That well-known firebrand Adam Smith knew that private investors cannot always support institutions that are "in the highest degree advantageous to a great society". The state would have to step in, he thought, if "the profit could never repay the expense to any individual or small number of individuals".

He could have been writing about the British Library. Founded by an act of Parliament in 1753 as part of the British Museum, the library provides an almost inestimable public benefit. Students and scholars from around the world can use its print and electronic archives to pursue research that would be impossibly expensive if left to the market. The projects pursued by obscure researchers include modern India (Mohandas Gandhi), modern Pakistan (Muhammad Ali Jinnah), modern American humour (Mark Twain), modern social democracy (Karl Marx) and modern revolutionary socialism (Marx again, and Vladimir Lenin). For those concerned about the library's more local contributions, the British Library also helped to invent modern British political writing (George Orwell) – and modernism, come to that (Virginia Woolf).

Entrusted with this great global resource, the coalition has promptly cut its funding by 15% in real terms over four years. As a result, some 200 jobs are to go. A spokesman for the library tells me that staff numbers will fall through natural turnover, but it is not clear how many people will be leaving willingly in the current economic climate. And, again, though the chief executive, Lynne Brindley, has said that the library has been able "to avoid more radical cuts", she notes that the management will have to consider closing the library for one or more days a week or charging for reader's passes if the budget is reduced further.

It is hard to see how the library can lose more than a tenth of its employees without leaving those who remain less able to assist readers. The staff I have met are dedicated, highly skilled and unfailingly patient. They take pride in their work and they are right to do so. Indeed, I would go further and say that right now the British Library serves as a model public institution. But it depends on the morale and the commitment of the people who work there.

There is another way, of course. We don't really need to cut public services in the way the government proposes. We could clamp down on tax avoidance and evasion, and increase the taxes of those most able to pay. Given the sluggishness of the private economy at the moment, public investment is the only way to prevent unemployment from rising disastrously in the coming months. Far from cutting jobs at the British Library, a government serious about securing the country's future prosperity would claw back some of the ill-gotten gains of the past decade and spend the money on an expansion of the country's library services. To use the modern jargon, we need to enhance the infrastructure on which the knowledge economy depends.

On some days the British Library on London's Euston Road is packed with tomorrow's George Orwells and Virginia Woolfs. It can be hard to find a seat. Isn't it time to consider opening new reading rooms in London – in Elephant and Castle, say? And a big new national library in the north of England wouldn't be a bad idea, either. As for the wider vandalism of the coalition's plans for libraries, I will only add that the protests and the occupations in recent months show that the country needs more, not fewer, public spaces.

Libraries bring employment, enjoyment and useful knowledge. To the extent that there is such a thing as British civilisation, it is to be found in our libraries. And if we are to recover in reasonable order from an economic disaster incubated in the private conclaves of the City, we will do so through public deliberation made possible by the British Library and by libraries elsewhere – institutions that are surely "in the highest degree advantageous to a great society".

• Dan Hind wrote his most recent book, The Return of the Public, in the British Library