Dan Klein and Erik Matson of the Mercatus Center kick off Capital Matters’ year-long series of essays celebrating Adam Smith’s 300th birthday:
To begin the series, we reflect on benevolence in Adam Smith. What roles does it play in his thought? The question is worth addressing in light of the common charge of heartlessness levied against those not on the political Left. And it leads us into an apparent contradiction.
The puzzle has been framed as a tension between Smith’s two completed works, The Theory of Moral Sentiments (TMS) and The Wealth of Nations (WN). German scholars in the 19th century discerned conflicting visions of human nature in the books — benevolence and sympathy in TMS, and self-regard in WN — giving rise to the first iteration of “the Adam Smith problem.”
That charge of inconsistency has been overturned by several generations of scholars. Smith understood man as naturally benevolent towards kith and kin, and to operate from reciprocal considerations of self-regard with strangers. His two books might be understood as treating different spheres — the personal (TMS) and the impersonal (WN). There is no inconsistency. But “the Adam Smith problem” is like the heads of the Hydra: Cut one down and two take its place.
Ryan Young of the Competitive Enterprise Institute writes about the trillion-dollar coin to “pay” the national debt:
The main reason this wouldn’t work is that money is supposed to match real output if it is to retain its value. If the amount of money goes up by a trillion dollars while the amount of goods and services stays the same, the result is inflation.
Treasury secretary and former Fed chairwoman Janet Yellen was right to call the trillion-dollar-coin idea a gimmick that erodes the Fed’s independence. The Fed already has the power to create new money and buy up federal debt. It was doing so as recently as March 2022 and could continue to do so without interference from the executive branch. The reason it stopped is that it contributed to today’s inflation.
In response to the Covid downturn, the Fed did implement something like the trillion-dollar-coin idea, minus the metal. It created about $5 trillion in new money between 2020 and 2022 in an attempt to stimulate the economy. The result was massive inflation, which the central bank is still struggling to unwind.