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By Root 643 0

but certainly since the eighteenth century, following in the wake of one Adam Smith (no relation, I think). Smith wrote the famous The Wealth of Nations191 (published in 1776), which was a reaction to mercantilism, a set of policies enforced by the British government that advocated the hoarding of gold bullion. Mercantilism held that the hoarding was necessary to do business. Hoarding (or keeping the wealth in England) was guaranteed in part by attaching high tariffs and taxes to foreign products. This made it costly for the British consumer to purchase them, and at the same time not so costly to purchase British-made products, thus keeping the gold in the country.

Smith argued that one simply didn’t need all that bullion clogging up the system just to do business (there’s a constipation joke in here somewhere, but I’ll ignore the temptation to find it). If the British government along with all those others that subscribed to such policies would do away with tariffs and taxes, and would establish a level playing field for competition, things would be great. By paying attention to the needs, demands, and wants of consumers, suppliers could produce and then provide those products that best fulfilled those needs, demands, and wants. Simple. Now with a variety of products available, consumers would choose among them—the ones best fulfilling their needs, demands, and wants rising to the top. Charge too much for those products, and consumers will buy their less expensive alternatives. So, seller (supplier) and consumer (demander) play equally important roles in the “Supply and Demand” equation.

Focusing on the exchanges between suppliers and demanders, one definition of the “free market” arises:

The market in which anyone is allowed to participate, both with respect to selling and to buying, is a free market.

If all comers are welcome (whether buyer or seller), and none are excluded, then the market is free. Allowing all comers, it is believed, promotes an essential element of the free market, namely, competition. Consumers serve as ultimate arbiters of success, choosing to buy from those suppliers who supply what consumers need, demand, or want. Simple.

Milton Friedman roots his economic theory—a theory that would have a great impact on Ronald Reagan—in The Wealth of Nations. Friedman’s theory emphasizes Smith’s metaphor of the invisible hand.192 According to this conception, the market if left to its own devices would be self-regulating and self-correcting. This, as we have seen, is exactly what Stephen thinks. In Book IV, Chapter 2, of Wealth of Nations, Smith sets up his hypothetical marketplace by postulating actors who act with the aim of benefiting themselves. So, in Smith’s ideal market, folks will act out of self-interest. Now, it is frequently the case, he says, that even though an individual acts out of self-interest, his or her actions will result in benefiting society. Why does Smith worry about such a thing? One answer, I think, is that he was aware of Thomas Hobbes’s Leviathan, a work that showed how a society or collective might be built out of individuals—atomic elements, so to speak, that act out of self-interest.

Smith argues that in order to build a collective (or, better put, a unified whole) out of such individual elements, he must explain how the “acting out of self-interest” thing will nevertheless lead to benefiting the collective. This is tricky. As is now well known, a rather difficult paradox arises. The paradox, as Hobbes raises it, tells us that if folks within the context of a collective act in their self-interest, not only would they not bring about what is good for the collective, but each would not bring about what is good for him or herself. Simply put: in acting in their self-interest they would not be acting in their self-interest. Scholars have come to call this paradox “the prisoner’s dilemma.”

Brian Skyrms, in his Evolution of the Social Contract, notes that around the time of Smith certain physicians and natural philosophers were aware of a very strange fact.193 Records