Tuesday, September 23, 2008

Relearning old lessons

In 1776 Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations. One would think that after more than 200 years we would have figured out the value of his lessons. Unfortunately, the collapse of the subprime mortgage industry has shown otherwise.

In his own words:

"In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people. As it is the interest of the freeman of a corporation to hinder the rest of the inhabitants from employing any workmen but themselves, so it is the interest of the merchants and manufacturers of every country to secure to themselves the monopoly of the home market."

Why do we continue to appoint the fox to guard the hen-house? Time and time again we have seen that certain industries are unable to regulate themselves, yet time and time again we trust those whose 'interest is directly opposite to that of the great body of the people' to unduly influence our regulatory systems.