ABSTRACT
Chapter 6 concerns the free market theory of Adam Smith. Smith is focused on a theory of market organization expected to maximize productive efficiency and explain why monopolies are bad for everyone. These same conditions stimulate fair competition between market participants, thereby maximizing the efficient distribution of capital and resources. Thus, we will all be better off by virtue of the enhanced economic growth that inevitably results.
Smith emphasizes that a necessary condition of market efficiency is that participants must be free to pursue all market transactions exclusively from the motive of self-interest, which he characterizes as sound practical judgement. Classical Liberals of the late 20th century have read Smith as advocating that market participants must be left free to act with maximal selfishness. Other policy recommendations they argue to follow from Smith’s theory are an emphasis on deregulation and privatization of the public sector as much as possible, the ultimate goal being to minimize the involvement of the government in the economy. The book argues that much of this is a misinterpretation of what Smith actually argued for and that a different interpretation is supportive of government involvement in ways that align with our narrative of sustainability from Chapter 4.
