Monday, November 14, 2011

Adam Smith on Government

Kalekristos Zerisenay writes (14 November) in Shaeba (People’s Front for Democracy and Justice’)
HERE

The Invisible Hand: Visibly destroying Major Economies”

“The numerous economic theories that existed for centuries still continue to dominate domestic and international affairs. In this so-called “Age of Pragmatism”, economic policies derived from these theories are affecting the well-being of humanity, and unlike many of us think, ideologies have never subsided. The ongoing economic and financial crisis in major economies is a testimony. The liberal economist Adam Smith in his book “the Wealth of Nations” clearly pointed out that there is an invisible hand that regulates the market, and there is no need for governments’ intervention in the economy. He further made clear that a government’s role in national affairs must be limited to maintaining law and order. 

The theories of this distinguished economist are the foundations of the capitalist system, and rich countries owe him a great deal. Unfortunately, the invisible hand, described as a natural force that regulates the market, is raising doubts at this historical time, even in countries that strictly adhere to the principle of market economy.

As early as 2008, the invisible hand suddenly froze and quit regulating the market. Financial institutions that were immune to government regulations were among the first to file for bankruptcy. Paradoxically, against their adherence to the principle of market economy and the rhetoric of the ‘Invisible hand’, these banks did not waste time to invite governments to intervene in the financial markets and rescue banks and corporations from collapse.


Comment
Another politico with an axe to grind using a theory he has concocted out of a version of Adam Smith’s Works that bears little resemblance to Adam Smith’s writings.

Adam Smith did not say in Wealth Of Nations that there “is an invisible hand that regulates the market”. He mentioned the metaphor of ‘an invisible hand’ only once if Wealth Of Nations, 1776 (and once only in his earlier Moral Sentiments (1759), and on neither occasion he did not mention “regulating” either by using the word “regulating’ nor the word “market” in relation to 'an invisible hand'.

Kalekristos Zerisenay clearly has not read either book , but then most who speak confidently of Adam Smith’s meanings have not read Smith’s books. So he is not alone, but he is wrong.

Neither did Smith say that “there is no need for governments’ intervention in the economy.” He outlined in detail the role of governments in Book V of Wealth Of Nations, briefly on the ‘Expences of Defence’, its “first duty” to “protect the society from the violence and invasion of other independent societies”; the ‘Expence of Justice” to ‘protect as far as possible every member of the society from the injustice or oppression of every other member of it’ (sadly, many military governments in Africa and elsewhere are the source, rather than the remedy for ‘the injustice or oppression’ that is all too common in these societies); the the ‘Expence of public Works and public institutions’ which are beyond the capacity of private individuals to fund and maintain;(which also in many countries are sources of endemic corruption, again, not the remedy), whose role ought to be one of ‘facilitating commerce’ (but they all too often stifle it, including by corruption) and the ‘Expence for educating Youth’, including the establishment of ‘little schools in every parish’ especially for the ‘inferior ranks of the people’. Smith also hinted at a role for government in eradicating ‘leprosy and other loathsome and offensive diseases’ (such today including Aids and such like). Lastly, and no doubt still controversially because of its relevance for many countries, he argued against the establishment of a single state religion, as Christianity used to dominate in Scotland and England in the 18th century, and today a single version of a single religion rigidly dominates in many countries in Africa, Middle-East, and Asia.

With the exception of a state-enforced monopoly of religion, Smith saw a major role for government intervention. If the ‘Expences of government’ are included and the requisite annual revenue from taxation to fund its expenses taken into account, a major role for government intervention in the economy was recognized and detailed by Adam Smith. He make “clear that a government’s role in national affairs” cannot “be limited to maintaining law and order.”

Whatever actions were taken to de-regulate aspects of banking and financial institutions by some modern governments, this did not feature in Adam Smith’s Works, despite what some economists and politicians claimed they were doing in Adam Smith’s name. In fact, Smith advocated intervention in the use by banks in his day of certain risky financial instruments, despite such actions being a breach of ‘natural liberty’.

Kalekristos Zerisenay needs to read Adam Smith urgently before he continues to misinform his colleagues in the ‘People’s Front for Democracy and Justice’.

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4 Comments:

Blogger airth10 said...

An extraordinary interpretation by Kalekristos Zerisenay but not uncommon, as you have pointed out before.

What he seems to be talking about is more the 'back hand' of a mythical invisible hand.

4:02 am  
Blogger Tuan Nguyen said...

"The liberal economist Adam Smith in his book “the Wealth of Nations” clearly pointed out that there is an invisible hand that regulates the market, and there is no need for governments’ intervention in the economy. He further made clear that a government’s role in national affairs must be limited to maintaining law and order." Kelekristos Zerisenay was was definately wrong when he said did because Adam Smith did not mention the word "regulating" in his book Wealth Of Nation (1776). Also, Adam Smith just mentioned the goverment role in national affairs can not be limited to maintain law and order. That's true.

8:23 am  
Blogger Unknown said...

"The liberal economist Adam Smith in his book “the Wealth of Nations” clearly pointed out that there is an invisible hand that regulates the market, and there is no need for governments’ intervention in the economy. He further made clear that a government’s role in national affairs must be limited to maintaining law and order." Kalekristos Zerisenay was definitely wrong when he said did. I have checked the book Wealth Of Nation (1776) that he did use the word "regulate" when he's talked about invisible hand. Also, Adam Smith pointed out the government role in national affairs cannot be limited to maintain law and order. That's all true.

8:31 am  
Blogger Gavin Kennedy said...

Here is the only reference in Adam Smith's Wealth Of Nations to "an invisible hand":

"By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.14 Nor is it always the worse for the society that it was no part of it." WN Book IV, chapter 2, paragraph 9:


Gavin

10:29 am  

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