Tuesday, July 18, 2006

Smith on Wealth and Free Markets

“Why Freemarkets succeed and governments fail” by Michael S. Rozeff, Louis M. Jacobs Professor of Finance at University at Buffalo (in LewRockwell.com)

“New (or radical) liberals and private property anarchists affirm market success and government failure. Socialists affirm market failure and government success. Success at what? Success at creating value for individuals. Adam Smith called it the wealth of nations, but wealth is only a proxy measure of value and one that does not entirely get at the essentials of why free markets succeed.”

An interesting viewpoint, but not quite accurate. Aside from Michael Rozeff’s quarrel with socialism and its pro-state solution to everything to do with what it call market failure (and precious few ideas it has about state-failures), of which I have nothing to say as I would probably agree with his general drift, I would question his all to easy assessment that Adam Smith’s ideas on wealth do “not entirely get at the essentials of why free markets succeed”.

Smith critiqued 18th century views that saw the solution to economic problems through the nation state and its success in focusing on ‘wealth’, i.e., the command of purchasing power by the state. He disagreed that the wealth of a society or a nation lay in the centralised control of economic resources by what were essentially ‘beggar my neighbour’ economic policies, fear of other nations becoming more economically successful and pursuit of aggressive foreign policies that began in wars and ended in empires.

He did not regard his definition of wealth – the annual produce of goods –as a ‘proxy’ (whatever that means) for ‘value’. His definition not only got to ‘the essentials of why free markets succeed’, but was inextricably bound up with that very issue. He looked, in detail, at the ‘barriers to opulence’, almost all of them involved in the malfunctioning of ‘free markets’ (‘natural liberty’ in his language) and added insights into how these malfunctions prevented markets succeeding (Book II, Wealth of Nations).

Where Matthew Rozeth gets his assertion from is not obvious. He used the ‘wealth of nations’ in his title because nations were the units with which his readers were familiar. His concepts were applicable at levels below that of nations – neighbourhoods even – and he could have titled his book the ‘Wealth of Neighbourhoods’ without losing his threads to the efficiencies of markets.

Read his article in: http://www.lewrockwell.com/rozeff/rozeff80.html


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