Adam Smith and the Neo-Liberal Paradigm: on the Essential Nature of Trust, and Rebalancing Capital

Main Points

• The use of neo-liberal policies, particularly with respect to corporate governance and the reinforcement of the market society, has led to the corruption of the norms and values that were central to Adam Smith’s view for the orderly functioning of his Commercial Society and by inference the modern capitalist economy.
• The rational utility maximising homo economicus at the heart of the variant economic model underpinning neo-liberal polices is nowhere to be found in the writings of Smith and indeed, as we have demonstrated, his view of how individual citizens behave with the appropriate institutional structures in place is diametrically opposite to the neo-liberal position.
• The guiding principle of the Smithian system is that of natural liberty and, crucially, although for Smith such liberty enables the commerce that underpins an economy, it is also the case that Smith is equally interested in the opposite phenomenon of how commerce sustains liberty and the values of liberty for all.
• Smith was very clear that the financial markets of his day had to be closely regulated by the government to ensure trust in the system since the avoidance of systemic bank failures and panics was critical given the important implications this could have for the wider economy.
• Smith would not disagree with the view that government will have to accept a more active role in the economy and one key way it can do this is to kick start the trust building that is so desperately needed to rebuild societal social capital which has been so depleted during the neo-liberal period.