Adam Smith's System of Natural Liberty: Competition, Contestability and Market Process
55 Pages Posted: 14 Oct 2007
Date Written: October 12, 2007
Many contemporary economists portray Smith's "perfect liberty" as a precursor of perfect competition. However, modern perfect competition, particularly post World War II mathematical general equilibrium models, are far removed from meaning and intent of Smith's "natural system of liberty." This article examines the role of Smithian "liberty" and resource mobility in the classical theory of value. It then analyzes the relationship between Smithian "perfect liberty" and the perfectly competitive model that had developed by mid-20th century. Finally, it analyzes the relationships between Smithian "liberty," contestable market theory and market processes. Smith's simple concept of "perfect liberty" is an essential component of perfect competition, contestable market theory, Austrian market processes, and indeed much of contemporary microeconomic theory. It is much more than an unsophisticated precursor of perfect competition.
Keywords: Adam Smith, Liberty, Competition, Contestability, process
JEL Classification: B1, B2, B31, A14
Suggested Citation: Suggested Citation