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A standard criticism of the welfare state which is enjoying a resurgent popularity is that many of its operations are inefficient, even counter-productive, in relation to their assumed objectives. At the level of political and journalistic rhetoric it is asserted or implied that large sums of tax-payers' money are being spent in ways which benefit mainly the army of officials that administers them, and that much needless legislative effort goes into securing complexes of rights which serve only to provide work for tribunals and lawyers. At its most extreme the claim is that some welfare enactments actually cause more harm than good in that their intended beneficiaries would be better off without them.

The system of natural liberty analyzed in the Wealth of Nations is evaluated by Smith in utilitarian terms, as may be seen by examining his reasons for permitting departures from the principle of laisser-faire. References to justice in the Wealth of Nations are interpreted in the light of the Moral Sentiments which, despite appearances to the contrary, also has a utilitarian value basis. Smith's 'contemplative utilitarianism', coupled with his belief that individual moral and political agents do not routinely make conscious utilitarian choices, manifests itself politically in a form of 'sociological conservatism' which restricts legal and political reforms to those which are in harmony with the immediate moral feelings of the ordinary citizen. This is demonstrated in his theory of political obligation and related to his natural theology.

Advocates of the welfare state often appeal to social justice as the moral basis of their claim that distribution of scarce resources ought to be made in proportion to the needs of potential recipients, at least to a certain minimum level of satisfaction. More generally, it is commonly assumed that need is certainly one and perhaps the main factor which ought to determine any just distribution of benefits and burdens. Thus, when the Labour Government abolished medical prescription charges under the National Health Service in 1964 the then Prime Minister, Harold Wilson, defended this step in the House of Commons by saying that it was 'unjust' to put such 'burdens on the old and sick' and he went on to cite the principle 'from each according to his means, to each according to his needs'.