Wednesday, March 03, 2010

Smith on Laissez-Faire, Markets and Morals

Edward A. Fallone writes in the Marquette University Law School Faculty Blog

“As R. Kent Newmyer succinctly summarized it, in his book “John Marshall and the Heroic Age of the Supreme Court,” Marshall understood the rights of property ownership to include an individual’s right “to acquire property and deploy it creatively as he saw fit and to enjoy its fruits without hindrance.” (Newmyer p. 264) But this does not mean that Marshall embraced Adam Smith’s theory of completely free markets, where private business enterprises act completely free from government regulation. First of all, not even Adam Smith advocated for markets that were sealed off from all government regulation. Second of all, while the Framers of the Constitution were aware of Adam Smith, there is little evidence that Smith’s economic theories influenced the Constitution.”

Adam Smith did not have a “theory of completely free markets” – he did not subscribe to the laissez-faire views of some of the French Physiocrats and did not use the phrase at all. All of the beliefs that he did have such a theory are attributions from the 19th century; at best they were careless exaggerations that missed the nuances of Smith’s political economy; at worst they were the self-interested preferences of merchants and manufacturers in the industrialization of Britain (see: The Economist, the parliamentary spokesmen for mill owners, The Anti-Corn Law League, the Manchester School, J. S. Mill, and non-readers of Wealth Of Nations).

The whole tenor of Wealth Of Nations was about how unfree markets were in 18th century Britain, characterised by the deliberate actions of ‘merchants and manufacturers’ and of mercantile policies favoured by legislators and those special interests that influenced them.

In proposing that these interventions in markets should be swept away, Smith carefully acknowledged that markets should be operated under the rule of law and under the moral guidance of participants.

To ensure compliance, Smith indicated that regulations may be necessary on a case-by-case basis (example: banking, assaying, indicating the quality of certain manufacturers; buildings posing fire risks; and public cleanliness and safety). It was also essential that government intervene in the procurement of certain public works to facilitate commerce and certain public institutions to facilitate education, healthy minds and treatment of obnoxious diseases.

Edward A. Fallone’s assessment is correct broadly.

[NB: Edward Fallone, Associate Professor at Marquette, carries the following in his faculty biography:

When I was a law student, my Corporate Law professor treated the study of insider trading, hostile takeovers and corporate crimes as the dry recitation of legal rules to be memorized. My approach to teaching is different. I teach these cases as human tragedies (and sometimes comedies) involving greed, betrayal and corruption. In my view, the law in this area serves the classic end of all laws: to protect ourselves from our own worst impulses.”

This about as close to a genuine moral ‘Smithian’ approach to people in markets as you can get.]

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Blogger Ed Fallone said...

Thank you. I'll take "correct broadly" as an assessment any day.

Ed Fallone
Associate Professor
Marquette University Law School

6:55 p.m.  
Blogger Ed Fallone said...

Thank you. I will accept "correct broadly" as an assessment any day.

Ed Fallone
Associate Professor
Marquette University Law School

6:56 p.m.  
Blogger Gavin Kennedy said...

Thanks for your comment.

I was happy to read your account, which was an excellent repesentation of Smith's actual viewsl, which makes a change in modern commentaries.

I did not go on to discuss the substantial parts of your paper on laws. I noted your point that the writers of the US Constitution were not influenced much by Smith's Wealth Of Nations. Imported books were not a priority at the time.

Much of the claims that they were influenced is a more recent assertion to link modern ideology to claims bout laissez-faire.

Congratulations and thanks for your article. I hope readers of Lost Legacy follow the link provided.


9:05 p.m.  

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