THE AGE OF REASON 61
Human society, when
we contemplate it in a
certain abstract and
philosophical light,
appears like a great,
an immense machine.
Adam SmithSmith didn’t foresee the kinds of
inequalities that can arise from free
markets in their present form. In stock
exchanges and money markets notions
of “fairness” become almost irrelevant.Adam Smith
The founder of modern
economics, Adam Smith was
born in Kirkcaldy, Scotland,
in 1723, six months after his
father’s death. A reclusive,
absentminded scholar, he
went to Glasgow University at
the age of 14, then studied at
Oxford University for six years
before returning to Scotland
to take up a professorship in
logic at Glasgow University.
In 1750, he met and became
close friends with the
philosopher David Hume.
In 1764, Smith resigned
his post at Glasgow to travel
to France as tutor to the Duke
of Buccleuch, a Scottish
aristocrat. In France, he
met the physiocrat group of
economists (pp.40–45) and the
philosopher Voltaire, and he
began writing The Wealth of
Nations. He devoted 10 years
to the book before accepting a
position as Commissioner of
Customs. He died in 1790.Key works1759 The Theory of Moral
Sentiments
1762 Lectures on
Jurisprudence
1776 An Inquiry into
the Nature and Causes
of the Wealth of Nationsworkings of the economic system,
so state intervention will not work.
Even so, most economists today
believe that the market can fail.
They focus on disparities in
information, held by various
participants in a market. George
Akerlof referred to this in his The
Market for Lemons (pp.274–75).
Behavioral economists have
questioned the whole notion of
rationality (pp.266–69), and see
the non-rationality of humans as
a reason for markets to fail.
The issue of laissez-faire
economics divides economists
along political lines. Those on the
political Right embrace laissez-
faire; those from the Left align
themselves with Keynesian
intervention. This remains a
central debate in economics today.
The financial crisis of 2007–08
has added fuel to this dispute. The
free marketeers felt vindicated in
their theories about the business
cycle, while Keynesians pointed
to market failure. US economist
Nouriel Roubini (1959– ), who
predicted the crash, was speaking
of those who had distorted Smith’s
ideas when he said that “decades
of free market fundamentalism laid
the foundation for the meltdown.” ■