Saturday, June 23, 2018

Jesse Norman on Adam Smith

Jesse Norman MP has a superb article in the FT on a transformational thinker who was rightly revered if sometimes misrepresented in previous generations but sadly underestimated and oversimplified in the present era.

I refer of course to Adam Smith, author of "The Wealth of Nations" who is often seen, rightly in my opinion, as the founder of the discipline of Economics.

Smith's views about markets and many other things were generally more nuanced and much more sophisticated than he is usually given credit for by any of his detractors and many of his supporters.

Jesse Norman's article describes Smith's life and his seminal books, and offers a few comments on how he might see our present age.

I particularly liked the point that although markets "are unmatched in their ability to allocate goods and services and encourage innovation and technological improvement"

Smith also argued that

"what matters is not the largely empty rhetoric of  'free markets' but the reality of effective competition."

Norman also draws from Smith the insight that

"Markets constitute a socially constructed and evolving order that exists and must exist not by divine right but because it serves the public good. It follows from this that the modern doctrine of market failure, which derives from academic models assuming perfect competition, needs to be expanded and supplemented. 

The truth is that outside academic models there are few if any genuinely free markets, and the imagined benefits of perfect markets disappear once any imperfections are allowed. Instead, policymakers need to start by asking two much simpler questions: 
  • What is this specific market for? 
  • How is it actually working?" 
You can read Jesse Norman's article in full here.

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