Thursday, October 09, 2008

Financial Crisis Caused by Politicians, Not Markets

Read John Morgan’s letter to The Capital Times (Madison, WI) HERE:

Perhaps next economic system will work for all’:

“Dear Editor:
The meteor of toxic mortgage slammed into Earth and the dinosaurs of Wall Street are biting the dust.

The invisible hand of the free market clenched itself into a fist and beat up the market, then held itself out for a government loan.

After the economics books are rewritten, maybe Adam Smith will be taken off his pedestal, and maybe someone will invent an economic system that works for everyone, not just the favored.

Maybe cooperation and benevolence are a better foundation for economics than competition and greed

It’s not a new ‘economic system’ that we need – Adam Smith did not invent one; he observed what was going on around him in the 18th century and reported on it in Wealth Of Nations.

Adam Smith did not discover ‘the invisible hand of the free market’ – that is a myth. His use of the well known 18th-century-metaphor – widely used in literature at the time, and far back into classical times (it’s in Shakespeare too) was not even about markets and how they work, which he fully explained elsewhere in Books I and II in Wealth Of Nations without mentioning anything about invisible hands.

There is no need to ‘rewrite’ the ‘economics’ book. The first task is to read Wealth of Nations for the very first time in the case of 98+ per cent of working economists today, and not just rely on isolated quotations torn from its context and spread about with the authority of modern ‘top’ economists, including some Nobel Prize winners.

Many of them would be surprised that Adam Smith never advocated ‘greed’, nor gave a free pass, all areas, to businesses to do whatever their self-interested owners regarded as a sufficient reason, under the illusion that they were blessed by a mystical, implicitly religious’ force of an invisible hand, irrespective of the obvious flaws in such a ‘theory’ (‘pusillanimous superstition’, as Adam Smith described belief in such phenomena).

Legislators on both Britain and the US were complicit in the behaviours that brought the finance system into its current crisis; for political ends they punted the socially attractive notion of lending money to people unable to sustain re-payments and disregarded the standards of prudence they claimed for their economic management. Governments caused the crisis, not Adam Smith, nor anything alleged to have been written in Wealth Of Nations.


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