July 18, 2012

Visible Hand of Government

Somehow over the last 30 years our economic system, capitalism, has lost its way. Most citizens believe a free market means government should have no control how the private sector operates. This is contrary to the teaching of the founder of capitalism, Adam Smith, and one of its biggest advocates, Milton Friedman.

" Capital cannot be expected to be self-policing. To prevent it from mortgaging humanity’s future, governments must reject laissez-faire attitudes. The “visible hand” of government is needed to manage the markets, revamp regulatory systems and bridle reckless behavior. Governments should encourage businesses to invest in the “real” economy — to promote technological innovation and job creation rather than speculation and profiteering." Rebalancing the Global Economy, New York Times, Li Congjun, July 17, 2012

Li Congjun is the president of Xinhua News Agency, the official press agency of the People’s Republic of China. Too many, the above statement sounds like something said by a communist; however, some of what he is saying is not too different than what the founder of capitalism said over 200 years ago.


"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices." Adam Smith, The Wealth of Nations, 1776.

Adam Smith's quote is reinforced by the economist quoted most often when conservatives are praising free markets and capitalism.

"But we cannot rely on custom or conscious alone to interpret and enforce the rules; we need an umpire. These then are the basic roles of government in a free society; to provide a means where we can modify rules, to mediate differences among us on the meaning of rules, and to enforce compliance with the rules on the part of those few who otherwise would not play the game." Capitalism and Freedom, Milton and Rose Friedman

The difference in our two countries philosophies shows up when Mr. Li Congjun says,

"Governments should encourage businesses to invest in the “real” economy — to promote technological innovation and job creation rather than speculation and profiteering."

We believe the free market is better at determining the wants and needs of society. If a company produces something the market does not want it will fail. This does not mean that participants in a market should be allowed to destroy all of its competitors and gain oligarchical control of its' industry. This would destroy the free market our society believes in. This is what is occurring and must be corrected. More

1 comment:

  1. This is the first time I have heard it explained in this manner. Very provacative.

    ReplyDelete