The Invisible Hand and Moral Economy

Lauren Brubaker is writing about political corruption, too, in her piece a Daily Signal:

Is there something inherent in the system of natural liberty, or in human nature itself, that is systematically corrupting in ways that undermine its claims of universal benefits? Is Smith overly optimistic or naive in his defense of the benefits of free markets?

In a recent published paper in The Heritage Foundation series on First Principles, I discuss Smith’s analysis of the dangers to free markets and his proposed solutions: “Is the System Rigged? Adam Smith on Crony Capitalism, Its Causes—and Cures.”

For Smith, the dangers that natural liberty faces are not a result of the system of free markets itself, but of mankind’s flawed human nature, particularly the desire of those he called “merchants and manufacturers” (among others) to “rig the system.”

The natural desire to “better our condition” motivates us to strive for a better life. This is the motivation that underlies the success of natural liberty. Yet this same natural desire also leads to cronyism and corruption when businesses and others use the power of government to procure for themselves “systems either of preference or of restraint.”

In so doing, Smith said, they impose an “absurd tax on the rest of their fellow citizens,” retard growth, and increase inequality.

As a result, free markets are neither self-establishing, nor self-sustaining. If we are to continue to reap the very real benefits of natural liberty, we must be prepared to defend against cronyism.

or, said another way, eternal vigilance is the price of economic growth.

It’s natural enough for people who are young and idealistic to believe in either socialism or anarcho-capitalism and heaven knows we have a surfeit of both these days. If at 70 you believe in either other than as a principle that informs your views which are tempered by experience, smell a rat.

Economics used to be called “moral economy” and its objective was not in maximizing wealth but achieving a just and moral society. Adam Smith should be read in that context. The farther human behavior is divorced from economics the less moral economics becomes and the less predictive.