Bert Lahr as the Cowardly Lion in the 1939 film version of The Wizard of Oz had some of the best lines in the film. Note that I said some, not all, or even a majority. This is appropriate, given the fact that the 1939 version was the first sound adaptation of Baum's children's classic. There were a number of other versions of the story, some made under the direct supervision of L. Frank Baum; the 1908 version, unfortunately lost, was the first film believed to have had a musical score composed especially for a film. There was also one, considered "the worst adaptation of a book to the screen in history," that starred Dorothy Dwan as a flapper Dorothy and featured Oliver Hardy as a horrifyingly miscast Tin Woodman. Ms. Dwan, a talented actress, was married to the director, while Hardy was under contract. You knew there had to be some reason for such a cinematic abomination.
This demonstrates just how badly people can misunderstand or redefine a classic, whether in children's literature or economic theory. A case in point is the review of Adam Smith's The Wealth of Nations in today's Wall Street Journal ("A Wealth of Ideas: Review of Adam Smith: An Enlightened Life, by Nicholas Phillipson," WSJ, 10/04/10, A23). The review is quite rightly very positive toward Smith's work as presented in The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). Smith is lauded for his stand on limited government, free markets, liberty, so on, so forth — the usual suspects in the Vast Right Wing Conspiracy.
We agree with all this, making the omission in the book about Smith, and the review about the book about Smith all the more irritating. It's a little like planning a birthday party and leaving out the ice cream and cake. Smith's economic theories are built on a foundation of Say's Law of Markets. The (in)famous "invisible hand" is, in fact, an application of the principles underpinning Say's Law of Markets, as can readily be seen from reading the description in Moral Sentiments and The Wealth of Nations.
That is, according to Adam Smith, a free market economy operates because the rich cannot satisfy their wants and needs without employing the poor (purchasing the labor of the poor directly) or purchasing their productions produced by means of the labor of the poor. In accordance with what would become known as Say's Law, the rich trade their productions for the productions of the poor. In this way, the rich are "led by an invisible hand" to distribute their wealth equitably throughout society, despite their "selfishness and rapacity" (Moral Sentiments) or "self interest" (Wealth of Nations).
Unfortunately, far too many people today — ironically, both those who praise Smith and those who condemn him — assume that mere "self interest" (or "selfishness and rapacity," if you want to use Smith's earlier terminology) is sufficient for the invisible hand to operate. Both the pro- and anti-Smithians neglect to take Smith's full analysis into account — which, not surprisingly, leads directly into Moulton's prescription for economic recovery: production and employment. People must produce in order to generate the effective demand necessary to create jobs naturally, and neither government rapacity nor private selfishness is going to get things going again. The only thing that will work is to restore the operation of Say's Law of Markets by producing marketable goods and services and employing people to produce them, not just try and rely on a half-understood cause of the functioning of Say's Law, or bailouts and subsidies of companies that don't produce anything except speculative profits in the stock market.
Still, nobody seems to be catching on. People seem to assume that throwing money at the problem will fix it, rather than merely enrich those who happen to have larger catchers' mitts than others. Yes, they are exercising their self-interest (and their selfishness and rapacity, if you will), but it isn't producing any marketable goods or services, and nobody even seems to think it's necessary. Somehow the invisible hand will work, but nobody knows how . . . .
In effect, supporters of the invisible hand are put into the position of the Cowardly Lion when faced with something unknown, unseen, and evidently overpowering. All they can do is chant, over and over, "I do believe in spooks! I do believe in spooks! I do believe in spooks! I do, I do, I do! I do! I do!"
Happy Halloween minus 27 and counting. Boo.
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