Outgrowing Adam Smith

Adam Smith is an advocate for “Laissez-faire”  or “leaving alone”.  He believed that the state should be discharged from the “duty of superintending the industry of private people and of directing it towards the employments most suitable to the interest of the society” ¹.This remains a principle of current conventional economics.  Adam Smith’s principle of non-interference remains a dominant idea in current economics, because it is an implicit consequence of some of the ideas that he advocated and which remain at the heart of current conventional economics (such as the neutral money fallacy).

Adam Smith’s style of economics clearly cannot be adequate for the 21^st century.  A more active role for government is needed to guide the radical changes that will be needed to make the 22^nd century livable for our descendants.

The growing threat from climate change has been repeatedly emphasised by successive meetings of the Intergovernmental Panel on Climate Change (IPCC).  The danger arises from rising levels of carbon dioxide in the atmosphere caused by burning fossil fuels like oil and gas.  To avoid irreparable damage from rising global temperatures we need to keep the rise in temperature below 1.5^oC.  The radical changes needed to make this feasible are being implemented far too slowly to avoid widespread damage to human health and living conditions.

Limiting the use of fossil fuels, controlling carbon dioxide levels and managing the effects of rising temperatures requires government regulation on a national and international level.  This is a global problem. One firm, one area or one nation on its own cannot achieve the required change.

Economics for the 21st century

For the 21^st century, a different form of economics is needed.  Fortunately, some seed ideas for a new economics are already available in the writings of a range of radical economists ^2,3,4. Unfortunately these ideas are largely ignored by mainstream economists and neglected in mainstream economic courses.  Meanwhile, conventional economics is generally absent from the some of the crucial debates for our time, such as reducing the use of fossil fuels.

Adam Smith is out of date

As a founding authority of economics, Adam Smith’s ideas have been absorbed into the discipline with remarkably little criticism.  However, they are out of date. Adam Smith and his friend David Hume proposed the neutral money fallacy which is discussed in detail here.  Many concepts fundamental to economics, like classes, government and economic actors appear in Adam Smith’s writings, but in a very rudimentary form.  Since then, social institutions have evolved and become more distinct.  Our society has become more diverse and complex with a greater expectation of fair treatment and human rights. Adam Smith’s fundamental concepts were incomplete or simplified descriptions even in the context of the 18^th century when he was writing.    For the economy of today and the future they are seriously inaccurate.  For a fuller, critical appraisal of Adam Smith’s thought in the context of today’s society see here.