Scott Cooney (twitter: scottcooney) is an Adjunct Professor of Sustainability at the University of Hawai'i, green business startup coach, author of Build a Green Small Business: Profitable Ways to Become an Ecopreneur (McGraw-Hill) writes Inspired Economist HERE
“Where conservative capitalism breaks down: Three primary sources of free market failure”
Many people criticize policies and elected officials based on strong support for what they believe to be free market capitalism. But do these people actually understand capitalism? What they believe to be capitalism: getting the government off the back of the private sector, is not true free market capitalism.
Adam Smith, the man many in the conservative arena espouse to be the father of modern capitalism, was an 18th century economist who wrote an influential book called The Wealth of Nations. In it, he argues three main tenets. These principles have become the standards by which capitalism, as we know it (and many peoples’ level of acceptance of it) is measured.
The first is the invisible hand. Smith argued that there is an invisible force at play in the market that guides production. So, the argument goes, if citizens want to live in a society with all solar power and organic food, they would simply put their money where their mouth is, and buy only those goods. By creating that market demand, people incentive companies to produce only those kinds of goods, and nothing that is bad for society, like coal. As a result, the invisible hand has worked its magic: our society is now 100% solar powered and full of nutritious, non-GMO food.
The second principle Smith espoused is that the free market alone should determine the types and quantities of goods and services (meaning that government should never make those decisions).
His third principle was that, if all individuals were striving for their own self-interest, that cumulatively, those efforts would have the greatest overall good for society. By working really hard, these folks would create economic opportunities for themselves and others, and that provided the best overall benefit.”
If Scott Cooney sincerely believes that these are the three main tenets of “capitalism” as outlined by Adam Smith, he is way off track about Adam Smith”. Smith never mentioned "capitalism", a word first used in 1854 by Thackeray in his novel, The Newcomes).
To argue from such shaking foundations to present a “stray man argument” of such low quality offends, surely, the minimal requirements for its ‘sustainability’.
First, Adam Smith (born in Kirkcaldy in 1723) had no such : tenet” as the “invisible hand”, as discussed here on Lost Legacy many times. It is an invented attribution of modern economists (more or less since Paul Samuelson published his ‘Economics: and introductory analysis’ in 1948). That modern economists believe the mythical tenet is a reflection on their credulity, not Adam Smith’s.
Secondly, Adam Smith never argued “the free market alone should determine the types and quantities of goods and services” in the sense “that government should never make those decisions”. Smith had a fairly detailed agenda for the role of government in the economy (not least, its responsibilities for the system of justice, a basic requirement for an economy to work; to which we could add its first duty of “defence”, where the government, not the free market, determined “the types and quantities of goods and services” provided for that purpose. The government also decided on the provision of roads, harbours, and canals. It did all of these jobs badly, most of the time - often still does.
Thirdly, “if all individuals were striving for their own self-interest, that cumulatively, those efforts would have the greatest overall good for society” that is a dubious assertion to attribute to Adam Smith.
His views of the role of self-interest were not a battlefield of conflicting self-interests, unmitigated by mediation in the “higgle haggle” of bargaining, where parties must address the self-interest of others and not just their own, if they seek agreement. Moreover, single-minded self-interest, Smith showed over 80 times in Wealth Of Nations can lead to general public disbenefits for the rest of society.
If some conservative thinkers believe that the above summarises Adam Smith’s Wealth Of Nations they are mistaken, let alone in his Moral Sentiments.
And so Professor Cooney goes on (follow the link to read it for yourself) making other points that are equally contentious. He introduces “externalities”, not an issue discussed by Adam Smith, not least because the poverty of people in Scotland was worse than that in England, and his remedy was mainly in economic policies that allowed the great wheel of circulation (his metaphor for the flow of revenue that adds to employment) to raise paid employment (even if low paid) for labourers. Externalities came much later in the early 20th century (A. C. Pigou, Economics of Welfare; and Coase, 1937, etc.).
Cooney also misunderstands the ‘tragedy of the commons” parable. It is the absence of property rights in these cases that causes the dreadful consequences, not their presence! Property rights are part of the commercial system, that over-fishing and waste-dumping are problems is as much a government as it is a market problem. Just as local litter messes are problems of careless private individuals and indifferent governments, who are hardly, anywhere, paragons of virtuous behaviours and careful husbanding of scarce resources.
I do not know of the ‘Adam Smith Foundation’ (is it a US entity?). They do not appear to speak for Adam Smith.