Tuesday, July 25, 2006

Fanatics' Foundations Founded on Nonsense

More nonsense from the political axe grinders with a smattering of knowledge about Adam Smith, plus an overload of certainty about what's wrong with the world. As someone once said, 'I wish I was as certain about one thing as these fanatrics are so certain about every thing.'

"Implications of Privatising Pubic Security" by Girish Mishra, 23 July:

“Adam Smith, the father of modern economics”, pleaded for leaving all economic activities to be regulated by market forces without any restraint from state or any other organized group. He believed, “the invisible hand” would coordinate them and run them without any violent ups and downs."

This is the lead-in paragraph to a tendentious article attacking the drift to private police protection services, and, in passing ,private education establishments. The quality of its arguments does not rise above the patent nonsense of this first paragraph in regard of Adam Smith.


1 “Adam Smith, the father of modern economics” – a cliché of lazy economists who have not read Smith’s works and confuse quotations attributed to him with modern economics – a sub-branch of applied mathematics – that ignores people and reduces complex behaviours to only one (so-called self interest), it being easier to manipulate mathematical functions, and erects an entirely false image of Smith (the ‘Chicago’ Smith) in contrast to the real Smith (the ‘Kirkcaldy’ Smith). Smith’s legacy, with few exceptions, is at variance with what is said in his name.

2 “…pleaded for leaving all economic activities to be regulated by market forces without any restraint from state or any other organized group.”

It was not in Smith’s style to ‘plead’ for or against any particular policy. The Wealth of Nations was a report of his 12-year ‘inquiry in the nature and causes of the wealth of nations’. It was not a manifesto in support of a change in the way society was run. He pointed out the consequences of running it the way governments tended to legislate.

He was not an anarchist or libertarian, as any number of modern libertarians will tell you (see Murray Rothbard for a particularly bad tempered denunciation of Adam Smith for his manifest failings to descend to the temper of a fanatic about how society works). He accepted certain stabilising aspects of ‘modern’ 18th century society. He did not believe it was practical to change everything before you could change anything. He dealt with the world as it was by contrasting it with the way it could be; change the causes and you changed the consequences, but nothing would change if everything had to change simultaneously. The fanatic – ‘the man of system’, he called him – was ‘very wise in his own conceit’, which describes Rothbard’s polemical style accurately.

Smith was not against state intervention. Justice was administered by the judiciary, an arm of the state, and was essential to individual freedom. Defence was the ‘first duty of government’. Markets were a preferred choice where they worked; he was not against state-funded activities and he left the decision on whether they were administered by state commissioners or private contractors to a pragmatic test: which worked most efficiently, not to an ideological test for or against the decision.

Smith was not a laissez-faire philosopher; he never used the word, yet was familiar with its concepts and with its exponents among the Physiocrats. He did not believe that ‘merchants and manufacturers’ could be free of ‘all restraints’ on their behaviours – most rapidly turned into ‘monopolists’ when left alone. That did not mean he favoured state intervention, unrestrained by laws of justice.

4 “He believed, “the invisible hand” would coordinate them [‘market forces’] and run them without any violent ups and downs.”

Here, Girish Mishra is setting up a straw man for an easy knock down. The so-called invisible hand was a lone metaphor he used once in Wealth of Nations (and once in Moral Sentiments), and in neither case was he talking about markets. That is a conflation from Chicago trained economists. He was talking of the unintended consequences of individual motivations. He also wrote of many counter examples where the outcomes of individual actions had malign, not benign, consequences.

The power of Smithian markets is not based on something outside them (visible or invisible) ‘co-ordinating’ them. That is precisely his point about the relationship between ‘natural’ and ‘market’ prices – markets are self-regulating and their workings are well understood. Nobody designed markets, nor ordered them into existence, nor foresaw their utility. They evolved socially over many millennia from the ‘necessary consequence of the faculties of reason and speech’ (long before markets took monetary forms). What Mishra means by ‘violent ups and downs’ is not clear, but markets can move ‘violently’ on occasion dues to external events – Smith’s example is of the dramatic rise in the price of black cloth when there is a general mourning in the UK (presumably white cloth in some countries).

Mishra’s line on private police forces and private schools is predictable after his straw man Adam Smith is presented. Briefly, he blames the failings of the publicly funded state schools on the middle-class who send their children to private schools, where, presumably they are more successful (otherwise the parents would not spend their money on fees). But what this conclusion leads to is the policy that the failing state schools should continue to be funded by taxes (i.e., subsidising failure) and the successful private schools should be closed down or taxed out of existence; a prime example of using economic powers to coerce people to continue to endure failure.

It would be better to use state funding to hand the power of decision to parents by issuing vouchers to spend on schools that succeed and let failing schools wither away (as recommended for years by the Adam Smith Institute). Use the power of free markets to punish failure and reward success, not use the power of a coercive state to punish success and reward failure.



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