Why ministers insist on peddling the economic illiteracy they continue to espouse is something of a puzzle. Maybe they fear, perhaps rightly, that the British public will not buy into the global warming alarmist case for their policies, and that a spurious economic case might do better. But economic illiteracy is economic illiteracy, and to peddle it shows either lamentable ignorance or discreditable cynicism.

Myth No.4

So to myth number four, that Keynesian (or neo-Keynesian) stabilisation policy makes sense. Here again, Smith got it right. I have referred in the customary shorthand way to his Wealth of Nations. But the key to the right approach to political economy and government policy is to be found in the full title: An Inquiry into the Nature and Causes of the Wealth of Nations. What it is not called is An Inquiry into the Nature and Causes of Fluctuations in the Wealth of Nations; nor indeed is that its subject matter.

Yet it is this last that has been the mistaken obsession of economic and political commentators, and all too many economists, during my adult lifetime — not least at the present time, when the coalition government is being taken to task by the Keynesians for seeking to eliminate the structural budget deficit at a time when, although on the path to recovery, the UK economy remains weak.

The plain fact is that experience shows that the conduct of economic policy can have a profound effect, for good or ill, on the long-term prosperity of a nation and its people. Moreover, although the task is never easy, we also know from experience throughout the world, perhaps more clearly than at any time in the past, what the secret of success is.

By contrast, experience, not merely in this country, but throughout the developed world, demonstrates clearly that we cannot eradicate the business cycle, the alternation of boom and recession — although we do of course need to take steps to reduce the likelihood of a major banking crisis, which as we have seen can massively exacerbate the inevitable cyclical downturn.

Indeed, a case can be made for the proposition that what might be termed the normal business cycle confers benefits as well as incurring costs. Schumpeter was in a sense on to this with his theory of creative destruction. The superiority of market capitalism over all other economic systems lies in particular in two areas: the freedom and encouragement it gives to innovation and risk-taking entrepreneurial activity generally, and the discipline that drives up efficiency and drives down costs.