Monday, December 21, 2009

A Case for Competitive Markets

Jim Carlton speaks at the launch of Richard Morgan’s Lessons of the Global Finance Crisis: The relevance of Adam Smith on morality and free marketsHERE

“…this book is the most effective antidote I have seen in a long time to the inanity being peddled by those with a deep mistrust of the marketplace, usually coupled with a naïve confidence in the capacity of governments to produce results in areas outside their sphere of competence…

… The usual form of attack is to define free markets as laissez faire, anything goes forms of economic activity. As anyone who actually bothers to familiarize themselves with what Adam Smith actually said, and as Richard Morgan demonstrates, on no account does Smith advocate laissez faire. To quote Richard Morgan on page 47, “For Smith, a ‘well governed’ society provides for free competitive markets, law and order and infrastructure. If these elements are not in place, he warns, living standards will decline and indeed in extreme cases ‘go backwards.’

The use of the phrase “free competitive markets” is instructive. When we use the shorthand “free markets” we do leave ourselves open to willful or ignorant misinterpretation. Markets are not, in fact free, in the sense we mean it, if they are not regulated to ensure competition. Enemies of the market economy also seize on the word “deregulation” to suggest a descent into laissez faire…

… Another aspect of the Morgan book that appeals to me is that he has drawn from both Smith’s great works, The Theory of Moral Sentiments, and Wealth of Nations, to stress the underlying morality, and dare I say it, the deep compassion for the underprivileged, inherent in Smith’s writings

These few quotes from Jim Carlton’s speech at the launch of Richard Morgan’s new book are a blast of fresh air in Australian political economy.

In parts of the speech not reported here, Jim Carlton discusses the long term problems of the Australian economy and political policies followed by successive governments that shaped the legislative illusion that markets do not matter and can be replaced by lawyers and vested interest (a down-under version of the corporate state, if I may say so), until reality intruded and wage determination by courts, not free bargaining between employers and labour was gradually re-introduced in the 80s and 90s, leading to the strong economy Australia has today (unlike Britain, for example, which is now not the ‘sick patient’ of Europe, it having graduated to the 'sick man of the global economy' with pretensions that Britannia stills rules the waves) under the ‘spend and tax’ ‘labour’ government of Blair and Brown, since 1997.

As an example of the truth about Adam Smith’s intended legacy, which includes his Moral Sentiments, 1759, as well as Wealth Of Nations , 1776, Jim Carlton’s speech, and Richard Morgan’s “Lessons of the Global Financial Crisis”, are first rate introductions.

Buy Richard Morgan’s book from Amazon.

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Blogger Gevin Shaw said...

Can we forgive those with a mistrust of the marketplace from peddling what the supporters of the marketplace supply? Those who criticizes any regulation and any tax and any interference are just as guilty of defining free markets as laissez faire, anything goes forms of economic activity.

7:49 pm  
Blogger Gavin Kennedy said...

Hi Gevin

I am not sure of your exact point, but if it is that Adam Smith actually argued against all regulations, or that such a proposition is suggested in Wealth Of Nations, then I am obliged to comment that such a proposition is utterly wrong. He had detailed criticism of mercantile egulations that undermine competition in favour of state sponsored monopolies, protectionism, and the right of labour to live and work where they wished.

Smith never used the term laissez-faire in anything he published or wrote in his correspondence, though he was familar with the term knowing personally several of the French Physiocrats who popularised the idea.

He had fairly modest ideas about the existing commercial society and placed justice and the law at the centre of its success; its absence meant 'society would crumble to atoms'.

He specifically defended the regulation of banking practices,even though, he noted, that such regulation was a 'manifest breach of natural liberty', but was justified where people's (bankers') actions endangered society and therefore needed to be regulated. He also thought that excess interest rates should be curbed by legal regulation (and was criticised by Bentham for saying so).

Side point: the inventer of the phrase "laissez-faire, laissez passer", was a French merchant, who wanted total freedom for his business which is not the same thing as similar freedon for consumers.

As for taxation he was specific about their necessity. Using Adam Smith to justify no taxation is quite incorrect - Book V of Wealth Of Nations is about the need for taxation to fund public expenditure.

Thanks for your comment.


9:04 pm  
Blogger Gevin Shaw said...

We are in agreement. My point is that many current (at least American) proponents of "free markets" define them in terms of no regulation and no taxation, so it isn't surprising that those injured by an excess of this kind of "freedom" then lay the blame on the markets created by that ideology.

I was interested to find, here and in the first paragraph of Moral Sentiments, that Adam Smith had a very different view of our interactions in the world.

11:32 pm  
Blogger Gavin Kennedy said...

I see your point and completely agree. A large part of my time on Lost Legacy is spent correcting the views of those of whom you speak - somewhat brash big-mouths who attribute to Adam Smith their own extreme, non-historical and non-accurate views.

The rest of my time (almost) is spent correcting the kinds of people who take the former misattribution of Smith at face value because it replicates their own hostile misunderstandings of Smith.

Both have in common the alien picture of Smith's works and, of course, neither sort has read him through, with the exceptions of a few isolated quotations, which they re-cast as 'proof' of their errors.

Fortunately, a few like yourself do get Smith right on laissez-faire, competitive markets, moral basis of society and such like.

Thanks for your contribution. It is most encouraging.


9:42 am  
Blogger entech said...

Just received my copy this morning, read it without pause (obviously needs a more concentrated read later).

I like the way the two books are treated as related. Too often you see "moral sentiments" ignored, or statements that he said one thing here and another there so he contradicts himself: seems to me that very often we find a preconceived answer looking for justification. Any apparent contradictions are really qualifications reflecting different circumstances.

To quote Jim Carlton,"I was also impressed by the ingenious diagram illustrating the nature and causes of the wealth of nations." The numbered quotes relating to the diagram to illustrate a point rather than to prove an interpretation add to the clarity of the book.


7:41 am  

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