Maria Pia Paganelli. Lecture March 30th, 2010, at 13.30h in L201 Sólborg
Why do we break the law? A possible answer from Adam Smith
Adam Smith is often associated with the idea that free markets are the most effective way to bring prosperity to a country. What is often overlooked is that for Smith markets have to rely on a just
legal system in order to function well. Smith claims that the justice of the legal system may be jeopardized by the repeated action of individuals and by groups such as lobbies. Individual may aim at
bettering their condition with immoral and illegal actions; interest groups may aim at bettering their condition by pushing legislation and regulation that are detrimental for society as a
whole.
The mechanism through which Smith explains these perverse incentives is our desire to receive approbation, as described in The Theory of Moral Sentiments. Approbation is gained through proper moral
conduct as well as through bettering one's material condition. But wealth can trump moral conduct as a means to achieve approbation. In the presence of wealth generated by the government power of
granting monopolies, the desire to better one's condition can curb moral behaviors and just legal rules, bringing ruin to either individuals or society. Smith seem to indicate that only the
cultivation of our natural sense of resentment and our admiration for the beauty of a system of natural liberty may generate the incentives to preserve the just legal system at the base of a
functioning market economy.
Dr. Paganelli is an Assistant Professor of Economics at Yeshiva University. She is also an Associate Adjunct Professor at New York University.
Maria Pia Paganelli specializes in history of economic and monetary thought, in particular in 18th century money theories. She holds a Ph.D. in Economics from George Mason University, and a M.A. in
Political Science from Universita' Cattolica del Sacro Cuore of Milan, Italy. Some of her publications include: "Endogenous Money and David Hume" (Eastern Economic Journal, 2006), "Vanity and the
Daedalian Wings of Paper Money in Adam Smith" (in New Voices on Adam Smith, Routledge, 2006), "Adam Smith: Why Decentralized Systems?" (The Adam Smith Review, 2006), "In Medio Stat Virtus: an
Alternative View of Usury Law in Adam Smith's Thinking" (History of Political Economy, 2003). She has also written with Andrew Farrant "Are Two Knaves Better Than One? Every Man a Knave: Hume,
Buchanan, and Musgrave's View on Economics and Government" (History of Political Economy, 2005), and with Ryan Hanley "Adam Smith on Money, Mercantilism and the System of Natural Liberty" (in Money
and the Enlightenment, Voltaire Foundation, Forthcoming).
