2008: The Adam Smith Address Adam Smith and the Political Economy of Modern Financial Crisis

Abstract

The United States is now in the midst of a major financial crisis that has spread to affect credit and equity markets and financial institutions all around the world. Many have characterized the present crisis as the worst since the Great Depression—a description that is becoming more apt with each passing day. Whatever the ultimate scale of the present crisis, it is not the only important financial crisis to beset the United States in the past 50 years; by my count there have been at least seven: 1971, 1974–1975, 1980–1982, 1987, 1991, 2000–2002, and 2007-?. Looking further back through the 19th and 20th centuries, the average frequency of crises has been roughly constant at about one per decade. Most other countries, both economically advanced and developing, also have histories of not infrequent financial crises.¹