Amartya Sen on Adam Smith

Amartya Sen agrees that trust is the necessary foundation of successful capitalism:

Even though people seek trade because of self-interest (nothing more than self-interest is needed, as Smith famously put it, in explaining why bakers, brewers, butchers, and consumers seek trade), nevertheless an economy can operate effectively only on the basis of trust among different parties...

[I]n his [Adam Smith's] first book, The Theory of Moral Sentiments, which was published exactly a quarter of a millennium ago in 1759, that he extensively investigated the strong need for actions based on values that go well beyond profit seeking. While he wrote that "prudence" was "of all the virtues that which is most useful to the individual," Adam Smith went on to argue that "humanity, justice, generosity, and public spirit, are the qualities most useful to others."

Profit-oriented capitalism has always drawn on support from other institutional values...

The moral and legal obligations and responsibilities associated with transactions have in recent years become much harder to trace, thanks to the rapid development of secondary markets involving derivatives and other financial instruments. A subprime lender who misleads a borrower into taking unwise risks can now pass off the financial assets to third parties—who are remote from the original transaction. Accountability has been badly undermined, and the need for supervision and regulation has become much stronger.

I like almost everything Mr. Sen writes. Even when I disagree with him, I see his point of view. I also like Mr. Sen's idea that all Americans deserve basic healthcare: "The failure of the market mechanism to provide health care for all has been flagrant, most noticeably in the United States." Still, I don't see how he gets "the need for regulation" from "accountability has been badly undermined." I suppose it depends on the definition and scope of "regulation"; even so, Congress cannot solve the problem of attenuated responsibility by written fiat. It seems that Mr. Sen gets the root cause (attenuated profit-making) right, but the solution (Congressional acts) wrong. More on this topic here.