Heavy travel tomorrow so light posting at best.
Also, deep into a long treatise on the concept of debt, a concept I fear is poorly understood to the point where we keep screwing ourselves up in all kinds of ways over it.
However, let me excerpt one piece of my essay, because I think these Adam Smith quotes are just so damn righteous:
Though Greenspan and others invoked Adam Smith’s insights regarding market incentives, it’s fascinating to contemplate the dressing down Smith would be compelled to deliver regarding contemporary theories on self-correcting financial markets. As recounted in John Cassidy’s essential book, When Markets Fail, “Smith and his successors…believed that the government had a duty to protect the public from financial swindles and speculation panics, which were both common in eighteenth- and nineteenth-century Britain.”
Smith even presaged Minsky’s later typology of the debt instability cycle, documenting how Scottish banks essentially leant into bubbles by providing cheap credit to overleveraged businesses that “only enabled them to get so much deeper into debt, so that, when ruin came, it fell so much the heavier both upon them and upon their creditors.”
And where today’s policy makers, backed up by today’s Smith-quoting economists, tore down regulations like Glass-Steagall–measures they argued limited the freedom of financial institutions to “innovate,”–Smith himself clearly saw the need to regulate these institutions to head off the very contagion that he recognized centuries ago.
“Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But these exertions of the natural liberty of a few individuals, which might endanger the security of the whole society are, and ought to be, restrained by the laws of all governments…[T]he obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.”
Again, the point is that today’s free marketeers are no more related to the founders of free market capitalism than the Tea Partiers are to the original Bostonians.