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.
"Adam Smith's 'invisible hand' and the notion that self-interest can be best tamed by market interaction have been the center of policy disputes since the late 18th century. . . . Medema chronicles the linkages between the debates of Smith's time and those of today. . . . Highly recommended."--R. B. Emmett, Choice
"In a way [The Hesitant Hand is] very specialist, being about the evolution of the approach to economic welfare since the Ancient Greeks, but particularly since Adam Smith. But . . . I'm finding it unexpectedly thought-provoking. The different perspectives on the definition and assessment of welfare over the ages does indeed shed light on current debates about welfare, market failure and the role of the state."--Diane Coyle, The Enlightened Economist
"This is an excellent book on an important topic, the history of which is fascinating."--Peter Groenewegen, Economic History Review
"The Hesitant Hand gives readers a wonderfully accessible and stimulating overview that is rich in methodological and historical insights, suggesting potential paths for further inquiries. . . . The Hesitant Hand is highly recommended."--Susan Schroeder, Australian Economic History Review
"I hope this book shall be read widely by those who study the history of economic thought and those who seek an examination of an important fundamental economic problem: the linkage between self-interested behavior and the appropriate role of government."--Daisuke Nakai, History of Economic Thought
Table of Contents:
Chapter One: Adam Smith and His Ancestors 5
Chapter Two: Harnessing Self-Interest: Mill, Sidgwick, and the Evolution of the Theory of Market Failure 26
Chapter Three: Marginalizing the Market: Marshall, Pigou, and the Pigovian Tradition 54
Chapter Four: Marginalizing Government I: From La Scienza delle Finanze to Wicksell 77
Chapter Five: Coase's Challenge 101
Chapter Six: Marginalizing Government II: The Rise of Public Choice Analysis 125
Chapter Seven: Legal Fiction: The Coase Theorem and the Evolution of Law and Economics 160
Epilogue: Everywhere, Self-Interest? 197
Other Princeton books authored or coauthored by Steven G. Medema: