Tuesday, November 10, 2009

Smith on Banking Regulation

Dr Hugh Goodacre, a teaching fellow at University College London, writes to the Financial Times (10 November) HERE on the subject of the “arbiter’s” role of the ‘invisible hand’ as presented earlier by Michael Rossman, who “praised” the “invisible hand” as “the arbiter of success and failure”.

Hugh Goodacre disagrees, pointing out that Adam Smith “makes it clear “that for an economy to be guided by his ‘invisible hand’ is not a reality, but an ideal”.

Moreover, says Goodacre, “the Bank of England acts “not only as an ordinary bank, but as a great engine of state”, and, according to Smith, “the stability of the Bank of England is equal to that of the British government” and ‘is too big to fail”.

Apart from the usual myth and invention about the role of the “invisible hand”, Goodacre is surely right.

Smith considered it permissible to override the imperatives of “Natural Liberty”, especially in banking (I have quoted many times his insistence of regulation to stop low-value ‘promissory notes’ being issued by banks at WN II.ii.94: 324), so those who quote him as an authority against regulation where it is appropriate, as defined by Smith, mislead their readers.

[Incidentally, the Financial Times, adds this proviso to the above brief letter:

Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.” I am not sure why they are so draconian, though I am also sure my quotation meets the “fair use” criterion, but I am not sure that such necessary treatment portrays Michael Rossman's point of view adequately.]

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Blogger Goodacre said...

Thanks for your comments. I shall check out your comments on the subject. You may notice that much of what I said is based on the information in Edwin West's article, though I put a difference spin on things. I hope to pubish an article on all this -- have delivered a conference paper.
I quite agree that the FT copyright statement is way out of order.

3:01 p.m.  
Blogger Goodacre said...

This comment has been removed by the author.

3:01 p.m.  

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