What did Adam Smith believe would result from the combination of capitalism and a laissez-faire policy?

an investment of capital

an ideal economic system

a drop in government taxes

a free market economy

an investment of capital

The correct answer is: "an ideal economic system ".

Adam Smith (1723-1790) was one of the main figures that contributed to the development of the so-called classic economic theory. In his famous book 'The Wealth of Nations', published in 1776, he declared himself and advocate of liberalism and laissez-faire policies.

Adam Smith believed that, when each economic agent (a household, firm or public sector body) pursues its self-interest, it would act in such an efficient manner motivated by the potential gains, that in the end such behaviour would end up bringing welfare for the society as a whole.

He used the example of a baker, who does not produce altruistic bread because he cares about his fellow citizens who need to eat. He does it in order to earn a profit for a living, a profit for himself. Moreover, the better the quality of the bread he produces, the more consumers that will be willing to purchase in his shop. Therefore, he is motivated by the obtention of a personal gain, but such motivation is actually the reason behind the fact that consumers, everyday, have good-quality bread available.