James Galbraith Reminds Me That He Too Pointed Out Mankiw’s Error about Adam Smith

By William K. Black
Quito: April 27, 2015

My citation of one of New Economic Perspectives’ distinguished academic readers from the field of economics, Michael Meeropol, prompted another distinguished academic reader from the same field to note that he had made the same point about the distortion of Adam Smith’s views on topics like “outsourcing” through foreign investment. The context was N. Gregory Mankiw’s distortion of Smith to try to support the Trans-Pacific Partnership. Here is how Jamie made the point in his classic book The Predator State.

“Yet Smith himself was conscious of the risks of foreign trade. His immortal phrase the ‘invisible hand’ is usually cited nowadays in support of an unfettered market, but in fact Smith coined it as part of an argument against gratuitous foreign trade.  He wrote that it is a preference for one’s own security that leads one to purchase the products of one’s own country–and so, “as if led by an invisible hand,” to promote the interests of the community of which one forms a part. Something similar could be said for a ‘Buy America’ campaign.  Smith was wary, in other words, of too much reliance on communities whose interests might not accord with one’s own, and essentially because distant foreigners could not necessarily be relied on to execute a fair contract. His anxieties have many counterparts in the modern world.”