Thursday, April 24, 2014

FROM THE ARCHIVES

From Lost Legacy’s archives (10 November, 2010): “A Fiction Expert Quotes the “invisible Hand As If It Were True”: Eleanor Courtemanche: “The 'Invisible Hand' and British Fiction 1818-1860: Adam Smith, Political Economy, and the Genre of Realism”, Palgrave, HERE
The Publisher’s blurb:
Some economic ideas are too interesting to be left to economists. This book argues that Adam Smith’s metaphor of the ‘invisible hand’ – in which selfish economic actions are mysteriously transformed into aggregate social benefits in a capitalist economy – implies an entire spatial and temporal system in which the morality of any particular action can only be understood in the context of society as a whole. The ‘Invisible Hand’ and British Fiction argues that while political economists focused only on the optimistic outcomes of capitalist moral activity, Smith’s model of ironic morality also influenced the work of novelists including Austen, Dickens, Martineau, Thackeray, Gaskell, and Eliot. Their realist novels represent the reconciliation between individual ignorance and systemic overview as much less stable than the economic synthesis, using omniscient narrative voices, multiple perspectives, and humor to depict a wide variety of possible outcomes. Smith shares with the realists a vision of modern society that is structured around a fragile trust in the benefits of unintended consequences.”
Comment
This books apparently is based on a mythical idea that had no part in Adam Smith’s use of the metaphor of “an invisible hand’, namely that:

Adam Smith’s metaphor of the ‘invisible hand’ – in which selfish economic actions are mysteriously transformed into aggregate social benefits in a capitalist economy.”

In no way did Smith say anything about “selfish economic actions”. Nor did he say these alleged actions were “mysteriously transformed into aggregate social benefits in a capitalist economy”. Markers are not ‘mysterious” as Smith shows in Books I and II of Wealth Of Nations. Markets are no invisible – price signals can be see; if they were invisible nobody would know about prices.

In fact he never said anything about “capitalist economies” (a word unknown to Smith – its first use was in English was1854 in a work of fiction The Newcomes by William Makepiece Thackerary (OED). Smith wrote about ‘the age of commerce’ not capitalism.

Eleanor Courtemanche is almost right in saying: “ Smith shares with the realists a vision of modern society that is structured around a fragile trust in the benefits of unintended consequences.”

There is nothing “fragile” about “unintended consequences”. A consequence is real, not “fragile”; it is whatever happens as a consequence of an action. Whether it is a benefit or not is something else entirely.

Adam Smith’s point in his single example in Wealth Of Nations was that those traders who preferred not to invest abroad (Europe or North America), because they perceived the risks of doing were too risky and who invested locally in Britain, added to the total domestic investment, which in consequence added to local revenues and to employment (the whole is the sum of its parts). This a benefit to employees and employers, particularly in the jobs created for the poorer majority. This was a quantitative benefit.

He said nothing about the qualitative benefits of each specific investment. As Britain at the time, and for decades afterwards, had an economy dominated by tariff protection and outright prohibitions, by other distortions caused by the Act of Apprentices, Trade Guilds, monopolies of many kinds, the Act of Settlement, Drawbacks and Bounties, and the Navigation Acts, it was not clear if domestic investment led to beneficial consequences for everybody in a general sense, and Smith certainly did not presume that it did (see his critique of mercantile laws in Book IV of Wealth Of Nations).

The claim that consequential outcomes were beneficial – even from “selfish acts” – is a wholly invented myth, wrongly attributed to Adam Smith in the 1950s onwards.

4 COMMENTS:
Eleanor said...
“Hurrah! Someone is interested in my forthcoming book! I'm pleased to receive interest from neighboring intellectual fields, though I suspect our methodologies and goals are a little different.
The "invisible hand" concept has a complicated genealogy, some of which I trace in my analysis of Adam Smith's three uses of the term. You're right about the history of the word "capitalism," which I discuss in the relevant chapter. And you're also correct that Smith's use of the term is very different from the 20th century use, such as Hayek's, which made much more use of the idea of "price signals."
I suggest, humbly, that Smith's use of the "invisible hand," as trivial as it appears in the "Wealth of Nations," represents all there is of moral theory in early political economy, and that it profoundly influenced ideas of society as morally complex and ironic in novels at this time. Economics affects other cultural works, just as they can affect economic theory. We "fiction experts" specialize in things that appear to be false (stories, metaphors, ideals of social order) but also, somehow, are true.”
“Eleanor
Thank you for your response, which I read with interest and which informs me of where your ideas are coming from, and leading to.
A number of English theorists have and are commenting on Smith’s use of the metaphor of an invisible hand (Straus in recent times has come to my notice).
Some attempts are made to justify interpretations by modern economists of “Adam Smith’s use of the IH metaphor” against my insistence that his use conformed to his statements in his “Lectures in Rhetoric and Belles Letters” [1762-3] 1983, p 29 (Oxford UP/Liberty Fund), that a metaphor can have no “beauty unless … it gives due strength of expression to the objects to be described and at the same time does this in a more striking and interesting manner”.
Many of the attributions by modern economists since Paul Samuelson’s textbook, Economics (1948), have been invented, including that the IH metaphor was about the unintended consequence of ‘selfishness’. A wholly fallacious idea when applied to Smith.
You write: “I suggest, humbly, that Smith's use of the "invisible hand," as trivial as it appears in the "Wealth of Nations," represents all there is of moral theory in early political economy, and that it profoundly influenced ideas of society as morally complex and ironic in novels at this time.”
However, Smith’s use of IH metaphor was ignored at the time (1776-90) and for many decades after that, which hardly conforms to: “all there is of moral theory in early political economy”.
Sparse references, solely in passing when quoting from Adam Smith, were made by political economists (the norm was to ignore it) in the last quarter of the 19th century, and were almost absent for much of the first half of the 20th century. There was an oral tradition at Cambridge and isolated appearances of references in print (A. C. Pigou ) in the 20s and 30s (Alexander Gray). Again this was hardly “profoundly influenced ideas of society”.
Both before Smith used the IH metaphor for his purposes (16th-17th centuries) and afterwards, the impetus to use it widely had nothing to do with Adam Smith’s use at all [see my Adam Smith: a moral philosopher and his political economy, chapter 12, 2nd edition paperback, 2010, Palgrave Macmillan, for literary, theological references to 1790; and try Google’ for 19th-20th century references].
At £18.99, minus your Palgrave author's discount, it's a snip.”
Eleanor said...
“I'll be sure to check out your book, especially since your choice of publishers was so wise!
I agree that the use of the "invisible hand" today is disproportionate to the use of the term in Smith, and that it became much more widespread in the 20th century. However, the underlying idea that there can be secular laws governing a complex society (I get this from Polanyi), and that those laws are somehow morally ironic, came originally from political economy and was deeply influential in other areas of early 19c culture, especially as political economy became a source of intense public interest after 1800.
It might well be the case that this popular interest also represented a slight misreading of Smith, and that within the later tradition he came to stand for a set of values he would not necessarily have endorsed -- and I do suggest a difference between Smith and later political economists, who I think ignored much of Smith's moral judiciousness and sense of irony. The question of why this metaphor has become so widespread in this century is also an interesting one, and one that actually becomes even more interesting if one reads it as a joke or trivial slip on Smith's part, as some commentators have argued.
Thanks for your interest!”
Today’s Comment (Gavin)
This notice of Eleanor Courtemanche’s 2010 book arrived today in a Google Alert and I looked back to my original review and the brief exchange of comments by Eleanor and myself.
It may be of interest to some readers; my comments still stand. 
I note Eleanor’s remark that “especially as political economy became a source of intense public interest after 1800” and would comment that much of that interest in political economy included close interest in Adam Smith’s Wealth of Nations (1776) evidenced in numerous editions of  Smith’s “Wealth Of Nations”, edited sometimes by prominent teachers of political economy and muliple references and quotations from it in their own works.
It is relevant too that for all the attention to Smith’s Works from 1790 (when he died) to 1875, nearly 100 years later, there was practically no interest in nor mentions in print of Smith’s use of the “invisible hand” metaphor.  Since the 1960s, the invisible hand metaphor became ubiquitous across economics textbooks, scholalry articles, and, since the 1970s, across all popular media to today.
The late Warren Samuels, the most serious Smithian scholar of his (and our) generation, analysed and documented this astonishing phenomenon in his last book, “Erasing the Invisible Hand” (Cambridge University Press, 2011). 
Proponents of the myth of the ‘invisible hand’ have yet to challenge these indelible facts of the modern invention of Smith’s use of the now famous metaphor, both as to how it was mostly ignored from 1776 to the 197os, and as suddenly became the single “fact” best know to be synonymous with his name today, well beyond the confines of the discipline of economics, including schollars like Eleanor Courtemanche from English scholarship.

I would have thought, from my knowledge of Adam Smith’s teachings on rhetoric (Smith: “Lectures on Rhetoric and Belles Lettres”, 1763 (1983), Oxford University Press) that English language scholars would be familiar with the role of metaphors in the English language and not easily buy-into the common myth’s of what Smith supposedly meant when he used the IH metaphor in 1759 and 1776 (and in his posthumous Work, ‘The History of Astronomy”, 1795).

Monday, April 21, 2014

LOONY TUNES 95

Onozaki T.; Yanagita T (2003) on Onozaki, T. Yanagita, T. Monopoly And Oligopoly Led By An Invisible Hand; [2] Allan M. Lees The Invisible Hand; [3] Jan Narveson The "Invisible …:
垄断,寡头和“看不见的手” 注:没有中文版本,只有英文版本
下载全文 资源分 350 (Volume-OnPage: Volume 18, Number 3, October 2003, pp. 537-54) 

[GK: It’s still nonsense in any language]

NEW BIG BOOK ON ECONOMICS OF INEQUALITY ON THE WAY

"Economist Receives Rock Star Treatment": That was the headline yesterday on Jennifer Schuessler’s story in The New York Times. The facts bear her out. Thomas Piketty, 42, of the Paris School of Economics, seemed to be everywhere last week. Publication of his 685-page Capital in the Twenty-First Century had been moved up by two months, sales were soaring (46,000 copies so far), a triumphant tour of Washington (meeting with Treasury Secretary Jack Lew) and New York (appearing at the United Nations) has been completed. Encomiums were pouring in. “Pikettty has transformed our economic discourse,” wrote Paul Krugman in the current New York Review of Books. “We’ll never talk about wealth and inequality the way we used to.” 

Not bad for an economist who traded an appointment at the Massachusetts Institute of Technology for a job as a researcher for the French government in 1996, when he was 25.  “I did not find the work of US economists entirely convincing,:” he writes in the introduction to Capital in the Twenty-First Century:

I was only too aware of the fact that I knew nothing at all about the world’s economic problems.  My thesis consisted of several relatively abstract mathematical theorems. Yet the profession liked my work. I quickly realized that there had been no significant effort to collect historical data on the dynamics of inequality since [Simon] Kuznets [in the 1950s and ’60s], yet the profession continued to churn out purely theoretical results without even knowing what facts needed to be explained.

He went home to collect some of the missing facts.

Piketty wanted to teach at the Ecole des Hautes Etudes en Sciences Sociales, the elite institute whose faculty had included many of the foremost figures in the Annales school, including Lucien Febvre and Fernand Braudel – a group of scholars, most  of them quantitative historians, that achieved enormous influence around the world publishing in the journal Annales. Economies, sociétés, civilisations (or Annales. Histoire, Sciences Sociales as it is called today).

Piketty got that job, along with time to do the research he wanted, first producing a book in 2001 on high incomes in France since 1901, then enlisting Anthony Atkinson, of Oxford University, in a similar investigation of Great Britain and severalother countries.  His friend and countryman Emmanuel Saez, of the University of California at Berkeley, produced similar data for the US. The World Top Incomes Database (WTID) is the result.  Data on wealth, following the methods of Robert Lampman, of the University of Wisconsin, came next. Starting in 2003, Piketty began setting up the new Paris School of Economics; in 2006, he was named its first head.  He resumed teaching and writing the next year.  

Piketty’s thesis is set out succinctly on the first page of his introduction:

When the rate of return on capital exceeds the rate of growth of output, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.  There are ways nevertheless democracy can regain control over capitalism and ensure that the general interest takes precedence over private interests, while preserving economic openness and avoiding protectionist and nationalist reactions.

What are those measures?  Four chapters in the fourth section of the book draw a variety of policy lessons from the first three parts for a “social state:”

The right solution is a progressive annual tax on capital. This will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation.

Piketty says he’s left Paris only a few times on short trips since returning nearly twenty years ago.  My hunch is that, after last week, it will be a long time before he takes another. He’s left behind a beautiful book, one that will receive a great deal of attention around the world in the years to come.  He’s gone home to work on others.
Comment 
This new book by Thomas Piketty, “21st Century Capital”, of which we are going to hear a lot more about it - meantime read some reviews  HERE   HERE   HERE  HERE
I shall first read Piketty’s book and then comment upon it.  From the review/reports I have read his book looks interesting, though it seems to simply accept that modern economists’ accounts of Adam Smith (‘invisible hand’, ‘laissez-faire’ and all that) are accurate, when they patently are not.  Karl Marx is also beyond redemption in the hands of modern marxists, and weren’t up to much in Karl’s original efforts either, without mentioning the practice of modern marxists.
Notions of evolving to some kind of equality - the driver of modern social democracy - and the vague ‘hope’ of equality evolving ‘naturally’ are, increasingly in my view, just that: “notions”.  What is more interesting is what happens when people realise that the equality garb is, er, invisible too?

Hence, I look forward to my summer reading.  Meanwhile, follow the early reviews and read for yourself. I hope Thomas is a more balanced author when he is both praised and criticised than last year’s author of a very long book, David (er) Graeber.

Sunday, April 20, 2014

SMITH ON 'GRAVITATION' AS A METAPHOR

This a new paper I have recently completed which may interest readers of Lost Legacy.  The full paper will be published soon on the 'Social Science Research Network' (SSRN). I can send a draft copy to those who request one; others wait a few days and it will be on SSRN. 

"Adam Smith’s Use of the ‘Gravitation’ Metaphor"
Gavin Kennedy
Abstract
This paper commments on a paper by Prof David Andrews, ‘Adam Smith’s Natural Prices, the Gravitation Metaphor, and the Purposes of Nature’, 2014, published in Economic Thought, 3.1, pp. 42-55, which takes a philosophical view of Adam Smith’s use of the ‘gravitation’ metaphor from ideas of Aristotle and Empedocles, rather than Isaac Newton. Instead, this paper takes the view that Smith was using a metaphoric ‘figure of speech’, following his teachings on Rhetoric in his “Lectures on Rhetoric and Belles Lettres’ (LRBL) and not a literal use of possible deeper philosophical meanings, interesting as they are, though not entirely relevant to Smith’s purposes on this occasion.  Smith’s rhetorical use of ‘gravitation’ is consistent with his LRBL teachings and his long explanation of the dynamic relationships between ‘natural’ and ‘market’ prices in WN I.vii-xi.p, pp.72-267.
Keywords: Adam Smith, natural price, normal price, gravitation, sellers’ and buyers’ behaviours.

This interesting short-paper by David Andrews is instructive in provoking me to recount the interpretation of Smith’s use of metaphors, on this occasion confined to the use of ‘gravitation’ to describe a relationship between ‘natural’ prices (before products are sold in markets — a sort of  ex-works, ‘factory-gate’ price) and ‘market’ prices realised later in actual markets when actual sellers offer their products in actual markets to actual buyers (‘effectual demanders’).  
David’s paper also provoked memories of attending, long-ago,  A-level Physics classes for university entrance exams and subsequently, in later years, when reading Adam Smith’s use the ‘gravitation’ metaphor. This background leads me to a different take to David Andrews’s interpretation of Smith’s use of the ‘gravitation’ metaphor in Wealth Of Nations (WN I.v.ii: ‘Of the natural and Market Price of Commodities’, pp. 72-81). 
For some years since 2003, I have taken a particular interest in Adam Smith’s use of metaphors throughout his Works, especially the metaphor most closely associated with his name today in respect of his use of the ‘Invisible Hand’ metaphor (see my many Blog posts in www.adamsmithslostlegacy.blogspot.co.uk, 2005-14): and Kennedy, 2005, 2008, 2009, 2010, 2011, 2013, 2014).  Much of my work on metaphors used by Adam Smith is applicable to understanding his treatment in usinf metaphors elsewhere in his Works.
From this background, I believe that Smith’s use of the ‘gravitation’ metaphor in WN was quite different from David Andrew’s philosophical interpretation (Aristotle and Empidocles) in his paper and in his comments on Marshall and several modern economists: Pierangelo Garegnani (Garegnani 1976, p. 27), Geoffrey Harcourt ((Harcourt and Kriesler 2012, p. 9), Ian Steedman, John Eatwell and Murray Milgate (Eatwell and Milgate 1999, p. 83), Tony Aspromourgos (2010, pp. 65-6), Heinz Kurz and Neri Salvadori’ (Kurz and Salvadori 1998, p. 3) and Piero Sraffa’s Production of Commodities by Means of Commodities: Prelude to a Critique of Economic Theory.  Interesting as this knowledge may be, it does not quite clarify Smith’s use of ‘gravity’ as a metaphor.
David sets out his case in his abstract:
“The first section examines the context in which Smith’s gravitation metaphor appears in order to show that it was intended as an assertion about the movement of market prices rather than one about the meaning of natural price. Section Two explores the gravitation metaphor in detail to show that what Smith described is gravity in the ancient rather than the modern sense, implying that movement results from the inclination of market price rather than from any property of natural price. The third section focuses attention on Smith’s understanding of nature, arguing that, according to Smith’s Aristotelian usage, ‘natural’ refers to the reproduction of species, including the human species. Based on this discussion, Section Four presents an interpretation of the sense in which natural prices are said to be natural in Smith” (Andrews, 2014, p. 3)
He also asserts:
“For Smith, [Gravitation] is not a Newtonian metaphor for the attractive character of natural price, but rather an Aristotelian metaphor for the pattern of movement of market prices, in which natural price serves merely as a reference point” (Andrews, 2014. p.2). 


This  paper explains why I regard the relevance of David’s philosophical interpretations somewhat sceptically.  First, I examine Adam Smith’s teaching and use of metaphors and, second, I comment on David Andrews’s arguments on ‘gravitation’ in its “Epidoclean” and not “Newtonian” sense in relation to the relationship between ‘natural’ and ‘market’ prices (WN I.ii.vii-xip).

Sunday, April 13, 2014

HUNTER GATHERERS WITH iPHONES?


Peter Foster’s new book is announced in Canada Free Press (“Because without America There is no free world”) HERE 
Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism
published by Pleasaunce Press, Toronto on 1 May.
In the publisher’s promo we read: 
Hunter Gatherers with IPhones”
In Why We Bite the Invisible Hand, award-winning journalist and author Peter Foster delves into a conundrum: How can we at once live in a world of expanding technological wonders and unprecedented well-being, of improving health and longer lives, and yet hear a constant drumbeat of condemnation of the system that created it?
That system – capitalism – is guided by the “Invisible Hand,” the metaphor for economic markets associated with the great Eighteenth Century Scottish philosopher Adam Smith. The hand guides people to serve others in the pursuit of their own interests, and produces a broader good that, as Smith put it, is “no part of their intention.” Critics however claim that the hand is tainted by greed and exploitation, leads to inequity and dangerous corporate power, and threatens not merely resource depletion but planetary disaster.
Foster, with Adam Smith as his constant reference point, probes misunderstanding, fear and dislike of capitalism – and political exploitation of those feelings—from the dark satanic mills of the Industrial Revolution through to the murky concept of sustainable development.
His journey takes him from New Jersey in the wake of Superstorm Sandy, through Kirkcaldy, the town of Smith’s birth,  Moscow McDonald’s, Karl Marx’s Manchester and Ayn Rand’s Hollywood.
He refutes claims that capitalism’s validity depends on the system being “perfect” or economic actors “rational.” He also notes the key difference between capitalism and capitalists, who are inclined to misunderstand the system as much as anyone.
Corporations, he points out,  can usually only become dangerous through government favour. Moreover, if big business is to be condemned, it should be not for flinty-eyed devotion to profit maximization, but for falling for subversive notions such as corporate social responsibility and sustainable development, and agreeing to beg for “social licence” from radical, unelected environmental non-governmental organizations, ENGOs, whose own political power has soared in the past two decades.
Related to the rise of the ENGOs, Foster deals with one of the biggest and most contentious issues of our time: projected catastrophic man-made climate change. He notes that while this theory is cited as the greatest example in history of “market failure,” it in fact demonstrates how both scientific analysis and economic policy can become perverted once something is framed as a “moral issue,” and thus beyond debate.
Foster’s book is not a paean to greed, selfishness or radical individualism. He believes that the greatest joys in life come from family, friendship and participation in community. What has long fascinated him is the relentless claim that capitalism destroys these aspects of humanity rather than promoting them.
Moreover, he concludes, when you bite the Invisible Hand… it always bites back.”
Comment
The first thing I noted in the announcement is its relaxed writing style, full as it is with witty metaphors, similes, allusions, hyperboles, and sharp nuances.  Combined they entice the reader towards the message: I ought to buy the book or at least drop the promo headliner into conversations for social affect: “hunter gatherers with iphones” Hence, my Blog headline above - I bet it grabbed your attention!
But what of the substance of the offering of Peter Foster’s new book, “Why We Bite the Invisible Hand: The Psychology of Anti-Capitalism’?
The promo says it all: “capitalism – is guided by the “Invisible Hand,” the metaphor for economic markets associated with the great Eighteenth Century Scottish philosopher Adam Smith. The hand guides people to serve others in the pursuit of their own interests, and produces a broader good that, as Smith put it, is “no part of their intention.”
There is no “invisible hand” guiding people to serve others. Nor is the invisible hand a metaphor for “people” serving others in pursuit of their own interests”.  In Smith’s writings the metaphor described the action that followed from a person’s motives, which had intended consequences (the immediate purpose motivating the action) that, in turn, sooner or later may have unintended consequences, for good or ill, on the individual or the society of individuals.
There is nothing necessarily benign in the consequences, intended or unintended, that follow from the actions of peoples’ motives.  From the actions of people motivated to smoke cigarettes, the immediate consequences of those addicted to tobacco may be a sensation of relaxing their craving sensations; later they could suffer the unintended consequences of cancers to the body and shorter life-spans.  Society generally may enjoy the beneficial side affects of lower taxation from the tax and duties paid by addicted smokers, net of the increased health spending occasioned by treating smokers in hospitals (for which health employees and medical businesses may benefit), though the diversion of funds to treat them may cause reduced attntion to other medical problems of non-smokers . Not to mention the consequential personal costs of deeply felt grief at the early death of one’s children, spouses, or parents and grandparents, and dear friends.
In Smith’s first published example in his Theory of Moral Sentiments (1759) the “proud and unfeeling” landlord was motivated to supply his slaves, serfs, or labourers from the produce they laboured upon in the landlord’s fields – who couldn’t do otherwise, for without food the labourers could not work.  Likewise, the labourers in slavery, serfdom or free, laboured in the landlord’s fields in order to feed themselves and their families, for without food they could not live. 
Smith made the further observation that beyond the intended consequences of the motivated actions of both the landlords and their labourers there was the intended consequences of the propagation of the species, one of the ends of ‘nature’, despite the death rates of under-fed labourers, sick wives and infants, plus the social ‘accidents’ of life in the feudal centuries.
Similarly, in Smith’s second example of the use of the metaphor on “an invisible hand” in Wealth Of Nations (1776), where he described the motivations of a merchant who, because he felt foreign trade had too many risks and because he therefore avoided sending his capital abroad, he preferred to act by investing his capital at his perceived lower risk in the domestic economy.  Again a merchant’s motives of insecurity led him to his intended actions (safer to invest locally) and in doing so he necessarily added to domestic investment.  His motivations (lower the risks of investment) led to his intended actions (invest locally) and in consequence his actions had intended consequences.  By adding to domestic investment the insecure merchant also added to domestic “revenue and employment”, which were public benefits in what today we would call higher GDP.
Since Smith’s time his metaphor for the above examples, “an invisible hand” has become a virtual religion because it has become a mythical allusion way beyond anything contemplated by Smith’s innocent use of metaphor.  Briefly, there is no actual invisible hand operating in “markets”. 
Metaphors “describe in a more striking and interesting manner” what they are describing. We know that this is the case with Smith’s use of the “invisible hand” metaphor because the description of the role of metaphors in the English language  comes from page 29 of Adam Smith’s “Lectures on Rhetoric and Belles Lettres” that he delivered at Glasgow University in 1762-3. Moreover his lecture corresponds to the definitions in the Oxford English Dictionary (1973).
In Smith’s case the “invisible hand” metaphor described the motivated consequences of the actions of “unfeeling’ landlords and “risk averse” merchants whose initial motivated actions had unintentional consequences that happened in their case to be on balance beneficial.  Of course, a moments reflection will show that the initial motivations for an action can lead to unintended consequences detrimental to the initial actor and, also, detrimental to others, and in some cases, detrimental to society at large.
Believers in the mythical interpretation of Smith’s use of the metaphor of “an invisible hand” – used only three times in all of Smith’s Works or Correspondence – seldom, if ever, consider the possible detrimental personal and social consequences of motivated actions in general.  A short acquaintance of everyday motivated actions would inform Believers that their evident trust that there is “an invisible hand” actually operating mysteriously – even miraculously – in markets to ensure harmony and beneficial outcomes everywhere for everybody is ridiculous.  Adam Smith never claimed there was such an entity.
Peter Foster play a different tune. He writes well and no doubt with the best of intentions in his polemical defence of his views on capitalism – of which this post is not a direct criticism - but in doing so he weakens his case by alluding to the myths of the invented “invisible hand” of the 20th century and he libels the actual meanings of Smith’s innocent use of a metaphor in the 18th century.
By the way: how do you “bite” something that is invisible and, anyway, is only a metaphor?

Thursday, April 10, 2014

UNNECESSARY COMPLICATION TO AN ALREADY NON-SENSICAL MYTH


Kevin T. Jackson on “Virtuosity in Business: Invisible Law Guiding the Invisible Hand” (University of Pennsylvania Press), 2011 HERE 
The recent global financial crisis raises pressing issues that are not exclusively economic. The health of the economy, Kevin T. Jackson contends, reflects the moral health of the wider culture: ethics must be considered along with economics to understand world markets, especially now that globalization and other forces have increasingly complicated the regulation of transnational corporate conduct. "Virtuosity in Business" calls on businesspeople and ethicists to expand their thinking by stressing the profound relevance of philosophy to business and economics.
"Virtuosity in Business" shows that ethics has been the overriding problem for business and that it is the only enduring solution. Drawing on a variety of philosophical sources, including Aristotle, Thomas Aquinas, and Jean-Paul Sartre, Jackson applies the concept of virtue to the competitive realm of the marketplace. Virtuosity, in all realms of human endeavor, is not merely a display of technical skill or adherence to conventional norms.
The invisible law of virtuosity, which discourages misconduct and rewards good corporate citizenship, guides ethical firms and wise entrepreneurs toward greater success by playing a constructive part in the human enterprise. A pioneering work in the contemporary philosophy of business, "Virtuosity in Business" revivifies business ethics to address concerns arising from the global financial crisis, such as restoration of faith in the market, respect for human rights, and environmental sustainability.
Comment
Allowing for publishers’ blurb-writers who are not the books authors and whose knowledge of the origins of the modern myth of the “invisible hand” is next to nothing, this is an extraordinary version of the now standard myth.
Instead of merely having a ‘mysterious’ and “miraculous” entity guiding the vast complexities of the modern economy, we have something described as “virtuosity guiding the invisible hand”!
Er, what guides “virtuosity” that in turn guides the entity known as the “invisible hand” and what does the “invisible hand” do?
How do these imaginative entities operate - in tandem or sequence?  How do they communicate?
Wait!  Is ‘virtuosity’ a subjective property of a player – say, a player in markets, who adopts “virtue”, the necessary content of “virtuosity”, to guide her behaviour in markets, which in turn controls her, or somebody else’s, “invisible hand”?
Markets operate by VISIBLE prices – they cannot work without them - and this construction does not add clarity to an already perfectly clear construct, specifically that markets work through visible prices.
Perhaps  should have posted it in our regular column of "Loony Tunes"? 

Monday, April 07, 2014

THE ANSWER IS BOTH, NOT ONE OR THE OTHER

Joseph Stiglitz (3 April) posts on “Social Europe” HERE 
“Reforming China’s State-Market Balance”
“No country in recorded history has grown as fast – and moved as many people out of poverty – as China over the last thirty years. A hallmark of China’s success has been its leaders’ willingness to revise the country’s economic model when and as needed, despite opposition from powerful vested interests. And now, as China implements another series of fundamental reforms, such interests are already lining up to resist. Can the reformers triumph again?
In answering that question, the crucial point to bear in mind is that, as in the past, the current round of reforms will restructure not only the economy, but also the vested interests that will shape future reforms (and even determine whether they are possible). And today, while high-profile initiatives – for example, the government’s widening anti-corruption campaign – receive much attention, the deeper issue that China faces concerns the appropriate roles of the state and the market.”
Comment
Stiglitz confronts the dominat issue that has contrary remedial policies for adherents of the idealogical “solutions” to the question that he asks of “the deeper issue” facing China” (and every other country) of “the appropriate roles of the state and the market.”
China’s “deep” question is not unique.  The same question dominates all countries that exist, or can exist anywhere since Homo sapiens walked upright out of the African bush.  
The division of labour was not invented in a ‘pin factory’; it appeared long ago with early humans because of wide natural variations in human abilities; some were good at tracking food, especially sources of meat, other weren’t as good; some were better at making stone tools or woodern weapons to secure food; others good at making fires and securing night-time stopping places; and so on across the skill sets that separated small groups of humans from nature and what was necessary for their survival.  Some, albeit, minmal co-operation within the separated groups trumped short-sighted selfishness in others.  Humanity was never given a free-pass to survive on Earth for ever, or at all.
It was ever thus.  And still is.  Today the first few thousand of the human species is now 7 billion strong and counting.  The false question is not whether we rely on state or market provision; we are bound to have both.  Of course, we can have 'too much' of one and 'too little' of the other.  

The argument is about the appropriate balance for both, because human societies need both and, I would venture to suggest in our high-tech complex societies, they cannot subsist for long with all of one (state provision, say) and no markets, or vice versa, except in the fantasies of those who are not paying attention either to the present arrangements or to history plus so-called ‘pre-history’, which is 'written' in the physical remnants of the past that passed away where we find their skeletal remains amidst their self-created detritus.

ANOTHER SWEEPING CLAIM ABOUT THE CAUSE OF THE INDUSTRIAL REVOLUTION

Stuart Jeanne Bramhill reviews “The Wealth of Nations by Adam Smith Abridged Version” by Laurence Dickey, Professor of History, University of Wisconsin-Madison (Hackett Publishing 1993) and adds somewhat controversial comments on Adam Smith’s Wealth Of Nations HERE  “Reclaiming Adam Smith”:  “Contrary to conservative claims, Adam Smith was a liberal who argued for government intervention to ensure economic growth and “general prosperity.” I find it intriguing that he attributes Britain’s global economic dominance to “division of labor” and a superior agricultural system. Despite an entire chapter in Book I on the origin of money, he makes no mention of the role of English banks in creating money (which started in 1666), which kick started the industrial revolution.” 
Comment: The abstract excites my interest.  But before I proceed to look at Stuart Jeanne Bramhill’s Review, I wonder why the much earlier banks founded in today’s Netherlands and in Italy centuries earlier than 1666 did not ‘kick start the industrial revolution’ too?
Singular explanations for the ‘industrial revolution’, itself a process lasting more than a century, are often suspect.  For a detailed scholalry examination of the process by which per capita incomes rose from the historical norm of less than $1 a day towards $150 a day in commercial/capitalisr societies I suugest preliminary reading should include Deidre McCloskey’s volumes: “Bougeois Virtues’ (2007) and ‘Bourgeois Dignity: why economics can’t explain the modern world’ (2010) - plus a couple more volumes to come, published by Chicago University Press.

I shall comment further on Bramhill’s Review later.

ASK A QUESTION AND SOMEBODY SOMEWHERE KNOWS THE ANSWER

On 23 February, 2009 I asked readers of Lost Legacy a question which had stumped me regarding an obscure phrase:
A Query for Wordsmiths
Does anybody know what William Magee, Bishop of Dublin, may have meant in 1809 by the words ‘scolists and whitlings’?”
I didn’t receive an answer and the quesiton faded from my mind. Last Month, out of the blue so to speak, a reader (Michael Horn)  answered my query and I post his answer below:
I think Magee's title was Archbishop of Dublin.
Being intellectually arrogant, I had to have a crack at the question that you posed five years ago, so I may as well submit it, belatedly.
Scolist” is a typographical error for “Scotist”, the name given to the philosophical and theological system or school named after John Duns Scotus, a Catholic priest (c.1265-1308). The error probably arises via faulty character recognition of scanned pages of old books.
If you Google the words “Scolists and Thomists” you will see many examples where “Scolist” is obviously intended to be “Scotist” – for example”
“Dominicans, the Franciscans, the Benedictines, the Scolists, the Thomists, the monks . . .”
“His opposition to Thomas gave rise to the parties called Thomists and Scolists (q. v.), whose controversies became peculiarly warm, when Scotus declared ...”
These documents were originally printed in a font type that character recognition software misinterprets. In many cases where the print is an image of the original, although the search engine finds the word “Scolist, the image of the word is “Scotists”. Look at, for example:
A History of the Church: From Its Establishment to the Present Century books.google.com.au/books?id=RdcTAAAAYAAJ Charles Constantine Pise - 1830 - Church history... surnamed the subtle doctor, whose speculative opinions were opposed to those of S. Thomas : and hence the origin of the Scolists and Thomists. (2) Spondan ..
On the matter of “whitling”, I am unsure, but I will venture a possible meaning – it should be "witeling", one tormented in hell.  It is sometimes used by computer-gamers and writers of other-world fantasies to mean a devil.
The words “wight, white and “wite” are easily confused.  One of the number of related meanings for the word “wite” is “Punishment, penalty; pain inflicted in punishment or torture, especially the torments of hell. If you take the meaning “punishment in hell”, then adding the suffix “ling” would mean souls consigned to be punished in hell, as the suffix is used in the sense that it is used in words like “Earthling”and “sibling” (“sib” means family in Old English).  As an aside, in Dutch the word for "white" is "wit" pronounced "vit" and the adjective is "witte" pronounced vitta, so a "witteling" means an albino. 
Here again, character recognition software may throw up a word that a spellchecker flags as wrong, and then an earthling with indifferent language skill decides what the word should be. As with “Scolism”, Archbishop Magee may not have written “whitling”.  If you can find a scanned image of those words, it may be worth checking what was actually printed originally.
Michael Horn
PS I enjoyed reading Adam Smith's Wealth of Nations when I was in my early 20s, and I have in the intervening fifty years read it twice again. I have only read about a hundred books in my 60-year reading life, so to have read a weighty tome thrice says something about the quality of the author. I have never read any of Friedrich Hayek's writing, but I listened to two lectures that he gave, which seemed to put him in the Adam Smith camp. Hayek had experienced much officious interference in Austria in his younger days where he witnessed the negative effects of rent controll, and unlike Keynes, he did not favour an economic system run by officials. Via the Adelsaufhebungsgesetz of 1919 (Law on the Abolition of Nobility) Von Hyek and Von Mises last the “Von” in their surnames – so much for officiousness. I have not thought much about it, but I think the most meaningful difference between Hayek and Keynes was that the latter had a naive trust in the goodwill of officialdom, as one may expect from an Etonian whose Civil Service career started in the India Office, whereas Hayek mistrusted them.”
Comment
The response speaks for itself and I am most grateful for the effort of my correspondent, Michael Horn.  At this distance, I am red-faced ashamed to admit, that I have forgotten why I was searching for the meaning of ‘scolists and whitlings’ in 2009.  It was important to me at the time but some memory loss is both annoying and inconvenient.
Nevertheless, I am most obliged for the answer and for the short biographical history of Michael Horn, my correspondent.  Such erudition and interesting commentary on Friedrich Hayek and Mises (and a footnote on Keyne’s attitude to ‘officialdom’ suggests a rich life in the Republic of Letters in his “60 year reading life” for a man in his “early 70s”.  
Behind the veil of his modesty is someone whom I would be pleased to meet for a long conversation …

Humbly
Gavin

Saturday, April 05, 2014

Loony Tunes no. 94

1.
“Protestation” posts (4 April) HERE https://twitter.com/Protestation/statuses/452285294356602880
“Adam Smith’s Invisible Hand Is at Our Throats” 
2. 
Aldus Huxtable asks (6 October 2011) HERE http://www.experienceproject.com/question-answer/ 
‘Now Can You Show Me On This Doll Where Adam Smith's "invisible Hand" Touched You?’
3.
Yingxu Wang (PhD, Professor, Calgary University) asks (15 September 2013) HERE 
“Was the classical illustration of Adam Smith’s invisible hand shown upside down between the curves of demand and supply in economics textbooks?”
[The good professor’s answer is also loony because the ‘invisible hand’ does not exist; its a metaphor (but not for supply and demand curves!, and not an actual entity!]
4
‘Pro-active’ comments on Thought Leader (Mil & Guardian (South Africa) HERE
http://www.thoughtleader.co.za/mikevangraan/2014/04/16/when-a-spoil-your-vote-campaign-might-be-effective/comment-page-1/
“Is it 18th century Adam Smith’s “Invisible Hand” or the “modern invisible hand” reaching into our century-influencing directions?”