Business Insider

True ‘justice for all’ will lead to better economic growth

Economists care about justice. Economics as an area of study originally was about the laws that govern us. When Adam Smith published “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776 he, and the scholars that followed, were called “political economists.”

These first economists taught us how specialization and markets make us better off, and how free trade makes nations grow and improve the standard of living for all people. But they also taught us that such economic benefits depend largely on justice and the rule of law.

Some read Adam Smith’s work and simply stop with his economic analysis, concluding that Smith was a greedy capitalist. Such critics have not read the whole book. Smith knew the benefits of the free market are not fully realized unless all people are well governed and that the justice system works for everyone.

Smith wrote, “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable,” and “Avarice and injustice are always short-sighted.”

In fact, much of “Wealth of Nations” is devoted to how those in power use their powers to exploit the poor. Smith knew that such actions were not only detrimental to creating wealth, but morally wrong.

In a later part of the book he provides evidence for how often “Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”

Economists refer to this problem today as “crony capitalism” — when business people use the law to get benefits for themselves.

Tax incentives, subsidies, or any preferential treatment for certain industries keep inefficient firms afloat and encourages capital to flow where it is not needed. When the law sends capital flowing to only certain industries, economic growth slows. Such funds should be going to new, innovative industries and new employment.

But again, it’s not just bad economics, it’s unjust.

Adam Smith and the other early economists cared about justice for all. Anyone who cares about economic growth should too.

Peter Crabb is professor of finance and economics at Northwest Nazarene University in Nampa.