Reclaiming Adam Smith

February 19, 2011 § Leave a comment

Time-stretched journalists seeking a free-market viewpoint will often go straight to the Adam Smith Institute. These are the people who want to sell-off the national forests and privatise the NHS.

They position themselves as ‘the voice of market reason’ when they say things like ‘banks are in the same line of work as every other business‘, but frankly – they are just wrong.

It’s important to remember that Adam Smith was writing in the late 18th/early 19th century, so his work was on political philosophy, not what we today call ‘economics’. Famously, there’s less maths in his seminar treatise The Wealth of Nations than in a first year degree course. He’s far more concerned with the relationship between psychology and human economic activity, and he does so much better than many of later his free-market followers. For example, he identified in humans;

  1. The inability to focus on long-term outcomes
  2. A concern for the well-being of others
  3. A tendency to overrate one’s own abilities
  4. An inclination to underestimate risks.

This feels very different from the ‘markets solve everything’ approach we hear from the Adam Smith Institute whenever they’re quoted in the media. Perhaps they should rename themselves the Milton Friedman Institute?

h/t John Cassidy

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