Friday, February 13, 2009

How to Make a Financial Crisis Worse

lMafukidze is the chairman and chief financial Architect of KM Financial Solutions, and he writes in Zimbabwe Independent (12 February) HERE:

Freedom, the Invisible Hand to Build Economy”

“In a now famous statement Adam smith (1723-1790) said that the combination of self interest, private property, and competition among sellers in the markets lead producers “as by an invisible hand” to an end that they did not intend, namely, the well–being of society.

In his legendary book published in 1776, The Wealth of Nations, Smith had a strong conviction that a market economy was a superior form of organisation for both economic progress and advancement of human liberty.

Yes markets are imperfect and there is need to regulate these markets, but the heart of Smith’s submission stands tall and largely true in 2009, over 200 later.

For economic progress, it is important that the government enhances and safeguards business and individuals to pursue their interests and capabilities in a competitive environment.

The government should aim mainly at creating equal opportunities, and protecting freedoms. Equal opportunities and freedom to pursue one’s interests are infinitely powerful motivating forces that have powered the wealth of nations for years
.”

Comment
The last thing Zimbabwe, or any other country, needs is an incorrect theory about how economies work, especially one that encourages mythical notions of ‘an invisible hand’ guiding markets, and, in this case, acting ‘as if’ it does.

The ‘as if’ is a sure give-away that the author has not read Wealth Of Nations beyond a second-, or third or more-, rate quotation from some unreliable source (Smith never used the ‘as if’ qualifier in his once-only mention of the popular 18th-century metaphor of ‘an invisible hand’; - see Wealth Of Nations, Oxford University Press edition, 1976, page 456; or page 423, Edwin Canaan, 1937 edition, Random House).

To the false laxative of 'quantiative easing' on a grand scale, adding a mythical invisible hand can only spell more trouble.

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