What is Liberals Economics?

8 June 2014




Scottish Economist Adam Smith wrote The Wealth Of Nations.He found the classic laissez-faire (let it be) economics. He argued that the real wealth of a nation is not the bullion of gold and silver of the nation, but the amount of goods and services the people produced.

Smith refutes the earlier notion known as mercantilism that measure the mass of gold determine the richness of the country. He gave th example that Spain that had looted gold and silver but grew poorer. Same goes to French (at least Loius XIV)  that put restraint on trade, supervision of the economy , grants a monopoly, subsidies and tariff. These kind of actions according to Smith will not benefit the country and make the country poorer.

Government interference will retard growth .Imagined that if the monopoly right were granted to certain company, people do not have any choice but to buy products from the company and destroy competition. Lack of competition will banish initiative and idea to produce new product and provide innovation.The price also hardly to get lower.As a result, the economy might become stagnate.

Furthermore, if the government imposed tariff on certain company ,among the other company that compete, it might take away incentives for better and cheaper product.This usually happens in domestic own company that was given status “infant industry”. Smith argues that by action of the country,  leaving the economy alone (laisser-faire) this can promote prosperity.

Most of us might ponder, won’t free competition unsupervised by the  government lead to chaos?  Well ,Adam Smith said ‘No’. He said that the market will regulate the economy by itself.  The “nature of market” will punish the inefficient producer and reward the  efficient one.  To understand what Adam Smith means, we might want to see the figure below.







He also argued that a free market with the help of demand and supply will work more efficient than any government official. Liberals hold thought  to the”invisible hand” that will regulate and self correct the economy. According to Thomas Aquinas No man should sell a thing to another man for more than it’s worth”. He said that the merchant will only sell items with a “just price” that have decent profit and exclude excessive profiteering.

The “invisible hand”  actually the rational calculation represents human and firm pursuing their self interest.This happens in the absence of government aid.

Joseph Schumpeter an  influential economist in the 19th century added that the one that losses the competition will be in episodes of “creative destruction”.This also in line with Thomas Jefferson famous quote “ The government is best that that govern least”.

0 comments:

Post a Comment