Editor:

Recent reports have declared the United States a breeding ground for a nation of economic illiterates. Most college-bound students are unable to define the effects of inflation (rising prices) and what constitutes a budget deficit (spending exceeds revenues). With the wealth effect in reverse and our economy reeling, one would think we would be digging out our Economics 101 text books. If we do, we may run across a guy named Adam Smith.

In 1776, Smith published The Wealth of Nations, a systematic presentation of modern capitalism. Free enterprise is a unique idea and without the freedom to try, freedom to buy, freedom to sell and the freedom to fail, economies become hamstrung. It is these very freedoms that foster self-sufficiency, innovation and risk-taking — America’s strong points. A self-sufficient society creates excess production (savings) that can be employed as capital (stock). This dynamic turns the great wheel of circulation, but when government interferes with risk-taking (via subsidies, entitlements), it throws sand in the gears of the wheel.

As 2009 unfolds, government is about to inject another trillion dollars into the economy. We should be cautious about attempting to re-design enormous and complex systems and investing massive amounts of taxpayer monies into private enterprises. It is ironic that just 10 years ago a financial firm, Long Term Capital Management, borrowed billions of dollars to make bets on esoteric securities. When the markets turned, their bets went sour. Fearing a full-scale meltdown; the government intervened because a collapse was just too frightening to imagine. Yet, here we are again. It is too late this go around, but we would do well to understand Mr. Smith, his inquiry and avoid the next meltdown.

Hayek Kallen Investment

Management LLC

Fairhope