Adam Smith turned economic theory on its head in 1776 when he
declared that the pursuit of self-interest mediated by the market
itself--not by government--led, via an invisible hand, to the
greatest possible welfare for society as a whole. "The Hesitant
Hand" examines how subsequent economic thinkers have challenged or
reaffirmed Smith's doctrine, some contending that society needs
government to intervene on its behalf when the marketplace falters,
others arguing that government interference ultimately benefits
neither the market nor society.
Steven Medema explores what has been perhaps the central
controversy in modern economics from Smith to today. He traces the
theory of market failure from the 1840s through the 1950s and
subsequent attacks on this view by the Chicago and Virginia
schools. Medema follows the debate from John Stuart Mill through
the Cambridge welfare tradition of Henry Sidgwick, Alfred Marshall,
and A. C. Pigou, and looks at Ronald Coase's challenge to the
Cambridge approach and the rise of critiques affirming Smith's
doctrine anew. He shows how, following the marginal revolution,
neoclassical economists, like the preclassical theorists before
Smith, believed government can mitigate the adverse consequences of
self-interested behavior, yet how the backlash against this view,
led by the Chicago and Virginia schools, demonstrated that
self-interest can also impact government, leaving society with a
choice among imperfect alternatives.
"The Hesitant Hand" demonstrates how government's economic role
continues to be bound up in questions about the effects of
self-interest on the greater good.
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