Adam Smith turned economic theory on its head in 1776 when he declared
that the pursuit of self-interest mediated by the market itself--not by
government--led, via an invisible hand, to the greatest possible welfare
for society as a whole. The Hesitant Hand examines how subsequent
economic thinkers have challenged or reaffirmed Smith's doctrine, some
contending that society needs government to intervene on its behalf when
the marketplace falters, others arguing that government interference
ultimately benefits neither the market nor society.
Steven Medema explores what has been perhaps the central controversy in
modern economics from Smith to today. He traces the theory of market
failure from the 1840s through the 1950s and subsequent attacks on this
view by the Chicago and Virginia schools. Medema follows the debate from
John Stuart Mill through the Cambridge welfare tradition of Henry
Sidgwick, Alfred Marshall, and A. C. Pigou, and looks at Ronald Coase's
challenge to the Cambridge approach and the rise of critiques affirming
Smith's doctrine anew. He shows how, following the marginal revolution,
neoclassical economists, like the preclassical theorists before Smith,
believed government can mitigate the adverse consequences of
self-interested behavior, yet how the backlash against this view, led by
the Chicago and Virginia schools, demonstrated that self-interest can
also impact government, leaving society with a choice among imperfect
alternatives.
The Hesitant Hand demonstrates how government's economic role
continues to be bound up in questions about the effects of self-interest
on the greater good.
