Milton and Rose Friedman on Adam Smith’s Key Insight

September 29, 2009

From the Introduction of Free to Choose:

One set of ideas was embodied in The Wealth of Nations, the masterpiece that established the Scotsman Adam Smith as the father of modern economics.  It analyzed the way in which a market system could combine the freedom of individuals to pursue their own objectives with the extensive cooperation and collaboration needed in the economic field to produce our food, our clothing, our housing.  Adam Smith’s key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit.  No external force, no coercion, no violation of freedom is necessary to produce cooperation among individuals all of whom can benefit.

And from  Chapter 1:

The key insight of Adam Smith’s Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it.  Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.

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