Greenspan Praises Adam Smith

Alan Greenspan praised Adam Smith

. . . saying that 18th-century philosopher Adam Smith was "a towering contributor to the development of the modern world."

Greenspan, who this month began his final year as Fed chairman, delivered the Adam Smith Memorial Lecture at Fife College in Kirkcaldy, Fife, Scotland, where the early proponent of free-market capitalism was born in 1723.

"In his `Wealth of Nations,' Smith reached far beyond the insights of his predecessors to frame a global view of how market economies, just then emerging, worked," Greenspan said in a text of his remarks that was released in Washington.

"In so doing, he supported changes in societal organization that were to measurably enhance world standards of living," Greenspan said.

Smith, who died in 1790, argued that while free markets might appear chaotic, they actually were guided to produce the right amount and variety of goods by what he called the "invisible hand" of supply and demand. If a product were in short supply, its price would rise, prompting more producers to enter the market, Smith argued.

"It was left to Adam Smith to identify the more general set of principles that brought conceptual clarity to the seeming chaos of market transactions," Greenspan said. "Most of Smith's free market paradigm remains applicable to this day."

In his 17 1/2 years as Fed chairman, Greenspan has promoted his own free-market views that the economy works best with less government regulation.

Smith's arguments proved powerful support for proponents of free markets and free global trade, Greenspan said. These developments, he said, have helped boost average per capita global economic output by 1.2 percent annually since 1820, enough to double living standards every 58 years.

Greenspan said the Great Depression of the 1930s did provide support for a time to those who argued that communism, with its government control of economic decisions, represented a better approach.

But the argument between free markets and government-controlled economies ended with the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union, said Greenspan, a Republican first appointed by President Reagan.

"There was no eulogy for central planning. It just ceased to be mentioned, leaving the principles of Adam Smith and his followers ... as the seemingly sole remaining effective paradigm for economic organization," Greenspan said. "A large majority of developing nations quietly shifted to more market-oriented economies."

(via Political Theory Daily Review)