When Adam Smith penned his celebrated Enquiry into the Nature and Causes of the Wealth of Nations he was fortunate to live in what to our 21stcentury eyes appears a more straightforward age. In the town of his youth, nails were still on occasion used as money, factories had yet to suffer the gigantism that would produce Foxconn City, and capitalism knew nothing of the bewilderingly complex financial instruments that centuries later were to career like wrecking balls through the global economy.
In the world around him, Smith caught glimpses of a unified economic system that he painstakingly outlined in his treatise, detecting its imprint in everything from the specialised labour involved in the making of a pin, and statistics on the annual herring catch, to unrest in Britain's American colonies.
The whole of Nature "seems to abound with events which appear solitary and incoherent", wrote Smith, and it was the purpose of philosophy to discover their "connecting principles". He argued this in an earlier essay on astronomy, and it is perhaps no accident, given his interest in things celestial, that he should imagine what he termed 'natural price' as a centre of gravity around which 'market prices' moved, and that it therefore established an equilibrium similar to that found in the solar system. Nor should we be surprised that the man who supplied the germ of Smith's definition of wealth – François Quesnay – was a physician in the court of Louis XV. Wealth was not to be found in the accumulated gold and silver of a nation, said Quesnay, but in the fruits of production that flowed through society, replenishing it as blood does a corporeal body.
Smith was a Scot living in the 18th century, but in writing what has been called the first great classic of economic theory, he produced a book for the modern world. His great gift was in seeing the systemic reach of economic life, not least its interweaving with other branches of the social sciences, from psychology to law, and from sociology to government.
In both subject and treatment, the articles in this issue of the Business Review acknowledge their debt to Smith, while signalling how much more complex the world, and the tools with which to understand it, have become over the intervening 240 years. In tracing the convoluted means by which US monetary policy influences global financial stability, Eric Tong recognises the herd behaviour of asset managers. Ananish Chaudhuri sifts the results of ingenious experimental 'games' to measure the importance of perceptions of fairness in business transactions. Susan St John addresses the powerful social consequences of government retirement policy in the face of unyielding demographic change. Francis Bloch, Simona Fabrizi, and Steffen Lippert apply economic theory to the dilemma of market entry with the aid of an entrytiming game. And Basil Sharp and Kiti Suomalainen weigh the ability of the market to deliver an environmental goal by harnessing new technology. The sheer variety and pervasiveness of economic notions undoubtedly would have pleased Smith.
And, like him, the present contributors have taken care to present what can be difficult and highly technical concepts in plain language – "led", you might say, "by an invisible hand"
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