ADAM SMITH IN SUPPORT OF STATE REGULATIONS

Andrew Heanngam Pamei posts on E-Pao (now the world knows) HERE 

“In a 1776 book entitled "An inquiry into the nature and the causes of the wealth of Nations," Adam Smith propounded a theory of the invisible hand, where he used the term 'invisible hand' as a metaphor to delineate the unintended social benefits resulting from individual actions.

Comment

Whether individual actions produce “unintended social benefits” must be judged on a case by case basis. Clearly, Smith did not believe, and nor did he write, that all “individual actions” led to unintended social benefits. That would be an absurd assertion, so why does Andrew Heanngam Pamei attribute the idea to Adam Smith”? 

In the specific case Smith mentioned in Wealth of Nations - that of a merchant who preferred to invest locally rather than send his capital abroad - because the unintended consequence of his action added to domestic investment, this could be considered as a social benefit. Of course, as always, whether an action leads to an unintended benefit depends a great deal on what happens next. The risk-averse merchant could also engage in anti-competitive actions, such as restricting inward investment - protectionism for example - which reduced competition and raised domestic prices. Hardly, said Smith, a social benefit.  

“He contended for the individuals to work for their self-interest as every individual is a rational being, this would ultimately result into the overall societal development. And so he gives the idea of free market without any regulations i.e, the idea of Laissez Faire state, which subsumes individualism and liberalism. But there are certain preconditions for the capitalist model to achieve the desired objectives; i.e, man has to be rational in every decision which is not practical, and there can be many instances of market failure such as asymmetry of information among economic agents, presence of public goods, externalities in production, consumption and also uncertainty.”

Comment 

Smith did not write that “every individual is a rational being”. That assertion came later in the 19th century (Smith died in 1790) and is the bedrock on which much modern mathematical analysis is based.

Neither did Smith mention “laissez-faire”, ever! “Laissez faire” ideas originated in the late 17th century among merchants in dispute with the state authorities, in pursuit of their own interests and not those of the consumers of their products. Laissez-faire remains a one-sided approach to policies favouring “merchants and manufacturers’ interests”, not those of the labourers and consumers.

Smith favoured “natural liberty” for all, not one-sided laissez-faire for owners only.  He did not support nor advocate the “idea of free market without any regulations i.e, the idea of Laissez Faire state”. Andrew Pamei repeats modern misinterpretations - in the above examples, grossly minsintepretating Adam Smith! Smith, in fact, suggested several specific regulatory actions a government could, indeed should, introduce by law.

Andrew Pamei corrects himself in the last few sentences. Good! But as Adam Smith never claimed otherwise, why does Andrew Pamei repeat modern misinterpretations in his above examples?