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including Adam Smith, John Maynard Keynes, Paul Samuelson, Friedrich Hayek, and Milton Friedman, were fully aware of the reality of public goods, environmental spillovers, and asymmetric information and therefore of the need for the government to be deeply engaged in public education, road building, scientific discovery, environmental protection, financial regulation, and many other activities. None ever denied a major role for government in a market system. That’s true not only of Keynes and Samuelson, who are famous for their championship of the mixed economy, but also of Hayek and Friedman, who are known for their advocacy of unfettered markets. It is only the present-day free-market acolytes of Hayek and Friedman who neglect the key role of government in ensuring the efficiency and fairness of a market system.

Hayek noted in The Road to Serfdom that we should not confuse the opposition to central planning with “a dogmatic laissez faire [free market] attitude.” The correct position, said Hayek, lies

in favor of making the best possible use of the forces of competition as a means of coordinating human efforts, not an argument for leaving things just as they are. It is based on conviction that, where effective competition can be created, it is a better way of guiding individual efforts than any other.… Nor does it deny that, where it is impossible to create the conditions necessary to make competition effective, we must resort to other methods of guiding economic activity.4 (Emphasis added.)

Hayek acknowledged, as had Adam Smith before him, “a wide and unquestioned field for state activity” in the economy. Indeed, Hayek reminds the reader of The Road to Serfdom that Adam Smith himself called on the government to provide those services that “though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals.”5 In other words, Hayek sides with Adam Smith in recognizing the importance of government provision of public goods.

Fairness and Sustainability

Though efficiency is a great virtue, it is not the only economic goal of interest to the society.6 Economic fairness is also crucial. Fairness refers to the distribution of income and well-being, as well as to the ways that government treats the citizenry (including fairness in levying taxes, awarding contracts, and distributing transfers).

Most people would regard as unfair a market equilibrium in which some individuals are super-rich while others are dying of extreme poverty. In such a circumstance, most people would regard it as fair (or “just” or “equitable”) for the government to tax the super-rich in order to provide basic resources for the poor such as food, shelter, safe water, and access to health care. Indeed, a solid 63 percent of Americans concur that “It is the responsibility of government to take care of people who can’t take care of themselves.”7 The sentiment that government should help the poor who cannot help themselves has been an enduring value in American society.

The rule of law is also a matter of fairness. We demand equal treatment of citizens under the law. We expect that income transfers from the rich to the poor should follow due process, not an arbitrary levy or Robin Hood–style confiscation. The rebelling American colonists in 1776 did not object to taxation per se, but to taxation without representation.

Fairness entails not only the distribution of income within society at a point in time but also the distribution of income across generations, a concept that economists also call “sustainability.” If the current generation depletes the earth’s scarce natural resources, for example by using up its fossil fuel and freshwater aquifers, or acidifies the oceans through carbon dioxide emissions, or drives other species to extinction, it severely diminishes the well-being of the generations to come. Those future generations can’t defend their interests today, since they’ve not even been born.

Sustainability, or