"Opulence and Freedom": What Adam Smith Could Teach Us about the Future of Capitalism

Masazumi Wakatabe (wakatabe@waseda.jp)
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Masazumi Wakatabe: Faculty of Political Science and Economics, Waseda University

No 2407, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: Capitalism is in trouble, or so have we been told. What could we learn from Adam Smith about the future of capitalism? I argue that Adam Smith has a lot to teach us about the future of capitalism. I first examine recent discussions about the current challenges and criticisms against capitalism such as the productivity slowdown, the waning competition, the role of globalization, the rising inequality and climate change. Through this exercise, I emphasize that there are indeed some global trends, but there are also important national and regional differences reflecting differences in institutions and policy; in this sense, not only natural scientific technology but also social scientific technology, i.e. governance, policy and institutions, matter. Then, I argue that what Smith could teach us on in five aspects. First, it should be noted that Adam Smith conceived a truly inclusive capitalism: he took income distribution into account when he argued for the desirability of economic development. Secondly, an inclusive capitalism requires broad knowledge formation and sharing among the people. Smith’s inclusive capitalism is based on the division of labor principle, markets or broad exchange basis to foster the division of labor, and policy measures to alleviate side effects of the division of labor. Thirdly, the expansion of exchange and trade has beneficial effects, but we should be aware of its distributional consequences. Fourthly, institutions matter. Markets are the most fundamental institutions, but it is imperative to preserve competition in markets, especially free entry. Fifthly, proper law and institutions are essential to the well-functioning market economy, the “system of natural liberty”. However, the “system of natural liberty” is not automatically achieved. Policy and institutions are history dependent, therefore history matters. Here “relatively cautious sense of progress” of the Scottish enlightenment thinkers including Smith should be reminded of.

Keywords: : Adam Smith; inclusive capitalism; competition; economic development; institutions (search for similar items in EconPapers)
Pages: 57 pages
Date: 2024-11
New Economics Papers: this item is included in nep-his, nep-hme and nep-hpe
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