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Sunday, March 07, 2010

"Adam Smith was not a Laissez-Faire Ideologue"

Repeating my introduction to the original post: "Gavin Kennedy continues his battle to eradicate misconceptions about Adam Smith":

More of Adam Smith's Views of State Activity, by Gavin Kennedy: Scott Sumner ... writes a lively Blog, The Money Illusion (“A slightly off-center perspective on monetary problems”) here:

“Adam Smith did favor laissez-faire”

“Mark Thoma recently linked to a Gavin Kennedy post that argued Adam Smith did not favor laissez-faire. I don’t agree. The evidence cited was a one page list of government interventions that Smith favored. The US, by contrast, has enough government interventions to fill a New York City phone book, if not a small library. And the US is regarded by the Europeans as “unbridled capitalism.” Even Hong Kong intervenes in far more ways than Adam Smith contemplated. Of course Smith was not an anarchist, he did favor some government intervention in the economy. But relative to any real world economy, his policies views were extremely laissez-faire.”

“I see this as a common cognitive bias. The Gavin Kennedy list posted by Thoma certainly looks impressive, but when you think more deeply about the issue it is a trivial set of policies. I’m reminded of what happens when I discuss Singapore, which usually ranks number two in the world in lists of economic freedom. People will often respond by telling me about all the ways the Singapore government intervenes. My response is “so what?” They could intervene in a 1000 different ways and still be vastly more laissez-faire than the US government. Laissez-faire is a relative concept, and always has been. I’ve read The Wealth of Nations, and Adam Smith is clearly a pragmatic libertarian.”

“The evidence cited was a one-page list of government interventions that Smith favored.”

Yes, that’s why Viner listed the numerous examples of government interventions. They amount to a lot more than can be summarised a single page and the compromise notions that Smith was laissez-faire in the meaning of the term.

Smith never used the phrase ‘laissez-faire’. His association with the idea was an invention in the 19th century and was widely promoted by modern economists from the mid-1950s. About this time Smith was also widely promoted as the author of the notion of there being “an invisible hand” in the market. Both inventions are false.

We can agree that Smith was pragmatic about policies but whether he was a pragmatic libertarian remains problematical.

It’s not clear why the items in the list from Smith’s Wealth Of Nations and his Lectures on Jurisprudence are “trivial” in ... Sumner’s opinion, other than when he looks around the incomparably richer 21st-century United States than were the 13 British colonies in 1776 when Smith was writing.

There were hundreds of miles of inter-city roads in need of construction and repair; scores of harbours that needed to be built and dredged; thousands of bridges in need of construction; hundreds of towns that need to be paved and have street lighting in place; thousands of ‘little school’ constructed and staffed with state-registered teachers; scores of palliative care hospitals established for those afflicted with ‘loathsome diseases’; scores of depots for stamping clothes with government quality marks; a network of post-offices established and organised; and likewise for all the other activities that Smith envisaged should be funded and managed by the state.

In practice this took near on a century to be introduced in Britain. Set against the size of commercial society in 18th-century Britain, the state sector was not ‘trivial’ in any meaningful sense. Nor is it today. On one thing we surely can agree: neither 18th-century Britain with its colonies in North America was not a laissez-faire economy nor are the 21st-century territories that descended from them.

Adam Smith was not a laissez-faire ideologue.

    Posted by on Sunday, March 7, 2010 at 10:45 AM in Economics, History of Thought | Permalink  Comments (24)


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