Sometimes I wish ardently that people would actually read The Wealth Of Nations before talking about what lies between the covers. Smith may be the most mis-quoted writer in history. What he actually pointed out was that markets are a more effective way of matching needs to outputs than any other mechanism available. And that’s it. He didn’t say “profits matter more than anything else.” He definitely didn’t think markets were perfect; in fact he pointed out that one very important role of government is to prevent monopolies and oligarchic groups from taking advantage of workers and consumers by price-gouging through intentional limiting of competition or distortion of markets. Smith knew that people will always seek personal advantage at the expense of the many; this was, in fact precisely the problem caused by craft guilds and would simply be a larger problem if left unchecked now that mechanization was enabling production on a larger scale. The reason the USA has such astonishing disparities in wealth and such atrocious standards of social care is because the US Constitution has created a near-perfect opportunity for endemic corruption. Politicians need money to fund perpetual campaigns, and the powerful are always eager to buy favor. The result: centuries of legislation that favor the rich and powerful. But that’s not capitalism, and it’s explicitly what Smith was arguing against. European countries, meanwhile, strike a balance between reasonably efficient markets and high levels of social safety, because their political systems aren’t all pay-to-play as is the case in the USA. Oh, and if we’re naive enough to imagine that markets aren’t a reasonable way to match needs to outputs, we can look at the “success” of the USSR, which ended up being unable to supply even such basic items as toilet paper and shoes because it operated on a command economy where bureaucrats imposed 5-year plans and there were no incentives for anyone to do anything of value. In fact, so awful was the command-and-control approach that the East German Trabant was a case-study in value destruction: a finished Trabant was actually worth less than the value of the raw materials used in its construction.

So before we attack Smith and market economies, let’s first (i) read what he actually had to say about such things, and (ii) look at the reality of the alternatives that have been tried. His point was not that markets are perfect; merely that if properly regulated they are better than any alternative available to us.

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