I have just completed teaching a short course for "life long learners." It was an enjoyable and educational experience for me and, I hope, the thirty-some students.
The objective was to acquaint the class with powerful personalities over the past 250 years who have shaped the way policymakers, politicians and pundits think about economic policy - for better or worse.
We dealt with six economists: Adam Smith, Karl Marx, John Maynard Keynes, Friedrich Hayek, Milton Friedman and Douglas North. Three of these - Hayek, Friedman and North - were awarded the Nobel Prize in Economics. No doubt Keynes would have received that honor, but he died before the award was established.
For the next several weeks I will submit quotations from the six for your perusal and my comments. Some of them I came across for the first time as I prepared for class.
Of course, we start with Adam Smith. The first quotation is from his early, reputation-establishing work, “The Theory of Moral Sentiments.”
The administration of the great system of the universe ... the care of the universal happiness of all rational and sensible beings, is the business of God and not of man. To man is allotted a much humbler department, but one much more suitable to the weakness of his powers, and to the narrowness of his comprehension: the care of his own happiness, of that of his family, his friends, his country...
The humbleness of a powerful intellect is obvious. Smith is highly conscious of the limits of rational analysis and its applications to society and the economy. The more ambitious and sweeping the goals of the policymaker, the greater the likelihood that efforts will come to naught. Or generate unintended consequences that can leave the intended beneficiaries worse off than before. The long, sorry history of foreign aid as a driver of economic development is ample testimony.
Recall that Smith does not advocate new laws. Instead, his policy recommendations for economic growth are generally directed at removing laws that limit choice, private initiative and competition. Thus his powerful advocacy for free trade and the breakup of government-chartered and private monopolies.
Consider this passage from “The Wealth of Nations:”
That security which the laws of Great Britain give to every man that he shall enjoy the fruits of his own labor, is alone sufficient to make any country flourish, notwithstanding these [the Corn Laws] and twenty other absurd regulations of commerce . . . the natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations . . .
With the exception of Marx, the six economists exhibit varying degrees of humbleness, even John Maynard Keynes - but rather late in his career. Consider his skepticism of attempts to mathematically model the economy:
Too large a proportion of recent “mathematical” economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols. (1944)
Or, at the very end of his life, when the Labour Party was busy nationalizing much of the United Kingdom’s economy to disastrous effect:
I find myself more and more relying for a solution to our problems on the invisible hand [Adam Smith] which I tried to eject from economic thinking twenty years ago.” (1945)
Today, economic policymakers and pundits tend to pitch their policy prescriptions with an air of precision and authority that would horrify Smith and, maybe, the aging Keynes.
Four years of over-reliance on U.S. monetary policy to deal with unemployment and a Rube Goldberg-designed healthcare system bear ample testimony to the perils of an over-active government championed by “Do Something!” politicians and hubris-filled economic savants.