ABSTRACT
The British historian, Henry Thomas Buckle (1873, v. 1: 154) described theWealth of Nations (WN) as ‘probably the most important book that has ever been written, and is certainly the most valuable contribution ever made by a single man towards establishing the principles on which government should be based’. It may be puzzling that Buckle referred to Smith’s tome as a political treatise. But this characterization of theWN reflects the fact that economics, at least sinceAdam Smith, has largely revolved around the role of the market versus the role of the state in a market economy. Economic textbooks teach that under certain conditions the market transforms self-interest into the public interest, but then quickly argue that such conditions are violated in the real world and call for government interventions to correct market failures. This presentation of economics, however, is incomplete and misleading, for ‘failure’ is not limited to the market; it encompasses the government as well. To understand the conception and evolution of the theories of market failure as well as of government failure, one must read Steven Medema’s splendid book, The Hesitant Hand. Medema’s book is composed of seven chapters. Chapter one, entitled, ‘Adam
Smith and His Ancestors’ provides a brief review of the ideas on the role of selfinterest in society prior to Smith, as well as Smith’s own analysis of the role of self-interest in the economy. The publication of Leviathan in 1650 ushered in a fascinating period in western thought as a number of thinkers set out to refute Hobbes’s pessimistic and materialistic portrait of human nature. In particular, several thinkers saw a beneficial role for self-interest in the market. For example, in 1713,William Derham argued that we naturally pursue our ‘genius’ and gravitate towards the employment we enjoy. Since each person is endowed with a unique talent, division of labor ensues. In 1744, James Harris carried the argument further and showed that the division of labor connects the interests of individuals together and promotes the public interest (Myers 1983). In 1734,Alexander Pope expressed the idea that was gaining acceptance at the time:
From sounds to things, from fancy to the heart: For Wit’s false mirror held up Nature’s light, Show’d erring pride, Whatever is, is right; That Reason, Passion answer one great aim; That true Self-love and Social are the same; That Virtue only makes our bliss below, And all our knowledge is, ourselves to know.
