Outgrowing Adam Smith

Filling a Vacuum

There has been no definite international monetary system since the Bretton Woods agreement broke down in the early 1970s ¹ . A new monetary and economic system needs a current, relevant view of money to replace Adam Smith’s view of money which is out-of-date.  Without a consistent theory of money, the theoretical basis for economics is confused.

A New Approach

Facing the ecological crisis, there needs to be a greater role for national governments. Adam Smith minimised the role of governments. He constructed a theoretical system in which people everywhere exchange goods to their mutual benefit using a universal means of exchange.  Adam Smith’s ideas are a product of the enlightenment age and an attractive theoretical picture;  a beautiful theory based on a mistrust of government and a belief in a universal beneficent agent ² . Adam Smith’s theory was never at any time an accurate picture of reality

“the greatest expansions of world trade have tended to come … from the barrel of a Maxim gun, the edge of a scimitar or the ferocity of nomadic horsemen.” ³

 People have different interests and different opinions.  These are reflected in conflicting policies adopted by national governments.  The colonial policies of European governments were motivated by the profits to be made rather than by the good of the native populations.

Money is National

Money has aways been a national, rather than an universal institution. Money and Economics  Adam Smith’s picture of a universal self-regulating system should be consigned to the world of theoretical ideals where it belongs.

Modern governments are much better

Today, it is possible to envisage a new monetary and economic regime based on the co-operation of independent national governments. Governments have changed since Adam Smith’s day.  The institutions of a genuine democratic governemnt reflecting the will of the whole population have become widely accepted. 

National governments are linked together through a growing network of international institutions. These are still develooping but they can be effective. The control of the Ozone layer and the Covid pandemic show what can be achieved through international co-operation.

Aims of a new monetary regime

The aims of a new monetary and economic strategy will include

• Managing the deterioration of our natural environment – including limiting global warming
• Ensuring a more even distribution of wealth and wider access to productive resources -so everyone has worthwhile work as well as sufficient income.

To achieve this, government will need to take a greater role in managing and controlling the strategic direction of the economy.  The central element of Smith’s “system of natural liberty” was that the role of government should be limited.  His ideas form the foundation of a world view that separates government from “the economy”.  By promoting a view of money based on a natural element (gold), he created a view, which is still common, that money is largely outside the control of government.

Transforming a new, relevant understanding of money and economics into a practical reality is not simple. It will take many individual legal and financial measures. A more detailed view of some first steps are in a separae page. (link)