The Foundry

So claimed Senator Jay Rockefeller (D-WV) in the Senate Finance Committee debate on Tuesday morning. The “public option” would create the “choice” of a new government-run health insurance plan to “compete” with private insurance in the free market. If Adam Smith means choice, competition and free markets then he would favor the public option. Rockefeller went so far as to claim that “Adam Smith would have cooked up this amendment” establishing the public option. Members of the committee did not see it that way, and the amendment was defeated. But does Rockefeller seriously think Adam Smith’s principles are consistent with the government-run healthcare?

This view depends on the patently false idea that competition would be enhanced by the addition of a new player – the government – in the insurance market. The problem is that government, by definition, isn’t just another economic player, and will always tend to want to control markets for its political purposes. That threatens economic as well as political liberty. (Hmmm . . . isn’t this why we favor free markets in the first place?)

Adam Smith himself long ago debunked the idea that government charters, giving a corporation exclusive privileges to engage in a particular type of business, enhanced competition. Far from it, government intervention would prevent competition by restraining the private market from having true competition in prices, products and free exchange. Smith lamented the old mercantilist policies of Europe which, like the “public option” plan, did not allow competition and choice:

The policy of Europe occasions a very important inequality in the whole of the advantages and disadvantages of the different employments of labour and stock, by restraining the competition in some employments to a smaller number than might otherwise be disposed to enter into them.

The exclusive privileges of corporations are the principal means it makes use of for this purpose. The exclusive privilege of an incorporated trade necessarily restrains the competition, in the town where it is established, to those who are free of the trade.

Anyone who is remotely familiar with Smith’s ideas, let alone the basic ideas of introductory market capitalism, knows how implausible Rockefeller’s claim is. Adam Smith wasn’t there to defend himself in the committee hearing, but we should—not just for his sake, but for the sake of the liberty he defended and we have long enjoyed.