In my last blog post I mentioned recent reading of parts of Adam Smith’s The Theory of Moral Sentiments and The Wealth of Nations plus all of Nicholas Phillipson’s biography Adam Smith: An Enlightened Life. The biography, published this year, was a great help in organizing my thoughts based on the earlier reading of Smith’s profound works.
Smith was very clear that The Theory of Moral Sentiments was a far more important production than The Wealth of Nations. The latter is idolized by American businessmen and conservative economists today, although I doubt that many of them have cracked the book. Smith focused on the necessity of free and open markets to promote the division of labor and specialization which would drive the creation of wealth or opulence as he called it. He was dead set against protectionism, mercantilism and the exploitation of colonies. He likewise abhorred the role of businessmen in government for they would have no concern for the public good but only for the protection and advantage of their own enterprise. For this reason he opposed royally chartered business such as the East India Company (or Freddie or Fannie) which used their privileged position to promote monopoly leading to diminished supply and higher prices. Smith seemed to favor a paper-based monetary system and independent banks that would carefully extend credit to borrowers based on collateral and the guarantees of men of property. He saw the hoarding of gold to back currency as likely impeding free trade and the division of labor.
Smith was very clear that The Theory of Moral Sentiments was a far more important production than The Wealth of Nations. The latter is idolized by American businessmen and conservative economists today, although I doubt that many of them have cracked the book. Smith focused on the necessity of free and open markets to promote the division of labor and specialization which would drive the creation of wealth or opulence as he called it. He was dead set against protectionism, mercantilism and the exploitation of colonies. He likewise abhorred the role of businessmen in government for they would have no concern for the public good but only for the protection and advantage of their own enterprise. For this reason he opposed royally chartered business such as the East India Company (or Freddie or Fannie) which used their privileged position to promote monopoly leading to diminished supply and higher prices. Smith seemed to favor a paper-based monetary system and independent banks that would carefully extend credit to borrowers based on collateral and the guarantees of men of property. He saw the hoarding of gold to back currency as likely impeding free trade and the division of labor.
Smith understood the role of capital and the banking system in the economy, but he considered them only the necessary lubrication for the systems of production and trade in a free market. He would not have supported government bailouts of banks or manufacturers. And he would have been aghast at the size of the financial sector in today’s economy.
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