Diminishing Returns

Most partisan recollections of the economic world that existed before Adam Smith conjure up words from “feudal” to “primitive” to “mercantilistic” to “Catholic”—a dark era ridden by “just price” theory, wanton poverty induced by ridiculous regulation and barriers to international trade, and the divine right of kings.  Then (so the story goes), Smith published The Wealth of Nations, turning the world on its head.  His ideas were adopted by a group of enlightened British colonial rebels who created the world’s first nearly laissez faire regime, affirming in its “founding document” every person’s right to pursue happiness (i.e., the right to become stinking rich) over and against any other ethical considerations.  Tariffs fell everywhere, prosperity multiplied, peace reigned, and the lion lay down with the lamb and nuzzled it.

During the middle of the 20th century, Paul Samuelson, author of the widely used college textbook Economics, was regarded by many as the modern economist.  Samuelson claimed to speak authoritatively for all of economics, and his vision was at least superficially different from Smith’s.  A few Neanderthals might wish to “turn the hour hand back toward laissez faire,” wrote Samuelson in a spasm of chronological snobbery...

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