Wednesday, November 30, 2005

Adam Smith and Religion

Earlier this week I critcised a piece by James K. Galbraith on Adam Smith and Deism, and James has contributed a comment. Please read it by scrolling down the page and opening the comments box. In case his interesting reply is buried, I am replying to it here because the issues raised are important.

It is not part of my 'mission' on Lost Legacy to castigate anybody for what they write about Adam Smith, though I accept I stray unintentionally into irritation on occasion. When I think I see suspect signs that a person making assertions about his legacy who is not familiar with the whole corpus of Smith’s writings, and also his family background (his mother was deeply religious – as I believe was the wife of Charles Darwin), and his personal experiences at Oxford which ended his ambitions to become a Church Minister, I suggest, emphatically, that he or she should read beyond “Wealth of Nations”. This is sincere advice, not a rude attempt at point-scoring.

That James Galbraith teaches from “Wealth of Nations” and is familiar with it is unusual and much welcomed, and I apologise for any hasty inference that he was not familiar with Smith’s political economy. However, I suggest he reads also Smith’s “History of Astronomy”, “On the Formation of Languages”, “Theory of Moral Sentiments”, “Lectures on Rhetoric and Belles Lettres”, “Correspondence” and “Lectures on Jurisprudence”, to appreciate the depth of Smith’s attachment to an evolutionary model of society, from the time of the ‘Brutes’ (the various progenitors of human kind – though Smith in common with contemporaries considered wrongly that the North American ‘Indians’ were examples of the ‘brutes’), through to the fourth age (‘at last’) of commerce. By mid-18th century this approach dominated Scottish and French Enlightenment thinking.

That … Smith was a deist is relatively non-controversial. It may be a disputable view--I see that you do dispute it--but it is one held by a great many reputable readers, and I don't think I can be faulted for sharing it.”

Of course James Galbraith cannot be ‘faulted’ for accepting what ‘reputable’ readers of Smith have concluded, that Smith, if not religious, was a Deist. But it is also incumbent on us to read for ourselves what we accept uncritically from reputable authorities. I accepted for years the conventional view of Smith and was somewhat shocked to find he wasn’t anything like he is portrayed.

Since the 1980s all of Smith’s Works have been available in a low priced format from Liberty Fund. Smith was not Darwinian is the sense of natural selection, which operates on the individual in a species, not the species itself, but he was evolutionary in that nobody controls, manages or causes, social changes in languages, societal forms, including economics, or moral consensus. Language and learning enable social evolution to spread much faster than biological speciation. Human societies, from the first humans to the 21st century, are only 150,000 - 200,000 years old.

Further, the Deist language that he used (in the absence of Darwinian science) was coded to avoid controversy with the religious zealots (who also intimidated Darwin 60 years later), who were very much in evidence in the Scotland he lived in. In his private conversations he appears to have been relaxed (he writes in one letter about ‘whining Christians’), but in his public writings he was prudentially circumspect, in part to avoid offending his mother. After she died his revisions to ‘Moral Sentiments’ shows consistent watering down or the removal of statements inserted originally to placate religious readers or forestall religious objections. Remember also he tried, unsuccessfully, when he started teaching at the University of Glasgow to gain for permission to start his lectures without the obligatory prayers.

From his friendship with David Hume he was familiar with his scepticism and his criticism of religion, miracles and all. His knowledge of pagan Greece and Rome was used as a means to mock Deist ideas with impunity. His concerns in being asked by Hume to publish Dialogues Concerning Religion posthumously were more about the damage it might do to his own career and standing, rather than Hume’s. His circumspection regarding his mother’s feelings while alive could not have been a consideration after she had died, nor, if he was a religious believer, would his revision of his two Works and the posthumous publication of his History of Astonomy would protect his ‘soul’ after he himself died and was ‘re-united’ with her in the afterlife, which is a clear sign that he did not believe in such an eventuality. Smith also was a close friend of James Hutton, the geologist, who showed the Earth to be far older than Biblical accounts.

I take up this argument more tightly in my forthcoming book on Adam Smith for the ‘Great Thinkers’ series. For the opposite case against my above views on Smith and religion, see Jerry Evensky's excellent new book, “Adam Smith’s Moral Philosophy: a historical and contemporary perspective on markets, law, ethics, and culture,” Cambridge 2005. Evensky, however, also makes an excellent case for Smith’s evolutionary model, with which I completely concur.

Let Students Learn about Scotland's History

Today, 30 November, is “St Andrews Day”, Scotland’s National Day. Lesley Riddoch makes “A compelling case for our classrooms” in today Herald (Glasgow, Scotland) on the day that a petition signed by 1,000 Scots and drawn up by the Saltire Society was presented to Patricia Ferguson, the Education Minister in the Scottish Parliament, lamenting the decline in the teaching of Scottish history and literature in schools (I signed it too, though I rarely sign petitions).

Ms Riddoch (a feisty feminist journalist in Scotland’s media) writes:

Forged in the Scottish Enlightenment, that ideal would inform the political theories of Francis Hutcheson, Adam Smith and David Hume and other thinkers who viewed "man as a product of history", and whose collective enterprise involved "nothing less than a massive reordering of human knowledge" (yielding, among other things, the Encyclopaedia Britannica, first published in Edinburgh in 1768 and the Declaration of Independence, published in Philadelphia a few years later). Scotland also fielded inventors, warriors, administrators and diplomats such as Alexander Graham Bell, Andrew Carnegie, Simon MacTavish and Charles James Napier, who created empires and fortunes, extending our reach into every corner of the world.”

She also gives an excellent account of Arthur Herman’s book, “How the Scots Invented the Modern World: The True Story of How Western Europe's Poorest Nation Created Our World & Everything In It”, suggesting that Scots created much of the modern world by bringing to it ideas of freedom, self-reliance and moral discipline.

Once again, I am struck by the positive slant that people in Scotland are beginning to put on Adam Smith, where once there was disdain, largely on political grounds, and this is to be welcomed. Ms Riddoch is of the Left in Scottish politics (and we do not always agree) but on the place of Adam Smith in the context of the Scottish Enlightenment she is right (a contrast I must say to those leftwing students at Adam Smith College recently, who voted to disassociate their Students Association from Adam Smith in favour of Jennie Lee).

Irwin Stelzer on Adam Smith

Irwin Stelzer, director of economic policy studies at the Hudson Institute and the author of Neo-conservatism, writes a racy piece today in The Guardian (UK), “In the showdown of David and Gordon, there's only one Goliath”. ‘David’ is David Cameron, the front-runner to be the new Leader of the Conservative Party and ‘Gordon’ is Gordon Brown, labour’s Chancellor of the Exchequer.

This paragraph is a little gem:

Then there is the question of just what kind of society we would like Britain to become. My own preference is for the society described by Adam Smith, but the Adam Smith of The Theory of Moral Sentiments as well as The Wealth of Nations - perhaps best described as a nation that achieves the efficiencies of free trade and competition without sacrificing the moral sensibility that must underlie those policies. The Tories are very well versed in The Wealth of Nations, but my impression is that the majority are less sensitive than the chancellor to the strictures of the Smith of The Theory of Moral Sentiments.”

I am not so sure that the Tories are ‘well-versed The Wealth of Nations” because they are as liable to be selective in their quotations as politicians elsewhere, have never read the book itself, and usually have bought into the wholesale distortion of Smith’s legacy as laissez-faire capitalism.

Nor am I sure that the chancellor needs to adhere “to the strictures of the Smith of The Theory of Moral Sentiments”, as if this will ‘correct’ something he might read in “Wealth of nations”. His two books are not in opposition to each other. “Wealth of Nations” is not about a naked market economy, somehow separate from “Moral Sentiments”. They both follow a common theme and adhere to a common historical, evolutionary process.
It is not a case that “Wealth of Nations” is devoid of moral issues – in all cases where the interests of the labouring poor are jeopardised by monopoly and employer ‘combinations’, Smith comes down in favour of a moral stance and not an acceptance of blind market forces, and his whole approach to the growth of wealth is to favour it because in part of its beneficial affects on the households of the labouring poor. That Tories have not read “Wealth of nations” means they do not know about the moral compass of Smithian growth this work contains.

That very few Tories and Labour supporters have read both books accounts for the ignorant hostility to Adam Smith’s ideas and the distortions of his reputation.
However, that Irwin Stelzer has taken Adam Smith’s legacy so positively in today’s Guardian, is an excellent sign of changes in the public image of Adam Smith and for that ‘Lost Legacy’ is grateful.

Read Irwin Stelzer’s article at:,16473,1653695,00.html

Regrets we have a few

Paul McDougal contributes to a news story of a criminal act following the purchases of several items on eBay on Information Week (Business information powered by technology) (read the story at:

He opens with:

“Is eBay Adam Smith's perfect market, where prices are set by the honest interaction of buyers and sellers and everyone goes home happy--or is it simply the perfect vehicle for price gouging--and much, much worse? The short supply of Microsoft's Xbox 360 means the game system is now fetching up to $1,000 on eBay. Fair enough, if a gamester really can't wait a few more weeks to play the 360 version of Call of Duty 2 or NBA Live 06 then it's their money, right? Sure, but eBay's willingness to turn a blind eye to scalping, copyright infringement and the sale of questionable goods has a darker side that proved very convenient for a creep.”

What a confusion of ideas. ‘Perfect markets’, what are they? Perfect absence of markets, are they any better? Markets are composed of the actions of dispersed human beings. There is no pre-qualification process to go through to engage in a market transaction, and I am sure Paul McDougal cannot think of one, nor anybody else, in a multi-million populated country. Even in a small village of ten families such a regime would be tyrannical and open to abuse, as well as, over the generations, open to some jerk getting round the ‘rules’ by deceit.

However, the other points in the paragraph are typical of sneers at markets. Ebay, the ‘perfect vehicle for price gouging’? I am often at a loss to understand what is meant by the notion of ‘price gouging’ and find its regular appearance in newspapers and politicians speeches strange.

A remedy for ‘price gouging’, by which its users seem to mean ‘higher prices’ than they normally expect to pay, is not to purchase. I am not in the market for ‘Xbox 360’, so $1,000 is not going to be instrumental in my decision to buy. If you are searching in such a market, and ‘cannot wait’, that, Sir, is your problem, not mine or anybody else’s. What does Paul suggest the community does about it: make the law one in which buyers determine prices?

My local football team (real football where the players kick the ball, sometimes each other, but they do not carry or catch it and run with it) charges £80 for a comfortable seat and refreshments in a comfortable lounge in the ‘corporate’ section of the ground, instead of £20 in the ordinary seats elsewhere. It’s my choice to pay four times more to watch the same game. And that is what markets are about: choice.

If buyers do not exercise the choice of not buying they accept the price chosen for the transaction by the seller. How we can meaningfully and practically intervene in the buyer’s choice is not clear. You could appeal to the seller’s sense of ‘fair pricing’, though I have never met a seller yet, who pocketing a high price who would not be even happier with a higher price. Nor, have I met a buyer yet who paying a low price who would not be happier with an even lower price.

Of course, on occasion, happily rare for most of us, addicts excluded, the transaction does not involve much choice at all. You need the object held by the seller to a degree that means you just have to complete the transaction. If the seller knows or suspects this as your situation, a high price is inevitable. Predictably, where many potential buyers are in the market at that moment, some, maybe many, will drop out; those left in will pay up. If they cannot pay, they may resort to violence, if within arms length of the seller. That then becomes a legal issue, not an economic one.

Adam Smith did not write about ‘perfect’ markets and nor did he assume, or assert, that everyone ‘goes home happy’. Paul McDougal’s mocking sarcasm mocks his own scanty knowledge of how markets work, the role of choice and, also, for those who leave any market empty handed, the role of disappointment. To which we can add the role of “buyers’ regret” – which kicks in after my local football team loses, the Xbox 360 comes down in price a short time later, and the high priced ‘gas’ in the tank is useless because the flood waters block the road out of town.

That’s life Paul, and nothing in it is perfect.

Tuesday, November 29, 2005

Food for Thought?

“Adam Smith’s Lost Legacy” is quoted (favourably) in a lecture given by Ian Maclean (Nuffied College, Oxford University) at MZES/Facultat Kolloquium, University of Mannheim, on 15 June 2005.

Read it: “Adam Smith and the Modern Left”, lecture delivered by Ian Maclean (Nuffied College, Oxford University) at MZES/Facultat Kolloquium, University of Mannheim. 15 June 2005. It is available at:

Only caveat, Ian Maclean talks of Adam Smith's 'canons' of taxation - they were 'maxims', not canons.

Spreading the Word no 6

Economics Roundtable hosted by Professor William R. Parke of the University of North Carolina, Chapel Hill. (Contact info: bp-at-rtable-dot-net) carries the entire Lost Legacy set of Blog messages. Visit it at: and scroll through them for handy reference.

Misuse of Public Funding?

From the Globalisation Institute Bulletin (free by email from Globalisation Institute []) the piece below is extracted:

There have been increasing murmurings about the activities of the “Trade Policy Unit” inside Christian Aid (a respectable authority on practical policies for development). The Trade Policy Unit appears to be highly politicised, which is OK in itself, but these activists reveal their politics under the cover of Christian Aid to pursue policies that make poverty worse, and more certain:

“Christian trade”

It's not been a good month for Christian Aid's Trade Policy Unit (CA-TPU) which, using DFID funding, had been screaming about "the slavery of free trade". First David Cameron and then David Davis came out and said Christian Aid's Trade Policy Unit is wrong, then the Lib Dem's Shadow Chancellor Vincent Cable was critical... and Prime Minister Tony Blair keeps saying that free trade is the answer. Martin Wolf in the Financial Times described CA-TPU's position as

Paul Staines, writing on the GI website,
says: "In truth it seems to us as interested observers that there are two Christian Aids. There is the real Christian Aid that raises money for humanitarian causes, famine, flood and earthquakes, the Christian Aid of church and school fundraising rounds that we all know and which is widely supported. And there is the other Christian Aid found in its highly-politicised Trade Policy Unit (CA-TPU)."

‘DIFD’ is the Department for International Development, a government department funded by British taxpayers, which replaced the Overseas Development Agency (ODA). In the 1980s I was a member (later Chairman) of The UK Standing Commission for Social Sciences, which came within the ODA to represent Britain on UNESCO, and I am familiar with how government departments behave when dealing with controversial issues.

Using public funds to subsidise and fund political activists is at best ‘irregular’ and Christian Aid (a popular charity) should audit what its small Trade Policy Unit is doing and saying, and take steps to curb irregular use of public funds (I am being diplomatic here).

Meanwhile, sign up to the Globalisation Institute for regular receipt of its Bulletins.

Full Text of David Henderson's Prize Winning Article

Great News: Below is the article by David Henderson mentioned earlier , published in, which I received permission to republish twenty minutes ago, and I do so with pleasure. More than 19 out of 20 articles mentioning Adam Smith in them go on to repeat inaccurate statements and attributions(theories of 'invisible hands'; 'father of laissez-faire economics'; 'minimal state sectors'; contradictions betweem 'Moral Sentiments' and 'Wealth of Nations'; only markets matter; 'Homo economicus' and 'Selfishness' drives markets' etc.,).

It is a pleasure to praise accuracy in the use of his legacy. David Henderson does this and for that he is awarded the November 'Lost Legacy' Prize. Congratulations, David, and Anti Well deserved:

"Adam Smith's Economic Case Against Imperialism

David R. Henderson

Sometimes, when I recommend that people read Adam Smith's
Wealth of Nations (the full title is An Inquiry into the Nature and Causes of the Wealth of Nations), I am met with a supercilious snort, as if nothing that was written in 1776 could be relevant to today. A very common attitude seems to be, "That is sooo 18th-century." I think what it really shows is that the "snorter" has simply not read Adam Smith. Smith's book is chock-full of insights: that when competitors get together they often collude; that governments can't stop such collusion but should refrain from facilitating it; that countries with private property, free trade, and low taxes are the ones that do well; that the incentives of universities are so messed up (yes, even back then) that much less learning takes place than could; and, of more immediate interest, that imperialism doesn't work.

You read it right. Adam Smith was one of the most outspoken, clear-thinking, and well-reasoning spokesman against imperialism in the 18th century. One particular imperialist this Scotsman took on was Britain, and one particular instance was Britain's trying to hold on to the 13 colonies. Smith didn't chant some 18th-century version of "No blood for oil." Instead, he calmly and numerately toted up the costs of imperialism to the British people, estimated the benefits to Britain, and concluded that the costs greatly exceeded the benefits.
The benefits, in Smith's estimate, were the monopoly profits that British merchants had on sales to consumers in the colonies. The costs that Britons bore were the costs of using the military to defend that monopoly. Here's an excerpt from Smith:

"The maintenance of this monopoly [on trade with the American colonies] has hitherto been the principal, or more properly perhaps the sole end and purpose of the dominion which Great Britain assumes over her colonies. … The Spanish war, which began in 1739, was principally a colony quarrel. Its principal object was to prevent the search of the colony ships which carried on a contraband trade with the Spanish Main. This whole expence is, in reality, a bounty which has been given in order to support a monopoly. The pretended purpose of it was to encourage the manufactures, and to increase the commerce of Great Britain. But its real effect has been to raise the rate of mercantile profit. … Under the present system of management, therefore, Great Britain derives nothing but loss from the dominion which she assumes over her colonies."

Later, Smith elaborated, showing that the costs to the British government of defending the 13 colonies were greater than the benefits to the British. He wrote:

"A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers all the goods with which these could supply them. For the sake of that little enhancement of price which this monopoly might afford our producers, the home-consumers have been burdened with the whole expence of maintaining and defending that empire. For this purpose, and for this purpose only … a new debt of more than a hundred and seventy millions has been contracted over and above all that had been expended for the same purpose in former wars. The interest of this debt alone is not only greater than the whole extraordinary profit which it ever could be pretended was made by the monopoly of the colony trade, but than the whole value of that trade…."

That's not all. Smith pointed out that the costs and benefits of maintaining the colonies were not symmetrically distributed and that this accounted for why the British wouldn't give up their colonies voluntarily. Consider this justly famous passage.

"To found a great empire for the sole purpose of raising up a people of customers may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers. Such statesmen, and such statesmen only, are capable of fancying that they will find some advantage in employing the blood and treasure of their fellow-citizens to found and maintain such an empire. Say to a shopkeeper, 'Buy me a good estate, and I shall always buy my clothes at your shop, even though I should pay somewhat dearer than what I can have them for at other shops'; and you will not find him very forward to embrace your proposal. But should any other person buy you such an estate, the shopkeeper would be much obliged to your benefactor if he would enjoin you to buy all your clothes at his shop."

In other words, Smith is saying, the costs of maintaining colonies in order to maintain a preferential trade arrangement exceeded the benefits – thus his statement that the project is unfit for a nation of shopkeepers. But the cost to the shopkeepers is a small fraction of the cost to Britain – they pay only their pro rata share – whereas the shopkeepers get the lion's share of the benefits. If the shopkeepers had to bear the whole cost of the arrangement, the benefits would not be worth it. Thus his analogy to the sucker deal that someone hypothetically offers a shopkeeper: buy me a house and I'll promise to buy all my goods from you from now on. The shopkeeper would quickly reject such a deal. But if the shopkeeper can find others to pay for the house and he pays only a fraction, the deal might be in the shopkeeper's interest. Using the asymmetric distribution of costs and benefits to explain why governments take actions that are not in the general interest – whether the special interest benefited be farmers, seniors, or Northrop Grumman – has become part of the tool kit of the modern economist, due to the "public choice" revolution started by James Buchanan and Gordon Tullock. But notice that Smith had the idea two centuries earlier.

Smith believed the British government would try to hang on to colonies by force. Smith wrote:

"To propose that Great Britain should voluntarily give up all authority over her colonies, and leave them to elect their own magistrates, to enact their own laws, and to make peace and war as they might think proper, would be to propose such a measure as never was, and never will be adopted, by any nation in the world. No nation ever voluntarily gave up the dominion of any province, how troublesome soever it might be to govern it, and how small soever the revenue which it afforded might be in proportion to the expence which it occasioned. Such sacrifices, though they might frequently be agreeable to the interest, are always mortifying to the pride of every nation, and what is perhaps of still greater consequence, they are always contrary to the private interest of the governing part of it…."

Smith even predicted the Revolutionary War and implicitly predicted its outcome. He wrote:

"[I]t is not very probable that they will ever voluntarily submit to us; and we ought to consider that the blood which must be shed in forcing them to do so is, every drop of it, blood either of those who are, or of those whom we wish to have for our fellow-citizens. They are very weak who flatter themselves that, in the state to which things have come, our colonies will be easily conquered by force alone."

Wise words from a wise man.

. From Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Edwin M. Cannan, Chicago: University of Chicago Press, 1976, Volume Two, Book IV, Chapter VII, Part III, pp. 130-131. Available online at: 2. Ibid., Volume Two, Book IV, Chapter VIII, p. 180. 3. Ibid., Volume Two, Book IV, Chapter VII, Part III, p. 129. 4. Ibid., Volume Two, Book IV, Chapter VII, Part III, p. 131. 5. Ibid., Volume Two, Book IV, Chapter VII, Part III, p. 138.

Copyright © 2005 by David R. Henderson. Permission automatically granted to use in whole or in part as long as publication, author, and title are attributed.

Monday, November 28, 2005

A University Teacher makes a Monumental Error About Adam Smith

James K. Galbraith, teaches economics at the Lyndon B. Johnson School of Public Affairs at the University of Texas-Austin., and he previously served in several positions on the staff of the U.S. Congress, including executive director of the Joint Economic Committee. He has an article published in “Mother Jones” (28 November): “Smith v Darwin”, carrying the sub-title: “Like Intelligent Design, the idea of the Invisible Hand stubbornly persists in the face of overwhelming evidence.”

Not having any sympathy for the Intelligent Design movement in the USA (otherwise known as ‘creationism’, via a back door), I approached this article with mixed feelings. My reading of Adam Smith suggests exactly the opposite conclusion, but then I base my assessment on what Adam Smith actually wrote and not on what the Chicago school of economics, with help from Paul Samuelson, transformed Adam Smith’s ideas into, an axiomatically self-interested obsessive theory, also known as ‘Homo economicus’.

To miss the point that Adam Smith brought to all of his work, whether on the origins of languages, the history of astronomy, the history of human society, the development of human kind through the four stages (gatherer-hunter; shepherd, farmer and commercial society), the origins of the division of labour, the evolution of moral sentiments through the impartial spectator and what we now call socialisation, is an error of the highest magnitude, indicating that James K. Galbraith, whatever his other merits, has not read Adam Smith’s actual Works. Smith was steeped in the evolution of human society. He did not anticipate the origin of species, but he certainly did anticipate the evolution of human society.

He writes:

Economists, on the other hand, have been Intelligent Designers since the beginning. Adam Smith was a deist; he believed in a world governed by a benevolent system of natural law. Consider this familiar passage from Wealth of Nations, published in 1776, with its now mostly forgotten anti-globalization flavor:

"By preferring the support of domestic to that of foreign industry [every individual] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.

What a misreading of a passage in “Wealth of Nations”! It is actually part of Smith's evolutionary approach and nothing to do with “globalisation” (please read the whole chapter, not just a quotation). He argued that capital stock would first be used in agriculture, then in domestic manufactures and finally in foreign trade, each phase spilling over its surplus capital into the next stage as it progressively developed (he was actually somewhat disappointed to observe that the neat sequence was not followed in Europe; ‘too much’ was going into manufacturing and not enough into ‘improving agriculture’).

His point in this passage was that holders of capital stock prefer to develop locally first because of the scarcity of capital stock and the risks of distant ventures (it was the turbulent 18th century!). He had no doubt that overseas ventures would feature in due course (otherwise there would be little growth towards home opulence if activity was confined to a locality only, and his theory of absolute advantage would be redundant).

I have argued in “Adam Smith’s Lost Legacy” (Palgrave, 2005) that Smith’s alleged Deism is in doubt, as most certainly were his alleged religious beliefs, and I develop this theme in my forthcoming book on Adam Smith for Palgrave’s “Great Thinkers in Economics” series.

James writes:

Smith's Creator did not interfere. He simply wrote the laws and left them for events to demonstrate and man to discover. The greatest American economist, Thorstein Veblen, observed that "the guidance of…the invisible hand takes place…through a comprehensive scheme of contrivances established from the beginning." What is this if not Intelligent Design?”

To describe Thorstein Veblen as “the greatest American economist” is overly generous (which is an opinion and as such is open to debate), but to bring in the isolated metaphor of the invisible hand as if it was a theory or an explanation of anything is gratuitous exaggeration.
Smith used the same metaphor three times only, in three separate works: ‘The History of Astronomy” (1743-48 and first published posthumously in 1795), where it refers to pagan superstition, code for all religious belief); ‘Moral Sentiments’ (1759), where it refers to the distribution of surplus product on feudal estates which maintained retainers, and serfs, in much the same amounts as would be produced by them if the land was divided equally; and in “Wealth of Nations” (1776) in respect of human motivation (nothing to do with markets). In fact, the metaphor was not Smith’s; it was Shakespeare’s (Macbeth: 3: 2), ‘thy bloody and invisible hand’. James K. Galbraith is reading too much into the presentation of a metaphor in secondary sources and not enough into Smith’s actual use of it.

Whatever the value of Veblen’s critique of economics, post-Darwin, the subject had moved on a great deal from the political economy of Adam Smith (he died in 1790). Far from there being “too little … material process and ‘cumulative or unfolding sequence’ ”, all of Smith’s extant works say exactly the opposite. James should read his “Lectures in Jurisprudence” and be ready to be amazed at the extent of Smith’s analysis of ‘material process’ and ‘cumulative and unfolding sequence[s]’.

James K. Galbraith continues:

Evolutionism, in the Darwinian form that cannot be reconciled to God's design or even to the Invisible Hand, remains a pure—if I were religious I would say sublime—product of free human thought.”

I agree, I agree! If you end the confusion about Smith’s evolutionary assessment of society with alleged religious design you might just come to appreciate the ‘product of [his] free human thought’.

The only reason the invisible hand metaphor “stubbornly persists in the face of overwhelming evidence” is because people like James K. Galbraith have bought into the false prospectus that it is something far more important or relevant to Smith’s thinking than it ever was to him. For the cause of this misinterpretation, don’t look to Adam Smith, look to how it has been presented in Economics 101 all over the USA.

Nobody who reads Smith’s actual Works in the whole can possibly hold to a view of Smith as the “High Priest of Capitalism”, “Father of Laissez-faire”, advocate of “Selfishness and Greed”, founder of the sole motivation in a society based on “self-interest”, author of two contradictory Works, “Moral Sentiments” and “Wealth of Nations”, and advocate of the “minimal night-watchman state”.

As for intelligent design and creationism, taking his writings out of the context of the repressive religious climate of mid-18th-century Scotland (much like today’s Iran), with zealots patrolling within earshot and sight of everything anybody in public life said or wrote for the faintest sign of apostasy, due allowance must be made for how Smith expressed himself prudently.

My challenge to James K. Galbraith is to read Adam Smith’s Works and not to rely on second- or third-hand accounts of his writings. I say, no more; for goodness sakes James, do Smith the justice and the courtesy of condemning him for what he did write, not what you have heard he wrote.

Smith on Colonies, Empire and War - Winner of the November "Lost legacy Prize"

David R. Henderson, a research fellow with the Hoover Institution and an associate professor of economics in the Graduate School of Business and Public Policy at the Naval Postgraduate School, writes on Adam Smith’s attitude to colonies and Empire in ( read the full article at:

Entitled, “Adam Smith’s Economic Case Against Imperialism” it correctly summarises his views on the then current ‘disturbances’ in the American colonies. While Smith was careful how he phrased his sympathy for the rebellion against the British Crown it is fairly clear where his sympathies lay. His case against going to war to hang onto the colonies was economic: it cost £170 million to defend a colonial trade worth £20 million.

From Smith’s “Lectures in Jurisprudence” (1763-4; first published nearly a hundred years after he died and reprinted in the Glasgow edition of the Works and Correspondence of Adam Smith, Liberty Fund, 1982) we see his adherence to liberty and democratic, essentially republican, values: independent judiciary; laws made by the legislature, not judges or the executive, i.e., the separation of powers; Habeas Corpus; trial by jury; power of impeachment of the Executive by the legislature; regular and frequent elections to the legislature, all of which featured strongly in the US Constitution from 1783.

David Henderson makes an excellent read and you are strongly recommended to visit at

One comment may be in order. Adam Smith was not a pacifist. Several of his male relatives on his mother’s side were soldiers and he speaks highly of ‘martial values’ in both “Moral Sentiments” and “Wealth of Nations”, despises cowardice, preferred a standing army to a militia (except when the militia had been in the field for long enough to be as good as or better than a standing army) and generally considered a soldier’s life ‘honourable’.

Henderson quotes Smith’s views on policy in fighting certain wars which he regarded as wrong headed. On the issue of the ‘first duty’ of government, that of protecting society “from violence and invasion of other independent societies’ by means “of a military force”, he was unequivocally supportive (WN: Book V). The failure of Rome to defend its people from the invasion of the barbarians led to a thousand years of the ‘dark ages’, the destruction of civilisation, and the spread of rapine and disorder, amidst countless local wars.

Usual Service from Roy Hattersley

Roy Hattersley, a former Labour cabinet minister in the 1970s, writes in his usual column in The Guardian, 28 November, his usual controversial piece putting the world to rights, as he sees it. On this occasion too he manages to argue a case with his usual aplomb and total disregard for his contradictory notions, but with his usual total conviction.

The subject is the price of gas – not the kind that goes into US SUVs; the kind that fires power stations. Mrs Thatcher’s governments that followed the ones that Roy Hattersely served, de-nationalised the gas industry and called it privatisation. Continental governments did not follow suit. Theirs remain under state control.

Now that gas prices and supplies are under pressure – there are fears of a cold winter ahead – the privatised British gas industry is under siege. British gas supplies come from both its North Sea gas fields and from the Continent through the UK-Belgium ‘interconnector’. Hattersely observes:

The British gas market is so "liberalised" that we have to compete for the limited supplies that are available - expensive liquid imports complimenting diminishing North Sea reserves and whatever share of European production comes our way along the UK-Belgium Interconnector.”

He inserts his first hook:

At the other end of the Interconnector, other governments are doing their best to protect domestic and industrial consumers - whatever Adam Smith may say on the subject

And how are the nationalized gas suppliers on the Continent ‘protecting’ their consumers?

Why, acting as monopolists and selfishly (there is not other word to use around the likes of Roy Hattersley, who usually doles out the word with no consideration for repetition) refusing to supply gas to their British partners. This behaviour is hardly an exhibition of fraternally solidarity with a fellow member of the European Union. Does Roy Hattersely criticize the behaviours of the state monopolies (he would certainly be trumpeting his criticism if private monopolies did the same)? Not a peep, not a word, not even an iota of reproach.

Worse, Hattersely turns the world and the problem on its head:

But the problem that British gas consumers face is not the result of a surfeit of state control.”

Excuse me, Roy, but the source of the problem is on the Continent where there is a surfeit of state control and where that state control is depriving Britain of access to gas supplies. Unless, of course, silly me, Roy is blaming the victim not the perpetrator, a stance he usually would condemn when the same ‘method’ is used to blame the poor for being poor, the illiterate for being uneducated, and the victim of rape for being ‘provocative’. Indeed, he confirms his prejudices with the remarkable admission:

There was a time when the Labour party would have regarded their behaviour as no more than common sense.”

There you have it. State monopolies acting as rampant monopolists against the fraternal relations of other friendly countries are acting with “no more than common sense” when they do so. In the heart of every socialist a nationalist socialist slumbers until stirred to disclose itself, not an internationalist.

His second hook is another go at the victim. Gas prices are:

“…the product of a doctrinal devotion to private enterprise. When fuel bills go up next year, we will all be paying the price of privatisation.”

So it’s the public’s fault for voting to end Roy’s Cabinet career by electing Mrs Thatcher. Defeated politicians nurse for decades their dreams of quiet vengeance for their grievances from loss of office. How Roy’s sense of vindication for those long years in the political wilderness must have risen in his bosom, even a tear in the eye may have blurred his vision, as he wrote those words.

He does not mention his ‘doctrinal devotion’ to state control; no regret that his Continental pals (Roy was foremost among others in the British campaign to join the EEC/EU) are acting in a selfish manner; only a jibe at the lady who defeated him.

He concludes with a reinforcement of his ideological flanks:

Nobody in their right mind thinks that it is possible to renationalise gas or any of the other public utilities. But the argument in favour of bending the rules of the market towards a regard for the national interest is irrefutable. Our colleagues in the European Union do it. So it is clearly possible. Only ideological prejudice stands in the way.”

Nationalisation is the discredited panacea of the governments Roy Hattersely voted for and served in; it is the socialist remedy that dare not mention its name. So he goes for the second-best socialist remedy: “bending the rules of the market” and claims this ‘argument’ is ‘irrefutable’. Strong stuff indeed. His ‘argument’ relies solely on the evidence that others do it (the alibi of everybody caught speeding, or cheating on their taxes, or their spouse). And note how the people acting against British interests are now our ‘colleagues’ – some colleagues! Not the kind you can really trust, are they Roy.

Still, he does not tell us how the Labour government is supposed to ‘bend the rules’. Yet he opened his piece with a mocking criticism of the Tory leader, Michael Howard, for doing exactly the same:

Last Wednesday in the House of Commons, Michael Howard - barricaded in the last refuge of opposition leaders who have nothing much to say - called on Tony Blair to do something about rising gas prices and threats to supply without explaining what that something might be. Apparently he had forgotten why ministers are powerless to act.”

Roy clearly misses the knock-about exchanges of his House of Commons days. It’s all a jolly good jape, lads, smirking while we knock the PM (ours too) or the Opposition leader, loud guffaws all round. But what about policy? What exactly is Roy suggesting? Has he anything constructive to say, or is it just more of his opinionated nostalgia?

Adam Smith did not resolve the problem of public or private management of state industries, but he did know what he was against in monopoly, whether of the state or private kind. He was against them, and favoured competition in conditions of Natural Liberty and justice.

Monopolies, plus so-called ’national interests’, usually lead to strife and war. I would have though Roy would have agreed with Smith at least on this. Europe has seen plenty of evidence of the alternative.

Political and Economic Illiteracy

Gene’, an American living in the UK, posted on “Harry’s Place” (, the following today on the politics and economics of petrol (aka ‘gas’) under the heading ‘Oil companies and Congress enable Chavez propaganda coup’.

"A couple of observations about President Hugo Chavez's program to provide heating fuel at discounted prices for low-income customers in Boston through the Venezuelan-owned oil company Citgo.

--No one should believe that Chavez is more concerned about helping the American poor than he is about scoring propaganda points against the USA. But it would be disgusting for anyone who can comfortably afford to heat his home to criticize anyone who can't for accepting Citgo's help.

--By earning
enormous profits at a time of record-high fuel prices-- prices that for many Americans this winter may mean a choice between heating and eating-- US oil companies make it possible for Chavez to score these points. So does Congress by failing to enact a windfall profits tax for the oil industry.

Senator Byron Dorgan, a North Dakota Democrat, has sponsored a bill that would tax profits when oil is above $40 a barrel and rebate the money to taxpayers. The Senate rejected the measure... 64-35.

Senator Charles Grassley, an Iowa Republican, has asked oil companies to donate 10 percent of their profits to help families pay heating bills. The world's five biggest publicly traded oil companies earned a combined $33.4 billion in the third quarter.
Outside of Citgo, the oil companies have
refused Grassley's request.
Some US oil executives and politicians ought to be ashamed of themselves. Of course they won't be.”

“By earning
enormous profits at a time of record-high fuel prices” is a statement of the blindingly obvious. Profits are high because fuel prices are high, all the way through the world's fuel chain. As stocks fall and replacement stocks rise, profits will fall. When fuel prices eventually fall, stocks will eventually sell at a loss below their bought-in prices until these stocks are used up and new stocks purchased at the new lower prices. Hence, the usual price reduction drag whenever this happens.

Is the remedy one of imposing government windfall taxes on the oil companies? This is a double bind. The other – and major gainer – of rising fuel prices, of course, is the government in the tax imposed on, er, fuel prices! This windfall tax gain will continue while oil pirces are high irrespective of costs. Whatever the oil companies rake in from windfall profits (which in due course become windfall losses), the government rakes in from their windfall tax gains, and for which there are no losses. This, incidentally, is why Chavez can afford to play games with gullible US public opinion – it is paid from the additional tax gains his government makes from high world fuel prices.

Senator Byron Dorgan, a North Dakota Democrat, is playing populist politics, which are always short-term with long-term consequences. He wants to add to the windfall gains the government makes from oil price increases a share (everything above $40) of the temporary windfall gains of the oil companies by increeasing their taxation to the government. How this benefits the US consumer is not explained. How would the rebate be distributed? How much of it would be re-distributed to consumers or tax payers and when? A means test – the rich can afford the higher prices, so only the poor get the rebate? How much would go into administration to identify the beneficiaries? More Federal Commissions and new agencies? Or Federal and State enforced cuts in pump prices? How many inspectors would that require? Or would the high costs of the policy simply be deducted from the confiscated windfall profits?

Senator Charles Grassley, an Iowa Republican, wants a 10 per cent deduction from oil profits “to help families pay heating bills”. Really? Who administers this distribution and at what cost? Who identifies the US families that would be eligible? Federal or State government? What rights of appeal would there be for those above the cut off line? Whenever has allowing governments to select revenue from their pork barrels been either an efficient or fair use of government power? What is the expected rate of litigation over these issues?

The fact that so far Senate has rejected such populist nonsense is small comfort. A vote against of 65-34 is worrying; it should have been 99-1. Economic illiteracy is one thing. But illiteracy about the tax and spend (or spend and tax) behaviours of government is quite another.

Lastly, I have advised that the Chavez ‘problem’ should be left alone to wither away as his ‘socialist’ policies impoverish the country and alienate the people. Opportunist populism should be ignored. Do Nothing! Don’t repeat the mistake of past policies with Castro that would give Chavez a political lifeline by doing something – anything – that keeps him in power.

For a country that claims close affinity with Smithian markets (albeit of a distorted kind from the miss-users of Smith’s Legacy), I am astonished that some of the members of its highest office advocate doing exactly what Chavez and is ilk do when they interfere in the economy. It will have the same disappointing results.

Gratitude Compatible With Market Economies

Gregory Rodriguez writes in Los Angeles Times (27 November) on “An attitude of gratitude”, broadly around the US National Holiday of Thanksgiving and raises an interesting point from Adam Smith’s “Moral Sentiments”:

But perhaps most compelling are the words of Adam Smith — yes, the very economist who argued that self interest was a more powerful force for good than benevolence. Smith considered gratitude to be a crucial source of social civility and stability. He wrote that "the duties of gratitude are perhaps the most sacred of all those which the beneficent virtues prescribe to us." And while he believed that the market should be driven by self-interest, Smith nonetheless knew that a healthy society required its members to be more intimately linked. He even seemed to understand that the cold calculations of a market economy sometimes undermined the conditions that gave rise to the spontaneous expression of thanks.

Perhaps this is why — in our hyper-capitalist society — Americans appear more eager than ever to claim the simple pleasures of gratitude. Over the last decade, there has been an explosion of books on the subject. Psychologists are now finding that an attitude of gratitude can have beneficial effects on an individual's emotional well-being. In 1998, a Gallup poll found that 95% of respondents said that expressing gratitude made them feel at least "somewhat happy," and more than half said that it made them "extremely happy."


First, be clear, Smith’s assessments of the virtue of benevolence had to do with the human condition of living under conditions of scarcity. Nobody – other than the Deity - had sufficient goods to spread thick enough to donate to others at a level that would make much of a difference, and certainly no where as near as much as are provide by markets and the division of labour. This did not make markets morally superior to the virtue of benevolence; only more efficient.

The virtues, as Gregory Rodriguez notes, were a powerful “source of social civility and stability” and no society without them would be as pleasant as one that had them. Smith did remark that society could, however, endure for some time without “any mutual love or affection” and could still be “upheld by a mercenary exchange of good offices according to an agreed valuation” (TMS II.ii.3.2, Page 86).

Smith’s approach to the duty of gratitude was to deny the proposition that humans should be motivated by religious principles alone (just because others say that God commands it). The duty of gratitude and the other virtues, instead, should be decided according to “from regard to general rules” and from the ‘natural agreeableness or deformity of the sentiment or affection”, subject to “the looseness and inaccuracy, of the general rules themselves” (TMS III.6.i. page 171).

It is not just a question of duty alone, but also from the “passions themselves”. Gratitude, as with the other virtues, the general rules which determine their “good offices” “are in many respects loose and inaccurate, admit of many exceptions, and require so many modifications, that it is scarce possible to regulate our conduct entirely by a regard to them” and “a very strict and literal adherence to them would be the most absurd and ridiculous pedantry.”

Smith said gratitude was “perhaps” the virtue in which the “rules are most precise and admit of the fewest exceptions” and he then elaborates on the difficult questions of how to apply the general rules to all the circumstances in which we may ponder on their suitability for each occasion.

The quotation that Gregory Rodriguez includes in his article follows these questions (TMS III.6.9, page 174) and Smith goes on to point out that the “actions required by friendship, humanity, hospitality, generosity, are still more vague and indeterminate” than those applying to gratitude. This sets him up to make clear that the virtue of justice is different in that it “admit[s] of no exceptions or modifications” and for an elaboration on this theme in the rest of the chapter.

Rodriguez asserts that Smith “even seemed to understand that the cold calculations of a market economy sometimes undermined the conditions that gave rise to the spontaneous expression of thanks”, which I think creates a non-issue because Smith makes very clear that he thoroughly understands the roles of the virtues, especially that of gratitude, in society and that nothing in commercial society, ‘cold or hot’ modified their application and practice.

That US society, in its “hyper-capitalist society”(?), people “appear more eager than ever to claim the simple pleasures of gratitude” is not surprising to anybody acquainted with his “Moral sentiments” and “Wealth of Nations”. That readers of the Los Angeles Times may need to be reminded of these points is understandable – US academe is the main source for misleading ideas about Adam Smith emanating from Paul Samuelson of MIT and Chicago University. They have only been told about one version of Adam Smith (Homo economicus) who differs in great measure from the Adam Smith of Kirkcaldy.

Read the excellent article by Gregory Rodriguez in LA Times at,0,5488236.column?coll=la-sunday-commentary

Sunday, November 27, 2005

Selfishness is Not Synonymous with Self Interest

Mark Tinker, and economist, writes an article entitled: “Expert View; It's better to go nuclear than ask people to be nice”, adding a subheading: “The real world is pushing the politicians to adopt the US way”.

The article is published in the on-line “The Independent” (UK) on 27 November, and you access it at:

Mark Tinker writes:

“Sorry to say it, but the "if only everybody would be nice" route never works. People are selfish. Fact. Adam Smith recognised this back in the 18th century, and the underlying philosophy of his work is that incentives matter and that society is best served if selfish interests are channelled for the common good. The role of government here is to prevent the abuse of this - the formation of cartels and monopolies - but also to allow innovation to deliver the solution. In effect, carrots are better than sticks.”

In this short space he makes a number of common errors about Adam Smith. I cannot comment on his conclusion that the " ‘if only everybody would be nice’ route never works”, as it is one of those hopelessly generalised statements that passes for ‘worldly wisdom’ in tiresome chatter from people claiming to be graduates of the ‘school of hard knocks’, as heard in dinner parties, bars and those hopeless radio station phone-ins.

Smith most certainly did not believe that “People are selfish”, nor is it a “. Fact”. And nor is it correct to allege that “Adam Smith recognised this back in the 18th century” (what a travesty that is of Smith’s “Theory of Moral Sentiments”!

I think Mark Tinker should apologise for besmirching Smith’s reputation and not for concerns about upsetting people with his version of the truth about life in the ‘real world’. It was Bernard Mandeville who considered selfishness to be the prime motive of humans in his “Fable of the Bees”, which Smith criticised in “Moral Sentiments” (‘Of Licentious Systems’, VII.ii.4.114, pages 306-314).

That selfishness abounded was not the same as asserting that it is the sole or dominant motive. Smith’s point was that humans have mixed motives, not a dominant want. This was the gist of his criticism of Francis Hutcheson's idea of 'pure' benevolence.

Self interest is not the same as selfishness any more that eating is the same as gluttony. To claim that “the underlying philosophy of his work is that incentives matter” in one statement, but to start his conclusion with a modest proposition (“incentives matter” – it would be odd if they didn’t) and add that to a controversial assumption “that society is best served if selfish interests are channelled for the common good” is another statement. Tinker buries the implausible – we are all selfish to the core – in with the untrue - that ‘selfishness’ and ‘self interest’ are synonyms, and does this is the name of Adam Smith!

Self-interests are not ‘channelled for the common good’ by any outside agency (including ‘miracles’, ‘gods’ or the State). The self interests of individuals are mediated by social contact, some aspects of which may also be through markets. The same process operates. To live harmoniously amidst strangers – and dependent upon them in degrees of proximity as friends, acquaintances and far vaster number of strangers we are not rampant egoists. The mechanism of the impersonal spectator mediates upon us in our behaviours so that we temper our behaviours to what the impartial spectator can go along with.

Justice curbs behaviour that offends others if our conscience does not, and society imposes merited punishment upon us if we stray over boundaries of acceptable behaviour through formal legal punishment in the extreme cases and informal social isolation or exclusion in less important cases.

To remain functioning despite total dependence on others for everything we need to survive at standards above beggardom, we participate in markets. Any tendency to selfishness is curbed by the need to persuade the owners of things we want to exchange them for things we have – negotiation. To achieve agreement with others we must mediate our self-interests to the extent that we address the self-interests of the other parties. This is an everyday occurrence.

Governments do not “prevent the abuse of this”, i.e., in Tinker’s words “[channelling] selfish interests for the common good”. For one thing, governments are often the cause of distortions of the private mediation of each party’s self interest in their private dealings, especially when they promote state-owned monopolies or give licences (it used to be Royal Charters) to private monopolies. What did most of Mrs Thatcher’s 'privatisations' become, as the Treasury exercised its powers to maximise its revenues, but the substitution of state monopolies by private monopolies?

Adam Smith was aware in excess of the potential for depredations upon Natural Liberty by legislators acting in the ‘public interest’ to disguise their acting in the sectional interests of specific producers.

The state does not protect us all from the potential selfish depredation of everybody else – what an alibi that is for disenfranchising us all from the ever present moral sentiments of the overwhelming majority of us and from the mediation of markets that bring disparate strangers into harmonious relationships.

Tinker creates a parody of Smith’s views on self interest. In doing so he sullies the case for nuclear power, but that is another debate and one in which I agree with Mark Tinker.

Labour Theory of Value and other Mumbo Jumbo

In what appears to be a book review, Terry Bell, expostulates on Adam Smith, somewhat obscurely. The book is “State of the Nation”, edited by Sallela Buhlungu, John Daniel, Roger Southall and Jessica Lutchman, The Human Sciences Research Council, price Rand 194. The 'review' appears in the Sunday Independent, Johanesberg (read it at:

There is also the uncritical acceptance of a comment attributed the Anglo American's Bobby Godsell that the labour theory of value was a creation of Karl Marx and needed to be buried. This is not only ahistorical, it raises one of the fundamental questions of economic theory that needs to be interrogated to make real sense of the current state of national and global economics.For the record, and in vindication of [Margaret] Legum's comment: the labour theory of value was developed by Adam Smith, father of liberal, laissez-faire economics, who died 28 years before Marx was born. It is a fundamental theory underpinning an ideological rump based on some metaphysical mumbo-jumbo about an "invisible hand".

From the context of the review, the above appears out of nowhere (heavy sub-editing to make space?). My comments are directed at what it says, not what the reviewer was trying to say about the book he was reviewing.

In correcting Bobby Godsell’s error in crediting Karl Marx with the labour theory of value, Terry Bell mistakenly hands that accolade to Adam Smith, who was not ‘the father of laissez faire economics’ - that accolade belongs to the French Physiocrats or ‘economistes’. (Given that Smith never used the words ‘laissez-faire’, he was a remarkable ‘father’ of a theory, indeed.)

It was John Locke who advocated a labour theory of price and Smith took the same ideas but did not develop them. I deal with this issue in my forthcoming book on Adam Smith for Palgrave’s Great Thinkers in Economics series, due in 2007. Smith’s theory of prices was part of his theory of commercial markets, which are rooted clearly in supply and demand analysis and a theory of distribution incorporating three factors, not just labour (rent and profits).

Whether “it raises one of the fundamental questions of economic theory that needs to be interrogated to make real sense of the current state of national and global economics” is beyond comment, as it is not clear what Bobby Godsell, Margaret Legum or Terry Bell are saying, or why.

That the labour theory of value was a dead-end, though in the strict sense used by Locke and Smith – that labour was the sole source of value in a primitive society, such as in a gatherer-scavenger and small game hunter society - before the advent of sophisticated tools, property and big-game hunting, a statement to Locke's or Smith's effect was and remains unexceptional. Once property appeared and the division of labour, a single factor, for example labour, could no longer remain the sole source of value. Ricaredo and Marx tried to develop the dead-end into a highway for understanding, but failed.

Karl Marx’s metaphysical formulation of his labour theory of value was pure verbiage (‘crystallised’ labour and the vacuous idea of ‘labour power’, etc.,) without content that ended up with exactly the same elements in price as ignorant merchants, artificers and capitalists based their costs on: the sum of wages, raw materials, and wear and tear of machinery, buildings and rent.

Prices were determined by what people paid for the products; if they paid sufficient, the ‘projector’, ‘entrepreneur’ or ‘capitalist’ made a profit; if they didn’t they made a loss. Marx mystified the process by calling it ‘surplus value’, but ends up with the same price (and profits) as standard accounting.

The other example of mystical verbiage being imposed on economics is that of the ‘abolition’ of interest in banking. Exactly the same process is undertaken to hide the reality to avoid calling it ‘interest’ – the amount paid back is the loan plus ‘administrative charges’, which in real banking, as practised by ‘anti-interest’ theologies, track normal interest rates with remarkable exactitude.

Terry Bell manages to link the labour theory of value to another of the misleading attributions to Smith:

“It is a fundamental theory underpinning an ideological rump based on some metaphysical mumbo-jumbo about an "invisible hand".

The invisible hand was an isolated metaphor about the consequences of human motivation. It was never part of an ‘ideological rump’ in Smith’s “Wealth of Nations”; it was never a ‘theorem’, a ‘concept’ or a ‘theory’ of markets. It was a simple but crude metaphor.

That some 19th and – many - 20th century economists made it more than it was, and journalists with dim memories of Economics 101 tutored by non-readers of Adam Smith (and their dimmer memories of their distant classes in economics), have given the metaphor an aura it does not deserve is one of the major problems in trying to restore Adam Smith’s legacy to its proper place in the history of economic thought.

Advice about Adam Smith for France





Gavin Kennedy

William Lyons, Arts Correspondent of the Scotsman on Sunday, writes a short piece, 27 November, “Study Adam Smith to solve crisis, Chirac told”. The theme is the difference between the consequences of the Scottish Enlightenment for Britain and the French Enlightenment for France, from a speech by Arthur Herman (“How the Scots Invented the Modern World”) to the Royal Scottish Academy.

Herman said: “What we are witnessing in France are the implications of an Enlightenment that stressed the growth of power in the state and the role of the community over the individual.” In Contrast Scots can say: “Look, we have within our own past the principles and ideas that can be used to revitalise Western Europe.”
"Adam Smith should not just be read by emerging democracies in the Middle East, it should be read by Jacques Chirac."
Dr Madsen Pirie, president of the Adam Smith Institute, said: "If the French paid more attention to the principles of Adam Smith, they would maybe have the economic growth which is the best antidote to civil disorder. It is a fact that in economies that are experiencing growth there are more opportunities created, which leads to more jobs. This situation avoids the current despair many people feel in the suburbs of France."


Media interest in Adam Smith continues to grow in Scotland (Dr Pirie’s colleague, Eamonn Butler, Director of the Adam Smith Institute, has a piece in The Business on railway privatisation in Europe) and this is gratifying, compared to the situation a year or more ago.

Visit the Adam Smith Institute by clicking on the button on the left.; and read the full article in Scotland on Sunday at:

Incidentally, booth Drs Pirie and Butler's suggestions are are excellent - now, if only the French President and the French railways (SNCF) would take a few moment s to consider them seriously.

Saturday, November 26, 2005

Origins of Fascism in a Denial of Smithian Markets

Roderick T. Long gave a talk at Ludwig von Mises Institute Conference on Fascism, 7-8 October and this is reported at Roderick Long teaches philosophy at Auburn University and is editor of
The Journal of Libertarian Studies. I recommend it to anybody interested in politics and governance.

Among his many interesting comments this paragraph caught my notice:

The partnership between the official state apparatus and the nominally private beneficiaries of state power was a familiar theme for 19th-century libertarians like Frédéric Bastiat and Gustave de Molinari, who extended and radicalized Adam Smith's critique of mercantilist protectionism as a scheme for benefiting concentrated business interests at the expense of the general public.”

This set off a train of thought. One of Smith’s trenchant German critics was Frederic List (mid-19th century) whose main complaint was that he perceived in Smith’s “Wealth of Nations” not a critique of mercantile political economy but a hypocritical message about free trade which was, he believed, a determined ‘plan’ of the English (sic) commercial class and government to pursue policies that would enrich England at the expense of the rest of the world by subjecting them to economic policies in favour of England. Even absolute and comparative advantage theories (Smith and Ricardo) were nationalist devices to cheat the gullible into trade treaties with England that would ruin them and make them dependents rather than partners.

What is significant about these rants (there is no other word for it) was that List advocated that the several states of divided Germany should unite to emulate the same policies he ascribed to Smith as a means of enriching a new German State and making it a world power. Reading from the vantage point of 20th century experience we can see in List the early signs of a German nationalism already groaning under the psychic burdens of imagined grievances that fuelled the rampant nationalism of the Nazis in the early 20th century.

Smith’s critique of mercantile political economy was not a sham; it was sincerely held, and Smith had no conceptions of a rampant nationalism ascribed to him by List. Fascist political economy imbibing ‘corporatism’ (the authentic voice of Mussolini’s version) had no affinity with Smithian markets and his insistence of Natural Liberty.

Statism in all its forms, from 19th century socialists through Marxist communism and fascism and the demented version in Hitler’s National Socialism, are the absolute denial of free markets, international trade, open economies, liberty. Smithian markets are anathema to nationalism in any of its forms from the malign to the malignant.

Friday, November 25, 2005

When this Remedy is Worse than the Problem

George Matafonov, of, writes a most interesting piece in OhmyNews, an English language edition published on line in South Korea, entitled: “Superbrats: offspring of the market, the implications of the market becoming the central institution of society” (25 November).

His thesis is that the ‘market’ has come to dominate all aspects of social life and this manifests itself in declining discipline among children, who become ‘brats’ in the process, and in manners generally. You can read the article at: and follow his argument more closely than I can articulate it.

My attention is drawn, however, by George Matafonov’s centring much of his argument on Adam Smith and how, the ‘father of economics’ never intended this to happen:

The roots of market morality in its current format go back to Adam Smith, the father of economics. But the extension of the market morality outside the market was not what Adam Smith intended. In fact, he would be probably turn over in his grave if learned that his homily about the butcher, the brewer and the baker is forming the basis of a new morality surpassing the significance and impact of even the golden rule of the great prophets of the past. In the Wealth of Nations he wrote:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.

This is probably the most famous statement of the efficacy of self-interest where Smith concludes that since humans always act out pure out of self-interest, we should always appeal to their self-interest first and foremost. To do otherwise, is the province of unscrupulous beggars. But Smith was not promoting unfettered self-interest and not even rational self-interest, after all he was a moral philosopher, but he was promoting self-interest providing it was within the confines of the market where it would be subject to competitive forces which he likened to the invisible hand of God. Smith, however, never envisaged the morality of the market based on self-interest and competition would start to erode and replace the traditional morality of society based on selflessness and humility. He failed to see this consequence because he also never envisaged that belief in God and the influence of the Church would give way to the modern secular society. And because traditional morality was so strongly linked with idea of God and the Church that it too waned and created a climate of moral relativity.”

We must be grateful that George Matafonov recognizes that the connection he draws between Adam Smith and what he considers to be happening around him was not something that Adam Smith encouraged or carelessly did not think about. That much is common ground between him and ‘Lost Legacy’. What is not common ground is his travesty of Smith’s political economy, his only partial appreciation of Smith’s “Moral Philosophy” and, well, his selective version of society’s defects as if they have just appeared in the 21st century. Even a slight acquaintance with history, including Asian, would inform him that the characteristics he attributes to market forces entering into the domain of non-market relationships have a long history in almost all known societies, long before our dinners came from butchers, brewers and bakers.

Human behaviours are universal in all peoples and in all past-societies. Greed, selfishness, bad manners, appalling disrespect for revered behaviours in and around the family and neighbours has a long history. Reaction to the behaviours of the young are often an ‘age thing’; each generation looks back on social changes with abhorrence, forgetting that for every example of good manners and mutual respect they remember so fondly, there were levels of crime and barbarity ever bit as prevalent as now. Smith noted in “Moral Sentiments” (V.2.15: page 210) that in the high civilization of ancient Greece it was a common practice, not commented on negatively, for infanticide to be practiced, a greater barbarism Smith could not imagine. He also noted (III.3.13, page 142) that “we are commanded to honour our fathers and mothers” but “no mention is made of the lover of our children”, drawing the observation that “nature has prepared us for this latter duty”.

Smith’s observation of market relationships is quite the reverse to the common interpretation of the famous passage about the “butcher, the brewer and the baker”. The passage is not praising the triumph of ‘self-interest’ or advocating of ‘selfishness’ and greed. The plain fact is that due to scarcity, no man had sufficient material goods to distribute to others out of benevolence even should he be inclined to do so. Man lives in scarcity not abundance, because all goods require labour to create them for distribution, and no man has the time nor the means to create for himself all the goods and services he needs, even at a low level of subsistence and without any covetous inclinations. All men thereby are inter-dependent on the labour of each other, whether they lived in a primitive low-technology society or in modern-day high-technology societies, such as in South Korea.

Smith’s point about markets (remembering that he envisaged commercial societies fairly primitive in the scope of their products and their divisions of labour) was that markets were successful distributors of the bounties of nature and the fruits of labour compared to those that had preceded them (and, by implication might be conceived to follow them, a task Smith never tried to undertake). His analysis of how markets work was sufficient for the purposes on mid-18th century Britain.

The alternative to market creation and distribution was the age-old choice between plunder or trade, and all systems short of trade through the ‘butcher, the brewer and the baker’ were likely to be, and history showed them to be, tyrannical. The feudal lords distributed subsistence to their armed retainers out of the surplus their serfs produced under the ever present tyranny of those over them and their families. If George Matafonov believes he has a problem with the ‘indiscipline’ of modern ‘brats’ he can contemplate his chances of enjoying life subject to the discipline of dictators and their retainers.

The decline in behavioural standards in any particular period is a mirage. “Moral Sentiments” is about how society socializes the young within families, schools and work. Moral sentiments, says Smith, have their roots in the all sections of society, even “the greatest ruffian, the most hardened violator of the laws of society, is not altogether without it” (TMS, I.1.1, page 9). From the inter-linked social circles of individuals and their family, friends, acquaintances and the, far greater, body of strangers, societal cohesion is possible (and preferable to indignant campaigns to force people of all ages into conforming with a particular set of behaviours that call for the disciplining of children, which really means the disciplining of parents too).

Those who would seek to achieve these ends are misguided. I have long expressed the view that everybody knows how to bring up other people’s children, know how all other people should behave and know how the world would be better if only everybody behaved like the persons who hold these views. I do not know the age of George Metafonov, but he might gain some insight into the implications of what he advocate by taking a longer view of, and a closer look at, history than he appears to have done. Markets have not changed human nature; it was far bloodier and licentious in ancient Rome, far more horrible in mid-19th century Britain and unspeakably awful in mid-20th century Russia and China.

Some children have spats with their parents (and their parents with their parents) and with each other; fortunately most grow out of it (around 25). Age wins as youth age. Smith was relaxed about this and so should we.

Smith's Unhappy Years at Oxford

Business Week (online) 5 December carries a feature on the University of Oxford, apparently in turmoil as faculty reacts to administration’s attempts to get it to move into the 21st century:

Shaking Up Oxford Businessman John Hood plans to reinvent the university. And the dons are fighting back.

With Oxford remaining one of the two most prestigious universities in Britain, many wonder why there's any hurry to change, and some doubt that a seeming nobody from the University of Auckland has anything to teach them. Cambridge bests Oxford in some surveys, but few think any Continental European institution can touch Oxford. Admission slots at the university that has educated some 25 British Prime Ministers, including Tony Blair and Margaret Thatcher, as well as titans like Adam Smith and Christopher Wren, are in greater demand than ever. An Oxford education is still the best ticket to the upper reaches of British government and business. The individually tailored tutoring that goes on in the colleges is superb

It is not my place to comment on the current internal affairs of another British University. My comments are directed at lumping the modern excellence of Oxford with what it did for Adam Smith between 1740 and 1746. If Smith was a titan, he owed very little to it of education at the then university (Balliol College), where he spent six unhappy years and, frankly, had to teach and tutor himself.

Smith attended Glasgow College (the university) from 1737-40 and taught there from 1751-63. The contrast is remarkable between the two institutions. At Glasgow the faculty taught many hours per week (from 7.30 am to just after 1.30 pm). The public classes contained about 100 students, some younger than 14 (the age that Smith left Kirkcaldy for Glasgow). They were ‘examined’ by their tutors each day in subjects associated with their classes, for which they wrote essays.

At Oxford there were two lectures a week and twice daily prayers (the faculty were ordained ministers of the Church of England). Beyond that students were left to their own devices. Years later Smith wrote in “Wealth of Nations”:

In the university of Oxford, the grater part of the publick professors have, for these many years, given up altogether even the pretence of teaching’ (WN V.i.f.8: page 461).

He also referred in tones that showed irreconcilable contempt for English universities, several of which has become “sanctuaries in which exploded systems and obsolete prejudices found shelter and protection, after they had been hunted out of every other corner of the world” (WN V.i.f.34, page 772).

Smith went to Oxford without taking his MA at Glasgow (which was a condition of obtaining the £40 a year Snell Exhibition – a handsome sum that a frugal person like Smith could live on), but on leaving before his nine years were completed (six for his MA ; he abandoned the 3 for his ordination when he decided not to proceed to be ordained into the Church), Oxford awarded him its “AM” (now MA) in 1746, carefully recorded in Glasgow’s records when he was nominated for a Chair in 1751. It is this recorded statement that created the myth that Glasgow had awarded him his MA in 1740, a point missed by some of his biographers.

So badly were Adam Smith and the seven other Scotch students treated at Oxford that he wrote of it with contempt and anger, even 30 years later, and he never returned to Oxford, though he journeyed near the area. Balliol was a centre of Tory belief in the divinity of kings, while Smith was a Hanoverian, like his father, and he became a target for bullying from some pro-Jacobite English students and Masters (1745-6 were the years of the Scotch rebellion in favour of restoring a deposed monarch, an adventure with which young Smith firmly disagreed).

So to claim Adam Smith for Oxford as an example of its undoubted modern educational qualities today is a bit much.

Wednesday, November 23, 2005

Invisible Hand no 25

Mick Brooks, a Marxist, writes on intellectual property rights (“a modern day enclosure of the commons”) for Independent Media Centre of San Francisco, California (22 November).
In his trenchant piece (ignoring his slight tendency to rant) he tears into capitalism as the source of everything that’s ‘wrong’ with the world and sees it as a threat to the survival of the Earth itself as a habitable place for humans. This, of course, ignores the sad fact that the world’s worse polluters and environmental destroyers featured strongly in the former Soviet Union and in the current China, symbolized by the decaying Soviet nuclear fleet in the waters off Arctic Russia.

Sprinkled throughout his article there is a plethora of quotations from Marx’s Capital and from other contributors. It is, however, readable and racy, and I suggest you judge for yourself by visiting the site at: (

However, among his appeal to authorities he writes:

“On the one hand Hardin uses his Malthusian perspective to refute the notion that rational (that is utility maximising) individuals will produce an optimal equilibrium. This is often called Adam Smith's invisible hand theorem and is the classical justification for laissez-faire capitalism.

Compared with Adam Smith's optimism about harmony and progress (under capitalism) though, for Hardin to adopt instead Malthus' pessimism about the eternal condition of humanity may be regarded as a step back. On the other side, the reason the invisible hand of the market doesn't work in the case of the commons according to Hardin, is because there is an incentive for greedy individuals to overgraze their animals, since the cost is borne by others. All suffer as a result.”

The errors in the above are not Mick Brooks’ fault. He was clearly educated in economics in or near to US academe, which has completely misrepresented Adam Smith's legacy. There is no such ‘invisible hand theorem’ in Adam Smith. A ‘theorem’ consists of more than a lonely metaphor, which was not even Smith’s – it belongs to Shakespeare (Macbeth 3:2).

That it might be a ‘classical justification for laissez-faire capitalism’ is arguable, provided Brooks defines what he means by ‘classical’, ‘laissez faire’ and ‘capitalism’, all sprung upon the profession in the mid-19th century not in the mid-18th century. For Smith ‘classical’ meant the products of the Greek and Roman languages two millennia earlier; he never used the words ‘laissez faire’ though some 18th century French economists did; and he did not know of the word ‘capitalism’, first used in English in 1854 (Thackery, Necomes II), nor the phenomenon, which is a back-projection of a modern name onto the distant past.

Smith was optimistic about the progress of opulence, especially for the labouring poor, through the growth of the net revenue of the commercial economy in conditions of Natural Liberty. What he might have written about the technological changes and the joint stock companies of the 19th century we can never know, as he didn't know anything about the future over the horizon.