Waylaid Dialectic

August 25, 2010

Whatever you do, don’t tell the Adam Smith Institute!

Filed under: Random Musings — terence @ 1:20 pm
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Both Rothstein on Adam Smith:

Adam Smith, perhaps the most prominent figure in economics, is most famous for his thesis on the invisible hand, according to which everything would work out for the best if all economic actors behaved only as rational utility maximizers. This most-favored thesis of neo-classical economics was taken from Smith’s book The Wealth of Nations, which was published in 1776. What has been forgotten, or perhaps repressed, in the version of Smith’s ideas usually trotted out for inspection is that Smith actually published two comprehensive books. In 1759, Smith published his first book , A Theory of Moral Sentiments, which addresses the importance of social norms, morals and civic virtues. Unfortunately, the book is rarely or never mentioned in economics textbooks. However, new and comprehensive scientific history studies of Smith’s ideas sow that his two seemingly utterly disparate works should be explained in a theoretical context. When that is done, a Smith emerges who is very different from the neo-liberal homo economicus that many have wanted to make him. As Particia Werhane has shown, Smith did not confuse economic efficiency with egoism. Instead, a thinker emerges who sees that an efficient economy created through the self-interest of market actors is impossible without careful public regulation and the existence of established social norms such as justice, the will to ensure public interests, and other non-egotistical moral virtues (Werhanve 1994).

From page 69 of Social Traps and the Problem of Trust.

And, just as an aside, Robert Reich notes the following:

Even Adam Smith, the progenitor of free market-conservatism, saw the wisdom of a progressive tax: “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more in proportion.”

Of course Smith could be wrong, but it seems to me that a profound and ongoing injustice is done to the thinking of the man by those who invoke his name when making the case for simple market knows best approaches to economics.

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