Adam Smith’s Capitalism – Positive or Normative?
by Ryan Safner
[This essay was originally written for ECON 3462 - History of Economic Thought]
Adam Smith’s classic argument for capital accumulation is not a positive analysis of a functional market economy, but instead a strong normative account of his preference for investment over consumption. While Smith is widely hailed as the father of economic science, it is commonly understood that he vaguely mixed positive descriptions with value judgments. His magnum opus, The Wealth of Nations, functions as the economist’s bible, written archaically and vaguely enough for economic historians to draw numerous contradictory exegeses. Many of Smith’s more regrettable or idiosyncratic theories on political economy can be explained by his ethical interjections, which in turn reflect his Presbyterian background. The most vigorous preference he displays is for frugality and thrift over gluttony and conspicuous consumption. This ethic puts into perspective his confused labor theory of value, specifically the differentiation between “productive” and “unproductive” labors. The classical conundrum of the diamond-water paradox that he attempted to grapple with was but a mere illusion spawned by these potent inclinations. The epitome of this bias is his otherwise inexplicable defense of usury laws which blatantly violates his alleged policy of “lassiez-faire.” Adam Smith’s Wealth of Nations elucidates many truths about the free market economy, but these are unfortunately buried underneath mountains of vagaries and ethical interjections.
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