ABSTRACT
In his Donald Horne Address, ‘Markets madness and a middle way’, Geoff Harcourt discusses the conditions for a well-functioning market economy, referring for two of them to Adam Smith. First, ‘The thrust of the argument [of Smith’s Theory of Moral Sentiments] is the need to design institutions which allow altruism, or “sympathy”, to prevail’. Second, ‘Smith, a wise person, recognized that one of the essential conditions for competitive markets to function in a “socially desirable” manner was that economic and political power should be widely diffused’ (Harcourt 1992:3). Smith-and Harcourt-thus point to the fact that moral and political aspects condition the working of a market economy. (Similar interpretations of Smith have been proposed by a number of authors, from Macfie (1967) to Pack (1991); cf. also Roncaglia (1989, 1995).)
This viewpoint implies a notion of what a market is-the classical notion-different from that prevailing in contemporary economics. In my opinion, the dominance of this latter, mainly marginalist, redefinition of the notion is responsible for the oblivion of the moral and political preconditions for a well-functioning market economy. In this paper I will first recall in the next section the classical notion of the market as a social set of interrelations between producers (and, eventually but not necessarily, consumers). The marginalist notion of the market-as a point in time and space where supply and demand meet-is then briefly recalled. A subsequent section discusses the role attributed by Smith to the moral foundations of a market economy and to institutions. A distinction between an all-out laissez-faire and Smithian liberism. and its connection with political liberalism, is then considered, and the final section briefly draws a few conclusions.
