“Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed.”

For Smith, the market economy system provides natural liberty to the highest sum of the public. He outlined such natural liberties in his discourse on Moral Sentiments, a book that lends itself strongly to utilitarian values. In short, to Smith, natural liberty is being “left perfectly free to pursue his own interest.” Therefore, violations to natural liberty, such as the threat of unemployment, underemployment, or the means in which to attain employment, should be regulated by the laws of governments. This idea of regulation intuitively runs agains the notion of market capitalism, which is often associated with the idea of laissez-faire.

The French, laissez-faire, means ‘leave to do’ and is very much a normative term which denotes the encouragement of markets to be stripped from interference from outside forces. (Apart from regulation Smith did reserve interferences from the state that were deemed necessary to public liberty, namely the ‘Expense of Justice’, the ‘Expense of Defence’ and the ‘Expense of Public Institutions.’) In contrast, Smith’s invisible hand thesis is mostly descriptive. Smith famously put, ‘it’s not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from regard to their own interest.’ Thus, while Smith advocated ‘open’ markets, he was not the devout ‘conservative’-orientated laizze-faire economist that he is sometimes portrayed. Likewise, although the term ‘moral hazard’ isn’t mentioned specifically in The Wealth of Nations, it was a theme that he was all too familiar with.

“The proposal of any new law or regulation of commerce which comes from this order [‘merchants and master manufacturers’], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

For Smith, as the labour force is dependent upon the great profit-makers as a means of subsistence and therefore natural liberty, such proposals from great profit-makers to the legislature ought to be subject to intense scrutiny. Critics argue that such scrutiny would seem to have been missed during the US experience during the late 2000s crisis – the phrase ‘privatising wealth and socialising losses’ aptly describes the situation.

Dowd describes that such a ‘heads I win, tails you lose’ scenario engenders massive systemic risk that is an unacceptable hindrance to market economies.  Further to moral hazard, the principle of bailing-out failed corporations seems to run directly counter to Smith’s (and others’) fundamental theory of supply and demand. Those companies that choose to engage in commerce that does not meet appropriate demand will and should necessarily fail; conversely, those companies that meet consumption demand will and should necessarily grow. Therefore, it’s hard to imagine Smith approving of the bailouts that have been witnessed in America and abroad. Such an argument could be made that bailouts may fit with Smith’s stance on maintaining natural liberty for the public (as unemployment etc. would necessarily decrease one’s natural liberty), but this seems a needlessly cyclical process that would surely derail the legitimacy of Smith’s invisible hand argument itself. Realising this process as inevitability inherent in market economies’ design, Marx famously predicted that bubbles and bursts would continue to be a mainstay of the capitalist market system.

This article outlined some of Smith’s views on the need for state law and regulation concerning private commerce. Although a recurring theme of The Wealth of Nations is that markets should be unfettered from external forces, it’s clear that Smith’s focal thesis of the invisible hand is to both increase the wealth of nations, and therefore maximising natural liberty to the public stakeholders. However, as one of Smith’s eminent admirers Karl Marx pointed out, economic crises have been seen a recurrent trend in market systems – a fact that holds up to recent experiences. This essay has also considered Smith’s outlook on moral hazard. Despite the size and breadth of corporations of the 18th century being a fraction of modern standards, Smith very well understood the risk that the failure of great profit-making companies have. Smith understood too that the motives of the possessors of vast institutional economic powers were often at ends with public interests. As one of the founding fathers of libertarian and utilitarian values, Smith viewed his system as the best and most efficient ways of enhancing natural liberty to the public. Yet as economic crises become ever-frequent occurrences the world over, it’s clear that either Smith’s vision has not been adhered to, or that Smith’s outlook is outdated and in need of replacement.

The 2004 short film Submission (written by Ali and directed by Van Gogh – available on Google Video) created a storm of controversy, criticizing a range of alleged fundamentalist Islamic doctrines from ‘honor killings’, spousal abuse, misogyny to the wearing of the traditional Hijab (veil).

It is no wonder that Ali now lives with constant security presence provided by the Dutch government.

Ali, a Somalian expatriate and outspoken critic of her former faith, states that the Islamic belief has “certain characteristics that can coexist with Western democracy”.

She says that “as a Muslim I was taught to be generous, to be hospitable, to be kind to the elderly and to be kind to the poor”.

She goes on however to argue that “the basic tenets of Islam and the basic tenets of Western liberal democracies are incompatible. Islam fails to recognise secularity or the separation of church and State.  Women are subordinate. In Islam, life, liberty and the pursuit of happiness are things that you can pursue when you go to heaven but you have to die first because life on earth is just a passage and you observe certain rules and if you don’t observe those rules you’re not considered a Muslim”.

She also criticizes the treatment of homosexuals, or at least “the idea that they are not allowed to live and should either be banished or killed. Now, in liberal societies these are values that are radically different from what Islam preaches.

Facing a backlash from not only fundamentalist Islam, outrage from moderate Muslims is similarly heated.

Careful not to generalize though, Ali makes a distinction between Muslims and the Islam faith itself: “Muslims are individuals and they are varied. You will find some of them are radical and some of them are moderate and some do not practice the religion at all.  Islam as a doctrine, as a body of ideas, as a belief- means submission to the will of Allah”.

In theocracic Iran, Islamic law (Shari’a) dictates that women are not allowed outside without the custom Hijab (veil).

She doesn’t believe that Western governments should prevent Muslim women from wearing Hijab in public, as was suggested by some in recent times, particularly in the wake of 9/11, rather she elucidates that: “We should not be debating the clothe itself but what it stands for, the sexual morality and based on morality that says men cannot restrain themselves sexually.They are like wild dogs and we women are like pieces of tempting meat and if we do not want to put society into chaos, then we should ideally stay behind closed doors and if it’s necessary for us to go outside of the house, then we need to veil ourselves”.

But Ali points out that the Hijab is just the tip of the iceberg, particularly in Iran and Saudi Arabia, citing inequalities in custody, divorce, and being able to study for any field or enter any occupation as further disparities

She also vehemently challenges the barbaric act of female circumcision, which Amnesty International estimates some 2 million procedures commence every year, typically found in African communities.

As the 2000s marked anew chapter in Western/ Islamic relations and two destructive wars, leaving more than 100,000 civillian deaths and more than a tenth of that figure in Western troop fatalities (Red Cross, 2008), the issue of intergrating faith and democracy is a challenge that is sure to remain a focal point for politicians and human-rights activists alike.

Ali, an atheist, said she lost her faith while sitting in an Italian restaurant in May 2002, drinking a glass of wine, “I asked myself: Why should I burn in hell just because I’m drinking this? But what prompted me even more was the fact that the killers of 9/11 all believed in the same God I believed in”.

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It seems that governments’ fiscal policies, post-New Deal, post-Neoliberal deal, are back to where they started – dishing out public loot to push start the spluttering global economy, and in America’s case – bailing out failed corporations.

In Australia, so far the trucks have been delivering, narrowly evading a technical recession; being the only developed nation to stay in the black.

But after the stimulus packages have dried up and governments seek to cut back on expenditures, are we destined to relapse into an era of Neo-Neoliberalism?

In the wake of the GFC, the left has hinted at structural reforms, such as curbing high-end remuneration and scaling back the breadth of US banking firms.

So far the calls have gone largely unanswered.

The current indignation felt by the far-left is similar to its criticism after Roosevelt’s New Deal measures, arguing that it let slip the opportunity to radically reform American capitalism.

Many historians in fact acknowledge that the New Deal did not substantially alter the distribution of power within the US system.

The right wants tighter government fiscal responsibility, such as curbing government spending and introducing tax cuts, a linchpin of recent ‘conservative’ policy.

In some ways Neoliberal economic policies were successful. In the UK, inflation plummeted from 22 percent at its height in 1979, to under 5 percent by the end of the 1980s.  Similarly, the US dropped from 9 percent inflation in 1980 to 5 percent in 1988.

But by the end of the 1980s, the UK saw its unemployment rate double (from 5% in 1980 to 10% in 1987, tapering off at 7% in 1990).

At the same time, the US was entrenched in an increasing trade deficit, and perhaps counter-intuitively, unprecedented levels of foreign and national debt.  The once creditor US became the global debtor superpower.

Back to the recent crisis, and our international bodies have been as equally inept at offering any real structural reforms.

The G20 meetings in mid 2009 spawned no real changes to banking sector regulation and economic restructuring.  They, after all, reflect the economic interests of the nations that partake in them.

Likewise, the IMF, not only failed to foresee the GFC, but has since, somewhat predictably, offered little advice to nations concerning economic reform.

Save for a cataclysmic meltdown, it seems that for the moment at least, that the status quo will be maintained.  “Free market” capitalism will prevail, and we can resume our favourite pastime of blowing bubbles, crying when they burst, and yelling at each other as to the best way of dealing with the mess.

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