More than two centuries ago, Adam Smith offered the revolutionary idea that the proper objective of trade policy was not to earn gold for the treasury, but to increase the welfare of the people. To that end, he offered an equally scandalous prescription: that decisions on what to produce, and by which means, should be guided, not by the king’s ministers, but by the choices of consumers — since, after all, consumption is the whole point of production.
I beg to propose something similar. Human ingenuity and compound interest being what they are, people will tend to combine their energies in ways that make them wealthier over time, if you a) let them, and b) force them. The first would suggest removing barriers to the acquisition of productive resources. So cut tax rates, and loosen controls on the movement of labour and capital, both within and across national boundaries. And the second?
You can have all the productive resources you like, but absent some spur to combine them in the most efficient way, people will tend to less efficient compromises. The spur is competition — the more of it the better.
The full text of his column is here.
