Adam Smith on the Enemies of Capitalism: The Internal, Endogenous Threat of the Projectors, Imprudent Risk Takers and Prodigals to the Macro Economy
25 Pages Posted: 21 Feb 2018
Date Written: February 18, 2018
Adam Smith introduced the dangers of the projectors initially on pages 114-115 of the Wealth of Nations. He introduced the dangers created by the Imprudent risk takers and Prodigals on pages 279-340 of the Wealth of Nations while expanding his assessment of the dangers of projectors. Smith discussed the very real dangers that these upper income class citizens created by their economic behavior to the rest of society. Smith was very explicit. He asserted that every prodigal was an enemy of the state.
Smith was no less scathing in his discussions of the roles of Imprudent risk takers and Projectors in creating negative, detrimental outcomes for the economy as a whole. Smith realized that it was the Projectors, Imprudent risk takers and Prodigals who were the primary cause of inflation, followed by deflation and depression or recession, as their speculative undertaking collapsed in the long run. The main threat to capitalism is not external, exogenous shocks, but internal, endogenous shocks caused primarily by upper income class Projectors, Imprudent risk takers and Prodigals, who are able to obtain bank loans, finance or lines of credit to leverage their debt positions many times over.
The implications of Smith’s extensive discussions are that there is no such entity as an Invisible Hand of the Market that transforms the private, greedy and self centered activities of the Projectors, Imprudent risk takers and Prodigals at the microscopic level into social benefits for all at the macro level. G. Kennedy was the first to explicitly point out the contradiction involved in asserting that Adam Smith had some concept of an Invisible Hand that was operating in an economy that was subject to internal, endogenous shocks from inside the economy.
Smith’s policy view is that laws need to be passed to prevent these categories of citizens from imposing their periodic destruction behavior on the rest of society. The idea that Smith believed that there was an Invisible Hand that would correct this problem, as G. Kennedy has pointed out, is a myth. Unfortunately, this myth is what modern economics is based on.
If there is no Invisible Hand of the market to deal with the problem of Projectors, Imprudent risk takers and Prodigals, then only extremely heavy government regulation can safe guard the public and sober people from the behavior of the Projectors, Imprudent risk takers and Prodigals. The entire free market is put into jeopardy by the behavior of the Projectors, Imprudent risk takers and Prodigals operating under the mask of natural liberty and freedom.
Keywords: Kennedy, Smith, Virtue Ethics, Projectors, Imprudent Risk Takers, Prodigals, Benthamite Utilitarianism, Modern Economics
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