Liberalist Paradigm (II) - Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations

"Harmony of Interest" vs. "Class Conflict Model"

Workers (wages) leads to Capitalist (profits & interest) leads to landlords and circles back

Physiocracy (intellectual context)

The doctrine that land and its products are the only true wealth. - 17th and 18th century in France - Agriculture product prices should be high - The use of productive work as the source of national wealth

Modern Liberalists: Friedrich Hayek (1899-1992)

- Against the planing substituting for competition 1. Setting up a national economic strategy is not a workable idea 2. The Road to Serfdom (1944) - Criticized "Laissez Faire" - Emphasized the rule of law - The real question about state isn't whether to intervene, but how to intervene.

Modern Liberalists: Milton Friedman (1912-2006)

- Believed indivisible matters (ie. National Defense) and support for radical privitization cannot be handled by the market. - The role of the gov. in a free society is an umpire not a player.

Contents of the Book

- Book 1: Labor Productivity & Distribution - Book 2: Of the Nature, Accumulation, & Employments of Stock (=capital) - Book 3: Of the Different Progress of Opulence in Different Nations - Book 4: Of the Systems of Political Economy - Book 5: Of the Revenue of the Sovereign or Commonwealth (the role of the state)

Smith's List on Government's Role

- Building socioeconomic infastructure (roads, bridges & canals) - Post office - Perserving justice (courts) - Maintaining stable financial systems 1. laws against banks issuing law denomination promissory notes 2. Regulations of paper money in banking 3. Coinage and the mint

Against Keynesianism

- Causes of two great depression 1. Loose monetary policy & abrupt increase of interest rate 2. A monetary theory of the United States (1867-1960 (1963)) - Rejected the idea of micromanaging government intervention like Keynesianism - Founder of "Monetarism" 1. Money supply leads to national output + price level 2. "Inflation is always and everywhere a monetary policy"

Smith's View on Economic Development

- Division of labor leads to increase in productivity through specialization - Stable government policies - Competitive business enviroment - Stable judiciary system - Natural liberty leads to enhanced economic freedom - Freedom + Competition + Justice

The Notion of Harmony of Interests: Invisible Hand

- Smith did not articulate how harmony of interests can be reached - Only used the phrase invisible hand once in the whole book. - How can activities to maximize "self interest" lead to "harmony of interest" - From a zero sum to a a non-zero sum situation - Linked concept of equilibrium or optimization in neoclassical economics.

Today's Takeaways

- The concept of "invisible hand" & or "harmony of interest" is a vague and under-articulated one - Even among liberalists there have been diverging views on the role of government in relation to market. - Challenging views against the "Harmony of Interest" view have been proceeded especially by the "class conflict" model.

Mercantilism (intellectual context)

An economic policy under which nations sought to increase their wealth and power by obtaining large amounts of gold and silver and by selling more goods than they bought - 16th to 18th century in EU - Zero Sum View "seizure and exploitation - Trade Surplus (increase exports, discourage imports through tariffs)

An Inquiry into the Nature and Causes of the Wealth of Nations (1776)

Intellectual Context - Adam Smith tried to argue against the prevailing perspective about the origin of national wealth or economic development of his own time.

ADAM SMITH WAS NOT A SUPPORTER OF A MINIMALIST STATE

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