
In Your Life:
Your economic position determines which professional services you can access and trust
Power
In This Chapter
Government power requires proper institutional design—judges must be independent from those they judge, military must be professional to be effective
Development
Introduced here as institutional power rather than individual power
In Your Life:
Any authority figure whose income depends on pleasing you serves your interests better than one who's paid regardless
Identity
In This Chapter
Professional identity emerges from economic specialization—the shift from citizen-soldiers to professional armies reflects societal development
Development
Extends earlier themes about how work shapes identity to government roles
In Your Life:
Your professional incentives shape your behavior more than your personal values when the two conflict
Social Expectations
In This Chapter
Society expects government to provide defense, justice, and infrastructure, but these services only work when properly incentivized
Development
Introduced here as expectations requiring institutional solutions
In Your Life:
Your expectations of others should account for their actual incentives, not their stated intentions
You now have the context. Time to form your own thoughts.
Discussion Questions
- 1
According to Smith, what are the three main jobs of government that justify collecting taxes from citizens?
analysis • surface - 2
Why does Smith argue that judges should receive fixed salaries from the government rather than fees from the people appearing in their courts?
analysis • medium - 3
Where do you see examples today of people being paid in ways that don't reward good performance - and how does that affect the service you receive?
application • medium - 4
When evaluating a service provider (doctor, mechanic, financial advisor), how would you figure out what incentives drive their recommendations?
application • deep - 5
What does Smith's analysis reveal about the relationship between how we structure rewards and the behavior we actually get from people?
reflection • deep
Critical Thinking Exercise
Follow the Money Trail
Think of a recent interaction where you received poor service or felt someone wasn't acting in your best interest. Research or deduce how that person gets paid - salary, commission, tips, bonuses, etc. Map out what behaviors their payment system actually rewards versus what you needed from them.
Consider:
- •Consider both obvious payments (salary) and hidden incentives (bonuses, promotions, quotas)
- •Look for misalignment between what the organization claims to value and what it actually rewards
- •Think about how you could have better navigated the situation knowing their true incentives
Journaling Prompt
Write about a time when your own work incentives pushed you to act against your better judgment or customer interests. How did the payment structure shape your choices, and what would need to change to align your incentives with doing the right thing?
Coming Up Next...
Chapter 31: How Governments Fund Themselves
As the story unfolds, you'll explore governments can't just run businesses to make money, while uncovering different types of taxes affect different groups of people. These lessons connect the classic to contemporary challenges we all face.