Smith wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive

Amarya Sen's Two Brilliant Essays on the Relevance of Adam Smith Today
from Adam Smith's Lost Legacy by Gavin Kennedy
Amartya Sen writes two great articles of current relevance on Adam Smith. The shorter one is in the Financial Times HERE and the longer one is in the New York Review of Books HERE.I recommend them both to you (following correspondents asking if I had read them, and, presumably, looking for my comments on Lost Legacy). As I have been busy completing my paper on ‘Adam Smith’s Alleged Religiosity’, I chose not to post a comment last week, but to generate more publicity for an approach with which I agree and I am pleased now to recommend them and I provide links to the two articles and a very short extract: ‘Adam Smith’s market never stood alone’

“For example, the pioneering works of Adam Smith in the eighteenth century showed the usefulness and dynamism of the market economy, and why—and particularly how—that dynamism worked. Smith's investigation provided an illuminating diagnosis of the workings of the market just when that dynamism was powerfully emerging. The contribution that The Wealth of Nations, published in 1776, made to the understanding of what came to be called capitalism was monumental. Smith showed how the freeing of trade can very often be extremely helpful in generating economic prosperity through specialization in production and division of labor and in making good use of economies of large scale.

Those lessons remain deeply relevant even today (it is interesting that the impressive and highly sophisticated analytical work on international trade for which Paul Krugman received the latest Nobel award in economics was closely linked to Smith's far-reaching insights of more than 230 years ago). The economic analyses that followed those early expositions of markets and the use of capital in the eighteenth century have succeeded in solidly establishing the market system in the corpus of mainstream economics.

But Smith's defense of private trade only took the form of disputing the belief that stopping trade in food would reduce the burden of hunger. That does not deny in any way the need for state action to supplement the operations of the market by creating jobs and incomes (e.g., through work programs). If unemployment were to increase sharply thanks to bad economic circumstances or bad public policy, the market would not, on its own, recreate the incomes of those who have lost their jobs. The new unemployed, Smith wrote, "would either starve, or be driven to seek a subsistence either by begging, or by the perpetration perhaps of the greatest enormities," and "want, famine, and mortality would immediately prevail...."

Smith rejects interventions that exclude the market — but not interventions that include the market while aiming to do those important things that the market may leave undone.

Despite all Smith did to explain and defend the constructive role of the market, he was deeply concerned about the incidence of poverty, illiteracy and relative deprivation that might remain despite a well-functioning market economy. He wanted institutional diversity and motivational variety, not monolithic markets and singular dominance of the profit motive. Smith was not only a defender of the role of the state in doing things that the market might fail to do, such as universal education and poverty relief (he also wanted greater freedom for the state-supported indigent than the Poor Laws of his day provided); he argued, in general, for institutional choices to fit the problems that arise rather than anchoring institutions to some fixed formula, such as leaving things to the market.”

Amartya Sen received the 1998 Nobel Prize in economics; he teaches economics and philosophy at Harvard University and he has written an introduction for the anniversary edition of ‘The Theory of Moral Sentiments’ (Penguin Books, 2009) in which he discusses the contemporary relevance of Smith’s ideas.