Friday, October 14, 2005

Nobody Led Society to Markets or Capitalism

Ryan Ash, a psychology and biology senior, and Elliott Nash, a government and philosophy senior, both at the University of Texas at Austin, contribute an article in The Daily Texan, a university newspaper, “Students need more reasoning”, containing the following:

“Human history has proven that application of unflawed reasoning renders successful outcomes. Reason led Adam Smith to capitalism, the most successful economic system ever devised. Reason led Locke to liberal democracy, the fairest and freest political system ever devised. Reason led Einstein to the atom bomb, the most successful weapon ever devised.”

I have no wish to quibble with an article (almost all with which I agree), crushed for space, but I think I should make clear that the sentence: “Reason led Adam Smith to capitalism, the most successful economic system ever devised”, is misleading on two grounds.

Adam Smith was not ‘led to capitalism’, a phenomenon that appeared several decades after he died in 1790. Even the word ‘capitalism’ was not invented until 1854 (Oxford English Dictionary, Vol.ii: Thackeray); the word ‘capitalist’ was first used in 1792 (A. Young; W. Goldwin, 1793). Smith died in 1790.

Second, capitalism was not ‘devised’, though it has certainly been ‘successful’. This is the most important aspect of the market economy (which Smith wrote about and analysed using his inductive reasoning and not from axiomatic first principles): nobody devised it, created it intentionally, organised it, or managed it. Markets were never dependent on the ‘inventiveness’ of mankind; they evolved without plan or precepts, and still do.

The market economy, in tandem with unprecedented technological progress and the ever-increasing division of labour, developed into capitalism, which, like the commercial market economy before and during Smith’s time, was not rationally planned by human agency.

It is absolutely essential to understand this evolutionary process and not to ascribe markets, and, later, their evolution into capitalism as somehow the product of the minds of individuals. Smith analysed the working of markets (please, no ‘invisible hands’!) and helped us understand them; many 19th and 20th century economists (Menger, Marshall, Edgeworth, Mises, Hayek, and such like) help us understand how capitalism works. But understanding is not the same as creating the phenomena we rationally observe.


With that caveat, congratulations to Ryan and Elliot Ash in their efforts to expand rational thinking in their university.

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