Adam Smith on the financial crisis..

Well, what will the great Scottish say on the recent financial crisis?

He will not be one bit happy:

Tired of lightweights bickering over the financial crisis and its aftermath? Of economic upheaval becoming merely fodder for intellectually dishonest political campaigns? Wonder what biggest thinkers might have to say? Our efforts to consult the giants of economics have been hampered by an unfortunate fact: many of the most important ones are not only dead, but they died long before governments and central banks began to concoct such unconventional policy tools such as quantitative easing. That explains their absence from the argument—so far.

In an attempt to cross this divide, notwithstanding the obstacles, your correspondent attended a lecture at the Harvard Club of New York on January 21st by James Otteson, a professor of political economy at Wake Forest University and the editor of a new book, “What Adam Smith Knew, Moral Lessons on Capitalism from its Greatest Champions and Fiercest Opponents”. And he asked what the great Scottish economist might have to say about the most recent crisis.

Mr Otteson was kind enough to channel Mr Smith in response by citing a string of illuminating passages. It is no surprise that the man who coined the term “invisible hand” would be no fan of overt government intervention. His dissent could be split into three intertwined categories: the temptation of governments to meddle at long-term cost to society; the dangers of paper money; and how the issues of debt and money shift wealth from the future to the present. That, he thought, constitutes a form of generational theft.

….All these points suggest that the financial crisis might better be thought of in two pieces, the initial tumult and the response, whose pernicious consequences lay ahead. Beyond the vast amount of public debt created during the crisis, the mere act of bailing out the institutions involved undermined the fear that Smith said was essential to prevent future fraud and negligence. What then is the alternative, if ever greater reliance on Mr Smith’s “man of system” and his flaws is to be avoided? In seeing what has unfolded, Smith would be forgiven if he were to ask an obvious question: how could his ideas and his name continue to be so widely circulated while their meaning is ignored? It is left to the reader to decide whether Smith can provide all the answers for the modern world.

Well to appreciate what Smith would have said, students have to be taught what he really wrote and thought about. As this is known by only a handful few, one cannot even debate these ideas..

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One Response to “Adam Smith on the financial crisis..”

  1. econ neel Says:

    True Sir,
    People somehow totally forget he wrote “The theory Moral Sentiments” much before his Magnum Opus. That kind of reaveals the great man’s priority. We have picked his pharase “invisible hand” and are running amock with it.
    Infact Smith’s man was as sophisticated as todays man. with all virtue and vices. He wanted to be praise worthy at the same time be happy to cut corner for some immediate easy gains.
    Infact he does not completely forbears the intervention of State.
    He clearly warns about the collusion of bussiness interests, which will hurt public at large. Infact he prescribe and new law regarding commerce ” ought never be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention”.

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