what econmic system did adam smith support in the wealth of nations?
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He argues that self-interest will cause capitalists to make the right choices. However, he doesn't account for the fact that people may have more than one self-interest. For example, a carpet manufacturer has to dispose of toxic chemicals from the process. He can dump them in the river that runs by his factory, which is the cheapest way to dispose of them, thereby serving his self-interest of making money. Or, he can dump them more safely (or change the process to use less toxic materials), thereby serving his self-interest of living in a non-toxic environment.
Unfortunately, if he chooses the first option, the capitalist serves his own short-term self-interest, but harms many others over the long term. He doesn't even have to live near the toxic waste, so maybe doesn't hurt himself, just others. A totally free-market economy doesn't protect people from this kind of thing.
That seems unlikely, Courtney. You appear to be assuming the carpet manufacturer is more stupid than, for example, his customers who buy carpet. So that they can foresee the consequences of toxic waste but he can't. It seems to me an extremely unlikely hypothesis that people who are successful at manufacturing things are more stupid than those who merely buy them.
Furthermore, you have overlooked the fact that the customers naturally impress their values on the manufacturer through their purchase choices. If everybody can see that one consequence of buying carpet from Mr. Smith is that you get toxic waste but that by buying your carpet from Mr. Gardenia (who uses a different process) you can get carpet AND no toxic waste -- why on Earth would customers fail to choose their self-interest and buy Mr. Gardenia's carpet? And then, once they do, what happens to Mr. Smith's business? If he can't sell carpets, he can't afford to make them, and the problem is solved.
A "free market" is essentially a system in which decisions are made, as much as possible, by those with maximum knowledge of the effects of those decisions, those closest to the action, so to speak. When you decide the value of your own labor, when a miner decides how much it costs to mine gold, when a doctor decides how much it costs to provide medical care, and so on. It's the ultimate "grass roots" decision-making process.
It may be the case that this is not the best way to make decisions in some situations. (Certianly it is the case in commanding an army, because an army can only function when it has one goal and strict discipline.) But in practice it has proved extremely difficult to prove that such situations actually exist except in narrow and peculiar circumstances. More relevantly here, it has certainly been historically true that the nations of the world that have the most free economies -- the United States, Europe, South Korea -- turn out to be the best at environmental protection. Those with very unfree economies -- the USSR, North Korea and China, Zimbabwe -- very often become environmental disasters. Those facts alone should make the good scientist extremely cautious about the hypothesis that a free market does not reflect the citizens' concern for long-range environmental goals.
Adam Smith's writings came to represent an economic system known as laissez-faire. This was the precursor to capitalism in the sense that the economy was governed by the invisible hands of supply and demand. Naturally, the supply and demand are affected and altered by buyers and sellers. So sellers would try to maximize their profit while competing with other sellers for business. Buyers would try to buy the BEST material without spending an arm and a leg. These cycles gave rise to the development of the more complex entity of capitalism. It also resulted in the polar opposite of economic socialism.
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wombat, as helpful as that reply was, I think you have not quite characterized Adam Smith's "invisible hand" accurately (although the phrase has come to mean many other things since Smith's day anyway).
The "invisible hand" is the answer to the frequent criticism of free markets issued, in Smith's day, by mercantilists and monarchists, and today by socialists and fascists: that in a free market the most successful producers would use their positions of power to exploit and ruin large classes of people.
Smith answers this criticism by shining a spotlight on the (faulty) assumptions that underly the question. The question comes straight out of medieval thinking. It assumes that the "successful producer" (like Bill Gates, Steve Jobs, the chairman of Exxon, et cetera) is just the modern version of a medieval lord or king, who acquires his power from his birth, or his social class, or something else which is immutable -- cannot change. From that point of view, it's quite reasonable to fear that the interests of the "lord" (whether he is a duke or a captain of industry) might well diverge from the interests of the common people, and in such a struggle the guy with the power wins.
However, the assumption is clearly false in a free market. In a free market the ONLY way a captain of industry can become wealthy is by providing a service or product that millions of people find so valuable that they willingly part with their own hard-earned cash to buy it. He does NOT hold his position by right of birth, or because he belongs to a certain class, or has an appointment from the government. He has his position only, and only so long as, he continues to provide a good or service that millions of people find more valuable than the cash in their pocket.
In short, being a wealthy man through selling things in a free market is 180 degrees away from being a wealthy lord in a medieval economy, or a government official in a fascist economy: you can ONLY keep your power so long as you serve the interests of a broad class of people. Because that's the only way you will continue to be wealthy. As soon as you step away from serving the interests of the people -- according to their own judgment, as expressed by whether they open their wallets for you or not -- you will stop earning money and lose your power.
This is the "invisible hand." It's the hand of the market, forcing the wealthiest capitalists to pay extremely close attention to serving the greatest good for the greatest number -- because that's the only way they keep their wealth. It's this that prevents the exploitation of the many by the few that is possible in an unfree market, where wealth and position are determined by birth, class, or government edict.