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Article: Adam Smith and the political economy of a modern financial crisis.(Adam Smith Enterprises Inc.)
- Article from:
- Business Economics
- Article date:
- January 1, 2009
- Author:
CopyrightCOPYRIGHT 2009 The National Association for Business Economists. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Financial crises have occurred periodically for hundreds of years, and Adam Smith had important insights into their causes. Although by no means all that we know about such crises has been derived from Smith, it is interesting and important to reflect on what he did know and how ignoring his warnings about the creation of excess liquidity has contributed to the current crisis. In addition to the complexity of contemporary finance and the role of central banks and other regulatory institutions, a major difference between Smith's day and ours is the emergence of "moral hazard" as an important policy issue and its corollary, "immoral results." It is important to realize that ...