Question

         Adam Smith is often called the father of economics. His famous book, The Wealth of Nations, talks about an “invisible hand” that automatically allocates goods to the persons best able to put them to good use. The invisible hand operates through the price mechanism for goods and services, so that individuals who trade on the market, while seeking only their own good, actually allocate society’s resources efficiently.

Applied to modern capital markets, his ideas would imply that these markets would efficiently allocate investment capital to the firms that would use them most efficiently in producing goods and services for society—but only if they were left to operate without state intervention.

What benefits would be created if modern governments reduced financial regulations substantially in accordance with Smith’s thinking? From an ethical perspective, what societal costs might be created?

Answer 1