Sunday, November 21, 2010

An Economist Who Has Read and Understands Adam Smith

Government's role in a free-market economy

By Vijay K. Mathur
Mathur is former chair of the economics department and professor emeritus of economics at Cleveland State University, Cleveland, Ohio. He resides in Ogden. His articles also appear in He offers original blog posts for the Standard-Examiner at HERE:

"Among many people, politicians and media pundits, there seems to be confusion about the operation of free markets. Sometimes the word capitalism is used to propagate the notion of free markets. However the word capitalism came into use almost one hundred years after the publication of The Wealth of Nations in 1776 by Adam Smith, the most ardent supporter of free markets. Capitalism should not be confused with the system of free markets. Like markets, capitalism is evolutionary, however it encompasses not only economic organization but also political and social organization.

According to Adam Smith, self-interest (not selfishness), property rights and division of labor are three important interrelated pillars of economic growth. Property rights, if clearly defined and enforced, ensure that people are free to transact their goods and services at positive prices. Self-interest of sellers to make profits and of buyers to obtain products they prefer at the lowest prices brings sellers and buyers together in a market transaction. Self-interest in competitive markets maximizes economic welfare of the society. If free and competitive markets work, they efficiently allocate products among consumers according to their preferences, allocate inputs among producers, and enable producers to obtain the maximum output with given amounts of inputs. Division of labor facilitates scale economies to bring down costs.

However, there are circumstances when markets do not perform their function efficiently. Economists refer those states of the markets as market failure, a point missed by many who blindly promote virtues of free markets."

At last! (Minor quibbles excepted).

Vijay K. Mathur, an economist who understands what Adam Smith was on about in contrast to most of those educated by almost all university economics departments across the world since the 1950s, where Adam Smith’s ideas, to put it somewhat crudely, were made up by those who should have known better and should have been checked for accuracy by the natural skepticism that is part of their education. After all, many of them had access to Wealth Of Nations and could have read for it themselves.


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