Adam Smith's Answer to the Feldstein-Horioka Paradox: The Invisible Hand Revisited

6 Pages Posted: 29 May 2010

See all articles by Ayumu Yasutomi

Ayumu Yasutomi

Institute for Advanced Studies on Asia - The University of Tokyo

Charles Yuji Horioka

Kobe University; National Bureau of Economic Research; Asian Growth Research Institute; Osaka University

Date Written: May 27, 2010

Abstract

In this paper, we show that Adam Smith pointed out the existence of the Feldstein-Horioka Paradox or Puzzle and even gave an explanation for it more than 200 years before the publication of Feldstein and Horioka (1980). Smith argues that it is the pursuit of their own security that leads owners of capital to invest their capital in their own country to as great an extent as possible and that it is the pursuit of security rather than the pursuit of profit that leads individuals to promote the good of society as a whole via the “invisible hand.”

Keywords: Feldstein-Horioka paradox, Feldstein-Horioka puzzle, capital mobility, capital flows, saving, investment, Adam Smith, invisible hand

JEL Classification: B12, F21, F32

Suggested Citation

Yasutomi, Ayumu and Horioka, Charles Yuji, Adam Smith's Answer to the Feldstein-Horioka Paradox: The Invisible Hand Revisited (May 27, 2010). ISER Discussion Paper No. 778, Available at SSRN: https://ssrn.com/abstract=1616505 or http://dx.doi.org/10.2139/ssrn.1616505

Ayumu Yasutomi

Institute for Advanced Studies on Asia - The University of Tokyo ( email )

Yayoi 1-1-1
Bunkyo-ku
Tokyo, 113-8657
Japan

Charles Yuji Horioka (Contact Author)

Kobe University ( email )

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National Bureau of Economic Research ( email )

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United States

HOME PAGE: http://www.rieb.kobe-u.ac.jp

Asian Growth Research Institute ( email )

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Japan

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Osaka University ( email )

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HOME PAGE: http://www.rieb.kobe-u.ac.jp

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