Sunday, April 30, 2006

Lost Legacy Monthly Prize for April 2006

Here is some good sense on panics about so-called ‘gouging’ (an American term for ‘profiteering’) in the oil and gas industry that counters the almost mindless ignorance of some senators and congressmen about how the market economy works, which if they had their way (and they might still) would undermine the very system that has produced their country’s prosperity.

Thomas Bray, a columnist, writes brilliantly about how the ‘Government remains biggest oil profiteer’, in Detroit News/Detroit Free Press, 30 April:

Republicans from George Bush on down caved last week to the latest round of hysteria by agreeing, among other ideas, to yet another investigation of gasoline prices. Never mind that every time the matter has been reviewed, the verdict has been the same: Market forces account for virtually all of the supposed "gouging."

Not that one needs to have warm fuzzy feelings toward the oil companies and their extremely well-paid executives. As the founder of economics, Adam Smith, observed in 1776, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public

Smith went on to point out that the best antidote to such tendencies is competition, not regulation -- which, he noted, usually winds up making government part of the conspiracy. And evidence is strong that competition is not lacking, at least in that part of the oil business that hasn't been nationalized by foreign governments.”

Thomas Bray also uses a quotation from Wealth of Nations correctly. I think his article deserves to win the April Lost Legacy Monthly Prize for Smithian economics.

[Read it at:]

Saturday, April 29, 2006

James Hutton, Adam Smith and James Buchan

From The Scotsman 29 March:

'Adam Smith and the Pursuit of Perfect Liberty' by James Buchan, Profile Books, a review by George Kerevan:

"IF YOU WERE A REGULAR walker on the Salisbury Crags high above Edinburgh on crisp mornings during the early 1780s, you would be familiar with two earnest gentlemen whose passion was examining the geology of that ancient rocky formation. One of them was Dr James Hutton, whose excursions on the Crags would lead to a revolutionary conclusion: that the Earth was millions of years old and had not, after all, been created by God in the year 4004 BC, as was the prevailing view.

For this was the Edinburgh of the Enlightenment, when gentlemen amateurs abandoned traditional ways of thinking and created the modern world as we know it. Hutton's friend, who seldom uttered a word on these outings but trailed after his companion muttering quietly to himself, was also an Enlightenment revolutionary. His name was Adam Smith, founder of the equally subversive science of economics and, like Gordon Brown, a son of Kirkcaldy in Fife.

The novelist and noted historian of Enlightenment Edinburgh, James Buchan, has turned his attention to a new biography of Smith. At 145 pages, this is more a polemical essay than a dense life history, but it is an interesting and charming read for all that. If you want the serious historical background about the Enlightenment, try Buchan's own Capital of the Mind."

A review that concurs with my own assessment of the importance of James Buchan's new book (see previous comments in this book). Read it in full at:

What I like about Kerevan's introduction is his tagging the opening onto the name of James Hutton, a close friend of Smith and one of his literary excutors. James Hutton may be less well known but he was an important Enlightenment figure. As a geologist and farmer he brought to the early study of geology a knowledge of the land and by methodically studying Scotland's rocks he unravelled the mystery of the earth's origins, for which he has achieved posthumous fame.

I recently bought volume one of his three-volume book of Philosophy (1793) with the intention of comparing it with Smith's to see how much of it was influenced, if at all, by Smith. In a most interesting paper by Donald MacIntyre, a geologist from Edinburgh who taught at California until he retired, he explains a link between the two men in Hutton's coded stance against the orthodox religious explanation for the origins of the Earth, as expressed in Genesis. This is another thread I am following.

To find out more about James Hutton see the National Museums of Scotland publication: James Hutton: the foudner of mdoern geology by Donald McIntyre and Alan McKirdy, 1997

Hume and Rousseau versus Hume and Smith

“Enlightened enemies” is an account of their recent book on the David Hume’s out-of-character quarrels with the somewhat paranoid J. J. Rousseau in 1766, by David Edmonds and John Eidinow, co-authors of ‘Rousseau's Dog: Two Great Thinkers At War In The Age of Enlightenment’ (Faber & Faber, 2006).

Edmonds and Eidinow write about another partnership of David Hume with Adam Smith:
David Hume comes down to us as among the greatest of philosophers. He also exemplifies the man of pristine character, saluted in his own age for his uncommon virtue. Hume was immensely proud of his upright reputation; one might say he gloried in his goodness. In 1776, close to death from bowel cancer, he summarised his life in a short, unrevealing essay. He was, he wrote, "a man of mild disposition, of command of temper, of an open, social, and cheerful humour, capable of attachment, but little susceptible of enmity, and of great moderation in all my passions".

His friend, the economist and moral philosopher Adam Smith, agreed, eulogising Hume after his death as the exemplar of as "perfectly wise and virtuous man as perhaps the nature of human frailty will permit". Historians and biographers have gone along with this image - ignoring Smith's caveat ... "as the nature of human frailty will permit".

Smith wrote handsomely about the merits of his late friend in 1776, I think largely under the influence of a guilty conscience for his less than frank refusal to Hume in his last few months to publish Hume’s little essay, ‘Dialogues Concerning Natural Religion’, as revealed in correspondence between them.

Hume eventually persuaded his nephew to undertake the work of seeing his controversial (for the 18th century) Dialogues posthumously, which obligation Smith had wriggled out of and which Hume eventually realized was his intention. Hume was not best pleased with his old friend, asserting that Smith’s ‘Scruples’ were ‘groundless’ and ‘have a specious Appearance’ (Letter to Smith, 3 May 1776) and referred to the ‘sacred Regard to the Will of a dead Friend’ (Correspondence of Adam Smith, Liberty Fund, 1987).

His next letter (3 May) to Smith carried from Hume the noticeably unusual salutation of ‘My dear Sir’ instead of his usual ‘my dear Friend’ or ‘My dearest Friend’, suggesting for a short while in 1776 his friendly attitude towards Smith had cooled.

In August, Smith relented slightly and wrote: ‘I shall be very happy to receive a copy of your dialogues; and, if I should happen to die before they are published, I shall take care that my copy shall be carefully reserved as if I was to live a hundred years’. What he did not promise to do was published Hume’s dialogues.

In these exchanges while Hume was dying we see a flash of him reacting to what was a hurtful rebuff from a man he had every reason to admire and expect reciprocation from in his final months. A hint of disappointment was as far as it went, unlike when Rousseau accused Hume of plotting to do him harm, Hume reacted with uncharacteristic venom once he was convinced of the damage Rousseau intended for him.

Read David Edmunds and John Eidenhow’s account [,,1762868,00.html] of the deterioration into a poisoned relationship between Rousseau and Hume, as Rousseau went quite mad, in projecting onto the one man who could only do him good, his fantasies and paranoia that had no basis whatsoever.

Rousseau ruffled Hume’s dignity in ways that nobody else managed, not even the most virulent of the zealots who castigated Hume almost without mercy and towards whom he turned the other cheek without fail. He thanked critics and name callers for taking the trouble to publish their critiques and refrained from replying to their nonsense with a barrage of philosophical blasts of which he was more than capable intellectually, but not capable of emtionally.

Friday, April 28, 2006

Three Articles Referencing Adam Smith

I extract from three fairly typical pieces that make their points from different perspectives, two from the ‘conservative’ and one from the ‘progressive’ wings of US electoral politics out of a profusion of such on-line magazines circulating daily in the USA, with many others originating across the world.

Tomorrow a selection could be entirely different, with a different mix to cover ‘anarcho-communists’ from Canada through to ‘liberal’ in the UK and to ‘socio-marxists from Africa or India (see our Lost Legacies’ Archives collection in the right-hand column for such pieces selected since March 2005).

All are treated the same here – no matter what their professed political ideologies or affiliations; my interest is in assessing how they use Adam Smith’s name and alleged ideas in support of their pronouncements about the world, or as illustrations of the right/wrong ideas they claim to support.

Lost Legacy’s stance is to explain, elucidate and to educate readers from the standpoint of knowing what Adam Smith actually wrote, not what is claimed he said and believed, and, in doing so, to make a small contribution to encouraging those readers, who recognise that his legacy has been purloined for ends he did not consider or were not relevant in the 18th century, to read his books and papers, all of which are available in inexpensive editions (browse and order online from Amazon or direct from Liberty Fund, Indianapolis, Indiana, USA:

1 From The Post Chronicle: ‘Socialism Corrupts Human Nature’by Thomas E. Brewton, 27 April.

In the Western world, two views of human nature are dominant:
One is the classical economic understanding described by Adam Smith in his 1776 "Wealth of Nations," in which people as a whole -- at least those with any common sense -- look for ways to improve their own and their families' economic well-being. Smith's keen observations of economic activity in his time, and historically, led him to the view that such activity is spontaneous and part of the natural order, to the extent not impeded by government intervention.

From this understanding comes the idea of the law of supply and demand: when goods desired by people are in short supply, prices rise, and producers are led to increase production of the desired articles, thereby pushing market prices down toward their former level. This insight led him to his celebrated "invisible hand" idea that, while each individual is motivated by his personal interests, those motivations lead people to become more productive and thrifty, thereby increasing the aggregate well-being of society. While at any given time some people are suffering hardship from economic conditions, a free market offers most of them the opportunity to improve their status in the future by dint of hard work and frugality. And human nature leads most of them to take advantage of that opportunity.

None of this is to say that individuals and religious groups ought not aid the poor, elderly, and disabled. Smith was first and foremost a moral philosopher who elevated individuals' sympathy and empathy for their fellows to the pinnacle of morality.

This conception of human nature made England, then the United States, the greatest economic powers in world history while producing unprecedented improvements in standards of living for people at all income levels.

The second conception of human nature, in contrast to Adam Smith's pragmatic analysis of actually observed conditions, is the abstract, theoretical, French, socialistic conception espoused by American liberals (our sect of the socialist religion).”

I criticized Thomas Brewton in April 2005 for asserting that commercial society was more successful where the Judea-Christian religion took root. In the above piece he is more accurate in his portrayal of Adam Smith, except, of course, where he returns to the following:

This insight led him to his celebrated "invisible hand" idea that, while each individual is motivated by his personal interests, those motivations lead people to become more productive and thrifty, thereby increasing the aggregate well-being of society.”

I have criticised this false notion of what Smith meant by the invisible hand metaphor many times over this past year. Obviously Thomas Brewton is not a regular reader yet! However, to be positive he brings Smith’s ‘Moral Sentiments’ neatly into his case.

[Read his article in full at:]

2 Human Events online, ‘Oily Politicians: Part II’ by
Thomas Sowell (a senior fellow at the Hoover Institution ) 28 April.

Politicians have long been known for seizing upon immediate symptoms and ignoring underlying causes and consequences. Back in the 18th century Adam Smith wrote of "that crafty animal" the politician, who is preoccupied with "the momentary fluctuation of affairs."

Yes, Smith was not too fond of ‘politics’ as practiced in the 18th century and of the politicians who ruled the country. He distinguished, however, between politicians – men of ‘faction’ and ‘system’ – and ‘legislators’, a kind of mythical or ideal man of government who legislated wisely in the interests of minimal interference and good, selfless civic government, justice and security.

Smith certainly met and knew many leading figures in government and was consulted by them on occasion on various matters of policy, notably the war in the American colonies and matters of trade. They listened with respect but did not take too much notice, or couldn’t do much in the circumstances to implement what he suggested, for ‘short-term’ reasons of not having the votes in parliament to carry the day.

Thomas Sowell’s article at:]

3 Working for Change, ‘Enlightened self-interest: supporting the estate tax isn’t about class envy’ by Sean Gonsalves, Cape Cod Times, 28 April

The idea that the estate tax is a needed check against concentrated wealth and centralized power, which the intellectual father of free markets, Adam Smith, argued would undermine capitalism itself, apparently causes some kind of allergic reaction among those afflicted with class envy.”

The US ‘Estate Tax’ is the ‘Inheritance tax’ (‘death duties’) in the UK and Sean Gonsalves asserts Smith opposed it because it ‘would undermine capitalism’. That can’t be true because Smith did not write about capitalism, a phenomenon unknown until the 19th century – the word capitalism was not invented until 1854 in the UK, the words ‘capital’ was in English usage from the 17th century and ‘capitalistes’ were used in French from the 1760s.

Smith preferred taxation to fall on usage of public infra-structure, to help to pay for improving public projects, and on revenue (spending) and not to fall on savings because he did not trust governments to spend wisely. He considered politicians of the baser kind to be prodigals and not toe exhibit the growth inducing frugality he considered necessary to encourage the growth of opulence.

[Read Sean Gonsalve’s article at:]

Thursday, April 27, 2006

Opulence, like Poverty, has a Price

The strangest contexts bring out false assertions about Adam Smith, often of the least relevance to both what he wrote and the needs of the story. Here is one of many examples from Barry Lille’s article, “Weekend work puts a strain on non-custodial parents” in Waterloo Record, Waterloo, Ontario, Canada. On 27 April:

Proponents would suggest that this decision is an economic necessity or the inevitable requirement of consumerism and capitalism working as Adam Smith intended. Mandatory Sunday or weekend work for full-time staff is the outcome of this new marketplace and if it recklessly plays havoc with family life in our community, that is simply an unfortunate result.”

Adam Smith did not ‘intend’ anything about the future. He was an observer not a missionary. The notion of ‘consumerism and capitalism’ meant nothing; he wasn’t looking forward like that, he was not a ‘man of system’ and he laid down no ‘requirements’. He remained scepitcal that society would change just because he suggested it might grow faster and pull, more people out of dreadful poverty then all too common in Scotland. Moreover, even where the consequences of changes, such as free trade, were identifiable he always resorted to considering, from the viewpoint of ‘common humanity’, how any negative effects might be negated by longish transition periods to allow people time to adjust their circumstances. He cared about the effects of monopoly on consumers and one-sided laws against workers ‘combining’ to better their wages and resist arbitrary wage cuts.

In this case, noted by Barry Lille, fathers of children who have separated from their wives are disadvantaged when it comes to compulsory week-end working when they have succeeded in getting week-end access rights to their children. The common sense argument should be to make their access rights more flexible since week-end working today is widespread in retail, leisure and entertainment.

But this has nothing to do with the details in Adam Smith’s books, written in the mid-18th century, when weekends were arranged differently and Sundays were regarded as Holy days. Times change and work-leisure arrangements change with them. That a political point is made that is all ‘an economic necessity or the inevitable requirement of consumerism and capitalism’ does not hide the fact that it is a very narrow point. For ‘consumerism’ read Smithian ‘opulence’ – our living standards – and contemplate whether we are better or worse-off than our grandparents and the people in the 18th century. How many would vote for a political movement that promised to return Waterloo, Ontario to the living standards of 18th century Canada?

I suspect that Barry Lille does not want to return to the living standards of the 18th century but he does want to legislate(?) against compulsory week-end working. Fine. That is a valid proposal and is subject to the consent of others (liberty is not divisible). He can also call on Adam Smith in defence of his right to freely propose such ideas and to argue for them in public fora. But he should not implicate Smith as an accessory to whatever ‘consumerism’ or ‘capitalism’ is implicated in causing; they certainly are not doing it because of anything Smith said two hundred years ago in books addressed to his contemporaries.

[Read Barry Lille’s article at:


Pleasing Snippet in an Unexpected Place

I found a most interesting and surprising snippet about Adam Smith in, of all sources, What PC? – the ‘essential buyer’s guide’.

Andrew Sawers, pens a neat summary of Adam Smith’s ‘History of Astonomy’. He begins, infortunately, with the usual nonsense about Adam Smith and the so-called invisible hand:

Adam Smith may be famous for his book The Wealth of Nations and his theory that an “invisible hand” moves markets and prices. But he was a philosopher who also wrote an essay on the history of astronomy. His intention was to explain how the mind tries to make sense of the world around us by looking for coherent explanations, so as not to “embarrass and confound the imagination”.

Readers will know that Smith did not have a “theory that an 'invisible hand' moves markets and prices.” His singular reference in ‘Wealth of Nations’ to an ‘invisible hand’ had nothing to do with how markets and prices move (see WN IV.ii.9: pp455-6). That it is a theory of markets and prices is a result of an interpolation from the late 19th century, and its widespread repitition in the 20th century, introduced by others long after he died in 1790. There is nothing mysterious or miraculous about Smith's theory of markets and prices, which, of course, does not make either of them properly understood, even today and even by some economists, especially when it comes to prices.

However, Andrew Sawers' brief summary of the Smith’s ‘juvenile’ essay on the 'Philosophical Method illustrated by the History of Astronomy' is worth reading if you only have time for a few minutes reading of a few hundred words.

It is not common that I find people have read or heard of Smith's early work on the 'History of Astronomy' - many have not read his two great books on 'Moral Sentiments' or 'Wealth of Nations' (even many so-called experts have not read his 'Lectures on Jurisprudence') - so to read Andrew Sawers' competent assessment was a surprise and a great pleasure.

In fact, I went through all of Smith's sentiments of 'surprise', 'wonder' and 'admiration'. If you are unaware of the significance of these three states then you must read Smith's Essay. You can start now by reading Andrew Sawers article.

Read it at:

Important to Correct Errors Once You Become Aware of Them

I commented on the views of Professor Colin Camerer on 24 April and return to them because, having contacted him, he offers a not altogether satisfactory explanation, making allowances for an extremely busy scholar taking any time to deal with correspondence from unknown persons on what probably appears to be a trivial issue besides the main thrust of his work on behavioural economics. However, it is Professor Camerer who brings Adam Smith into his argument, though his argument does not need Smith’s presence, particularly as Smith said exactly the opposite to what he attributes to him. And as such he could turn Smith onto the critics of behavioural economics.

What is true, is that modern economists hold to a view of ‘economic man’ as characterised by Professor Camerer and that this perspective is convenient for mathematical manipulation and mostly is ‘wishful thinking’. People are not wooden-chess pieces who move about under the direction of equations. Smith asserted that humans adhere to motions of their own and not of those who assume they direct them. Smith was a behaviourist, and on that much we agree without reservation. 'Moral Sentiments' and 'Wealth of Nations' are closely argued studies of how people behave in practice. They have the same perspective and do not contradict each other.

According to Carolyn Meinel, who interviewed Professor Colin F. Camerer for her article in Science & Theology: 24 April: “Smith’s book The Theory of Moral Sentiments, published in 1759, was “bursting with insights about human psychology, many of which presage current developments in behavioral economics.” Again I agree with Camerer’s statement. So what is the problem?

It is the next sentence in which he says: “However, economists ended up taking their cues from Smith’s later views.”

And that is the problem. Smith’s so-called ‘later views’ were no different than his ‘earlier views’. The so-called ‘later views’ of Smith were the uninformed views of others in the 19th century who started down the road that led to the cul-de-sac of modelling human nature into a sub-branch of applied maths, where no human being exist. Smith, an accomplished mathematics student, never went down that road and never had any notions of ‘economic man’.

Now this is not just the maverick view of myself. It is shared by others who have taken the trouble to read his books, something I am not sure that many members of the economics profession have managed to do. It is not clear that Professor Colin Camerer has read ‘Wealth of Nations’ closely enough to be so definite in the views attributed to him by Carolyn Meinel.

One of the recent contributors to this discussion is Professor Samuel Fleischacker, University of Illinois, Chicago in his ‘On Adam Smith’s Wealthy of nations: a philosophical companion’, 2004. He discusses the explicit issues raised by Colin Camerer and the paragraph is worth including here as a contribution to the refutation of Camerer’s error (or that of his co-authors , Ashraf and Loewenstein) which they repeat, unnecessarily, in pursuit of their correct case for behavioural economics:

So we have several arguments even in Hutcheson, who has never been accused of favouring self-love over benevolence, for grating self-love a central role in the economic realm. This should begin to undermine any presumption that Smith gave self-interest a new or controversial prominence in WN. That presumption should be further weakened when we note that Smith’s readers did not attend to the role of self-interest in WN until long after it was published. As far as I can determine, none of WN’s first readers, whether in England and Scotland or in Germany, France, of the United States, mentioned this feature of the book, either to praise or condemn it, nor did they see any sharp break between TMS and WN. TMS was well known, throughout Europe and in the United States, and it was Smith’s reputation for the earlier book that garnered initial attention for WN. One would have expected a gap between the two books, if gap there is, to appear particularly sharply to Smith’s readership at this point in his reception. Yet is was only much later, in the nineteenth century, when most readers knew WN well but were at best dimly aware of TMS, that people began to suggest that the two books have different pictures of human nature. This is good circumstantial reason to suspect that the supposed gap between TMS and WN lies solely in the eyes of those who misinterpret one or both of the books. Turning to the text of WN confirms that suspicion.’

It seems to me that if Colin Camerer, Ashraf and Loewenstein were to read why Smith was not responsible for ‘economic man’ and what has been done with it, namely that modern economists do not have the venerable authority for Adam Smith for what they claim, then the support for research into behavioural economics based on human nature would be much stronger

[Read: S. Fleischacker, 2004. ‘On Adam Smith’s Wealthy of Nations: a philosophical companion’, Princeton University Press, NJ, pp 86-7].

Also: Carolyn Meinel’s reports in Science & Theology at: and]

Tuesday, April 25, 2006

A Recipe for Poverty

A larger income creates an aspirational staircase forever spiralling upwards, where all that counts is being on a higher rung than other people, and from where the fall, when it comes, will be desperately painful. As Adam Smith remarked, a long time previously, we suffer more when we fall from a better to a worse situation than we ever enjoy when we rise from a worse to a better. As Adam Smith remarked, a long time previously, we suffer more when we fall from a better to a worse situation than we ever enjoy when we rise from a worse to a better.” Melanie Reid, ‘A rich doctor who knows when enough is enough’, The Herald (25 April).

Melanie Reed’s article is promoted by the news this week of a General practitioner (GP) in a remote island community off the west-coast of Scotland having the highest earnings (£500,000) for medical doctors in the UK, up from his earlier pay of £50,000.

Her reference to Adam Smith’s various views on individual wealth and the efforts to attain it should be placed in context. Scotland in Smith’s day was a largely poverty stricken place with vast disparities in income and the bulk of the population living in destitution. Smith’s personal conduct like David Hume’s was to live frugally and to advise of the benefits of being so. It suited him and it had unintentional consequences too, of which he approved.

Frugality, not prodigality, drove the economy towards affluence because it provided the savings that were put to productive work by those who produced the food and manufactures that fed and clothed, etc., the lowest income earners. Smith also was not careless about looking after his means of acquiring the wherewithal to be frugal!

He received an income of over £40 a year (1740-46) while a student at the University of Oxford, which he continued to claim for three years until he resigned his Snell Exhibition in 1749 and studied at home (the original distance learner?). He earned £100 a year delivering a series of public lectures on moral philosophy, rhetoric and jurisprudence in Edinburgh (1749-52). His income at the University of Glasgow (1752-63) as a professor was about £300 a year, partly by salary and partly by students’ fees, plus a rent free house. On his return from his tour of France (1764-66) with the young Duke of Buccleugh he was awarded a life pension of £300 a year by the Duke’s stepfather, Charles Townshend (Chancellor of the Exchequer). In 1778 he became a Commissioner of Customs for Scotland, worth about £600 a year until he demitted office in 1790 a few months before he died.

These were affluent wages for the 18th century. Bear in mind there were no pensions, except savings, once you stopped work, which for poor labourers meant they were in absolute poverty. However, Smith is also an example of what any well-off person who believe they earn too much income can do about it, besides exhibiting the angst of Melanie Reid: they can give their surplus income above what they feel is enough for them away to whomsoever they consider more worthy.

Smith did just that: when he was appointed a Scottish Commissioner of Customs, he sent his life pension bond worth £300 a year back to the Duke of Bucceugh’s factor and asked that it be cancelled. The Duke returned it, somewhat angrily, as the termination of a life promise would reflect badly on him. So Smith did as he always hinted was appropriate: he gave to needy relatives and anonymous other beneficiaries throughout his life almost all his income, leaving a paltry £400 in cash in his estate on death, and all his books and other fixtures and equipage to his heir who had lived in his household in Edinburgh for over twenty years. If being rich is burden, the rich can unburden themselves by living frugally and either give to charity or invest in activities that benefit others. Both are commendable duties in Smith’s moral continuum.

In Book I of Wealth of Nations’, Smith brings out this last point clearly:

But when by the improvement and cultivation of land the labour of one family can provide food for two, the labour of half the society becomes sufficient to provide food for the whole. The other half, therefore, or at least the greater part of them, can be employed in providing other things, or in satisfying the other want and fancies of mankind. Cloathing and lodging, the household furniture, and what is called Equipage, are the principal objects of the greater part of those wants and fancies. The rich man consumes no more food than his poor neighbour. It quality it may be very different, and to select and prepare it may require more labour and art; but in quantity it is very nearly the same. But compare the spacious palace and great wardrobe of the one, with the hovel and a few rags of the other, and you will be sensible that the difference between their cloathing, lodging and household furniture, is almost as great in quantity as it is in quality. The desire for food is limited in every man by the narrow capacity for the human stomach; but the desire of the conveniences and ornaments of building, dress, equipage, and household furniture, seems to have no limit or certain boundary. Those, therefore, who have the command of more food than they themselves can consume are always willing to exchange the surplus, or what is the same thing, the price of it, for gratifications of this other kind. What is over and above satisfying the limited desire, is given for the amusement of those desires which cannot be satisfied, but to be altogether endless.” [WN Ixi.c.7: pp 180-1]

For Melanie Reid, and the others she quotes, should contemplate that it is the increase in agricultural production, suited to satisfy the needs of each peasant household in the egalitarian vision, that the production of non-agricultural items, using surplus unemployed labour, destitute of land and the wherewithal to feed their families, a common enough experience in the unemployed in poverty stricken parts of the world, and all too graphically portrayed when drought, war and famine reach our tv screens, that is the key to a modicum of wealth creation. When unemployed people can obtain work in manufacturers of clothes, household goods and equipage, and later, in the supply of ‘amusement ‘and other ‘gratifications’, that a society moves from hopeless poverty towards opulence.

This is necessarily accompanied by great inequalities in incomes, which if it bothers the consciences of those with the wherewithal, they ease these concerns by either giving some of theirs to those without directly or by investing it with charities that create wealth creating activities or by placing their savings in investments that create the jobs for those without to improve themselves. Artificially restricting incomes to some figure (£8,000!) is a sure route to driving living standards and absolute poverty levels back to what we can see in poorer countries today.

[Read Melanie Reid:]

Monday, April 24, 2006

Behavioral Economics 'Yes'; Fables About Adam Smith, 'No'

Carolyn Meinel interviews Professor Colin F. Camerer in Science & Theology: “The myth of the selfish gene” and “More than Money”, 24 April:

These pieces are well worth reading and while I have not yet read Professor Camerer’s professional articles, and cannot comment on them until I have, I want to comment on what he is reported to have said to Carolyn Meinel.

First his reported statement:

In one sense, this isn’t a new idea. Camerer recently has argued that 18th-century economist Adam Smith, considered to be the father of freemarket capitalism, articulated many of the principles of behavioral economics in his book The Theory of Moral Sentiments. The difference is that Smith never linked his psychological insights into human nature with the moral pessimism set forth in his more famous book The Wealth of Nations.”

Next a couple of directed quotations from Professor Camerer:

A: Economists uniquely have a very cynical attitude toward human nature — that people are basically selfish, which makes mathematical modeling easy. My goal has been to restore common sense over the wishful thinking that this simple model is adequate. The model of human nature used by classical economists is a shortcut. Their default thinking is that people care only about themselves.”

“In his early years, however, Camerer was the odd man out amid a widespread belief in “economic man,” a concept first expressed by Adam Smith in his 1776 work An Inquiry into the Nature and Causes of the Wealth of Nations. “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 self-love,” Smith wrote. Economists enlarged upon this hypothesis with the concept of economic man — a totally rational and purely selfish being — and assumed that everyone fits this model.
Perhaps the most bemusing thing about the power of Smith’s “economic man” was the fact that earlier, Smith himself had been on the other side of the debate. According to Camerer, Smith’s book The Theory of Moral Sentiments, published in 1759, was “bursting with insights about human psychology, many of which presage current developments in behavioral economics.” However, economists ended up taking their cues from Smith’s later vie
ws. “

I do not recognise Professor Camerer’s representation of Adam Smith’s views in these reported statements, though I do recognise them as assertions about Smith’s views as commonly circulated in US academe and through into each generation of graduates in economics. They also happen, in my view to be wrong.

For example, the assertion that Adam Smith is ‘considered [by who?] to be the father of freemarket capitalism’, is historically incorrect. Smith wrote about a much more modest commercial society and had no knowledge of ‘capitalism’, a 19th-century development and one not present in the mid-18th century, unless the definition of capitalism is broadened beyond the usual toleration common among economists fluent in maths.

Of greater import is Professor Camerer’s misinterpretation of Adam Smith’s alleged discrepancy between his ideas as represented by his ‘Theory of Moral Sentiments’ (1759) and his ‘Inquiry into the Nature and Causes of the Wealth of Nations’ (1776). Allegedly, Professor Camerer finds this alleged discrepancy ‘bemusing’.

I see no reason for Professor Camerer to be bemused. It happens to be wrong because neglects the fact that while Professor Smith was teaching moral sentiments at Glasgow University between 1752 and 1763 (the substance of which from his ethics class became his book ‘Moral Sentiments’, (1759) he was teaching in his lectures in Jurisprudence much of which became his ‘Wealth of Nations’ (1776). The difference in dates was not caused by later changes of mind – there were none – but only the labour of writing them. For Smith these two subjects were interwined and almost simultaneously conceived and developed by him.

The fact that some German economists in the 19th century, who did not have access to his lecture notes, as transcribed by students in enough detail to find whole passages almost word-for-word the same as those sections in ‘Wealth of Nations’ that appeared in 1776, was unfortunate for their argument (still known today as ‘Das Adam Smith Problem’ because it keeps being resurrected; I am sorry to see a distinguished scholar repeating the fable as if the contrary evidence did not exist).

Nevertheless, these ill informed economists created the ‘Das Problem’ fable , namely that the ‘early’ Smith was different from the ‘later’ Smith, in clear breach of the evidence that became available when one set of student’s notes was discovered in 1895 and became the property of Professor Edwin Cannan (Lectures on Justice, Police, Revenue and Arms, delivered in the University of Glasgow by Adam Smith, Oxford University Press, 1896) and another set was discovered by Professor John M. Lothian in 1958. Both set of notes were published as Lectures in Jurisprudence in the Glasgow Edition of Adam Smith’s Works and Correspondence, edited by R. L. Meek, D. D. Raphael and P. G. Stern, by Oxford University Press in 1978 (also available in a low price edition from Liberty Fund, Indianapolis, Indiana, 1982).

But what of the substance of Professor Camerer’s latest resurrection of Das Problem? He is reported to assert: ‘“economic man,” a concept first expressed by Adam Smith’. I was surprised to read this because homo economicus is associated with modern economists and is quite alien to Adam Smith’s perceptions of human motivation.

Professor Camerer’s evidence for his resurrection is the famous quotation from ‘Wealth of Nations’:

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, [not to their humanity] but from their regard [to their own interest. We address ourselves, not to their humanity but] to their self-love,” Smith wrote’.

[WN I.ii.2: pp 26-27; minor punctuation and omitted words restored.]

There must be more than this to his evidence? But until I read the academic articles listed in Professor Camerer’s home page I shall confine my remarks to the quotation he offers. For a more extensive examination of this paragraph I refer you also to my ‘Adam Smith’s Lost Legacy’ (Palgrave Macmillan, 2005, chapters 22-25 pp 101-114).

Smith’s rendering of this paragraph in his Lectures in 1763 is as follows:

Man continually standing in need of the assistance of others, must fall upon some means to procure their help. This he does merely by coaxing and courting; he does not expect it unless he can turn it to your advantage or make it appear to be so. Mere self-love is not sufficient for it, till he applies in some way to your self-love. A bargain does this in the easiest manner. When you apply to a brewer or butcher for beer or beef you do not explain to him how much you stand in need of these, but how much it would be in [his] interest to allow you to have them for a certain price.’ [LJ(A) vi.45, 1763]

To fully understand the richness of this passage it requires familiarity with his ‘Moral Sentiments’ (1759), the class for which he was teaching with his class in Jurisprudence (i.e., much the same audience around the same times). In fact, I would assert that neither book can be properly understood on its own.

Self-love was insufficient and nothing about it would get anybody what they wanted by relying on that alone. The language of a Smithian bargain is quite clear on the subtlety of his blending into ‘Wealth of Nations’ the concepts of ‘Moral Sentiments’ (the next sentence comes right after the words from his Lectures, as reproduced in ‘Wealth of nations’):

Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of’.

[WN I.ii.2: p 26; the ‘butcher, brewer and baker’ quotation follows immediately on].

Self-love and self-interest in Smith are not synonymous with ‘selfish’ as apparently used as a category in psychology (perhaps they should re-look at their polar categories of ‘selfishness versus altruism’). Professor Camerer rightly accuses mathematical economists, who see ‘self’ as the driving motivation of ‘economic man’ (after all it is their creation and not Smith’s!) doing so (only?), because it ‘made mathematical modelling easy’, which I would add has little relevance for Smithian political economy. I am sure the construct of ‘economic man’ did maker it easier, but Smith never used mathematics in his subject (though, for an 18th-century professor of Moral Philosophy, he was an accomplished mathematician), and he did not have such a creature as economic man’ anywhere within his works. (See Professor Fleischacker’s erudite explanation of why Smith did not hold to such a model: ‘On Adam Smith’s Wealth of Nations: a philosophical companion’, Princeton University Press, 2004).

In bargaining – the main interaction of all trading activities – the self-interests of one party must be mediated by consideration of the self-interests of the other party (and vice versa). Two selfish, self-loving, psychopaths would never conclude a bargain and nor would two ‘economic men’ who sought only their own self-interest without considering the other’s self interest too (Professor Stigler got this wrong too, as did from a different perspective did John Nash). And the process by which they mediate their self interests is embedded in both ‘Wealth of Nations’ and ‘Moral Sentiments’ too. See TMS I.i.3.2: p 17; I.i.4.5: p 21 and crucially I.i.4.9-10: p 23. The last I shall quote from here:

We expect still less sympathy from an assembly of strangers, and we assume, therefore, still more tranquillity before them, and always endeavour to bring down our passion to that pitch, which the particular company we are in may be expected to go along with.’

As I argue in ‘Lost Legacy’ (pp 109-10), that sentence of Smith’s, and its preceding argument, describes closely the process that occurs in negotiation by which parties who start with two different solutions to a bargaining problem find their routes to a single, joint solution by mediating their differences and taking account of what they have to say and do to modify their first solutions before reaching their last joint solution. If they don’t so modify in this manner they will not get their dinner and the ‘butcher, the brewer and baker may not get their dinners either. For my account of modern bargaining based on Smith's conditional proposition ('If you- Then I') see my 'New Negotiating Edge: a behavioural approach to results and rleationships', Nicholas Brealey, 1997 (available from

I think if mathematically-minded economists were to study the arguments of real bargainers a little more than the arguments of their functions they would see what Smith was getting at. And, if I may opine, with the greatest of respect to psychologists, if they were to read Smith more closely, and be less concerned with proving their credentials as a ‘harder’ science, an attribution wrongly credited to mathematical economics, they would not fall for the old fallacies of the ‘Das Adam Smith Problem’.

Having said all this, let me end by stating that apart from these observations, I think Professor Camerer is on the right track with behavioural economics and it is one that I am more than willing to travel along with him, except I do not intend to carry the same baggage he carries in regard to Adam Smith. Meanwhile I will start reading what I can find of Professor Camerer’s work.

[Read Carolyn Meinel’s reports in Science & Theology at: and]

Sunday, April 23, 2006

Counsel for the Defence

Alexander McCall Smith, the justly celebrated Scottish Law Professor and author of the wonderful series about the 'Ladies No 1 Detective Agency' series set in Botswana, is turning his talented eye for solving mysteries to a bemusing episode in Scotland’s 18th century history, namely the James Macpherson literary fraud of the so-called ‘Ossian’ poems, allegedly composed by a third century Highland epic poet.

I would not dream of interpreting the details of the fraud before seeing McCall Smith’s BBC 4 programme, soon to be released. News of this event – it is sure to be an event of pleasing proportion – is reported by Karin Goodwin in today’s Sunday Times (Scotland edition, 23 April).

Typically McCall Smith appears to be taking a side of Macpherson in the role of a plea in mitigation by defence counsel. McCall Smith is unimaginable in the role of a prosecutor, except perhaps in the prosecution of a really horrible person., and even then he’d more comfortable leading the mitigation plea.

Macpherson caused quite a stir at the time he revealed his translation of Ossian. Adam Smith discussed him, so did other writers in the Scottish Enlightenment. The irrepressible James Boswell, biographer of Johnston, comments on him in his Edinburgh Journals.

There seems to be a spate of books and tv programmes about Scotland in the 18th century en route to Scotland’s media. We await to see Andrew Marr and his forthcoming programme in the same tv series (no doubt to appear as a DVD).

[I should declare an interest in that I knew Alexander ('Sandy') McCall Smith briefly during my early days as a university lecturer in the 1970s, being friendly with one of his friends, Peter Cheine.]

Pessimism About China, Russia and Iran Breaking the West

‘The West must bend great will of China’, by Fraser Nelson, Scotland on Sunday, 23 April :

Since Adam Smith first explained the principles of economic freedom three centuries ago, no country has managed to combine dictatorship with economic strength to the extent that China is now achieving. It is breaking new ground.

It has done this by managing globalisation. It restricts information commodities - the media, internet, political groups and associations - while creating economic freedom in selling billions of goods to the West.

China's partial embrace of Smith's free market principles has allowed it to tackle poverty - and enrich itself - at a rate unknown in human history. But it is filtering out the aspects of a free society it does not like.”

This extract is from a highly doom-ridden and pessimistic vision of the new roles emerging for China, Iran and Russia in subverting the West through their key places in the world economy. It is traditionally relatively easier for totalitarian regimes to rule in periods of economic poverty. But this changes in situations where the economy begins to thrive.

The French Revolution, for example, was not provoked by the people’s long standing poverty; it was provoked by the return to that poverty from a temporary respite in a period of relative affluence in France just before the country was thrown into unrest, from rising bread prices (and prices of other commodities consumed by the poor and the middle-class) when the newly experienced affluence came to an end. When the domestic economy is made better and then falls back into it being worse, regimes experiencing change are at their most vulnerable.

China is already experiencing early signs of something like this, which if exacerbated by events, may prove destabilising. Dictatorships have no mechanisms, except internal violence, for regime change; democracies manage peaceful regime change within their constitutional norms and practice. In highly regulated states, as in China, Russia and Iran, with their heavily-controlled media, news leaks out (especially from China) that all is not well at the local level. Of course, the instruments of repression are solid for now (they are not that fragile) but the habits of years of totalitarian repressions in China have worn thin in several incidents with people in local riots and disorders.

Rapid growth in opulence causes two sources of discontent; from those who feel excluded from what they see and hear about the wealth of the cities and from those whose newly acquired access to the growing affluence is interrupted. People displaced by economic developments, with no avenue for restitution, taking to the streets shocks those in power (who typically overreact) and those watching the unthinkable – the Party under siege from people who dare to challenge it – encouraging more public dissent.

The long march to the fall of Soviet communism began with riots and disturbances in East Germany, Poland, Hungary and Czechoslovakia, before it spread into Russia. That China sells billions of dollars worth to the West is also provoking unprecedented demands for higher wages, as predictable from economics, to which the Chinese communists are not invulnerable.

Fraser Nelson may be too impatient because he sees nothing changing within these countries. Great shifts into non-acceptance of old certainties, backed by totalitarian repression, which seems invincible, arise from deep shifts taking place cumulatively and mostly out of sight. If the new Chinese middle-class, the main beneficiaries of China’s hurried march to affluence, and the formerly poverty stricken labourers and peasant families come to worry about threats to their new positions, their consequential responses could expose the apparent stability of the communist regime to severe testing.

Smith also wrote about the life-long quest of people of all classes – from the ‘cradle’ to the ‘grave’ - to ‘better themselves’. Having tasted that process, and realised that it is not just a dream, they will not give it up easily. That changes the equation. Trade within a country raises its wealth. In that process the ruling regime is always under threat. Elements within and near the regimes know this and, like politicians everywhere, dispute how best to deal with threats to their tenures in office (from the lowest functionaries to the highest posts in the land). China is not akin to the tiny island state of Singapore.

Only in transitional democracies – always the least worse of all options of government – is resolution of these fissures manageable. That does not mean that democracies are immune from instability; only that their records of successful outcomes to these events are more numerous.

As Chou En Lai put it about the outcome of the French Revolution, which applies with equal force to the outcome of the current tensions between the West and totalitarian rivals, “it’s too early to say” which of the two will prove the more resilient.

[Read the article at:]

Taxpayers' Funding Political parties?

“It is no surprise that all three parties should favour state funding. No doubt a convention of farriers, if they thought they could get away with it, would demand the state funding of farriers. As Adam Smith observed, "people of the same trade seldom meet together… but it ends in a conspiracy against the public". Why, though, should the rest of us humour them?”

‘Paying for the Party’, Sunday Telegraph, Opinion 23 April.

The editorial makes a tenuous connection between Adam Smith on the monopolistic tendencies of ‘merchants and manufacturers in ‘corporation’ towns (i.e., those ran by local guilds of artisans and tradesmen for the benefit of the protected trades organised within them) and proposals floating around in the UK currently from cash strapped political parties.

The Labour Party was revealed to have accepted ‘loans’ from rich businessmen to run its election campaign, some of whom were subsequently made into ‘Lords’ and ‘Knights’. Subsequently, the Tories were also revealed to have accepted similar ‘loans’ (thus escaping the need to publicly declare them if they had been ‘donations’, though many loans are later declared as gifts when the dust settles). The Liberal democrats huffed and puffed quietly, but have had a major donor, an ex-pat UK businessmen, arrested for various alleged misdemeanours.

So, having been caught with dodging the legal rules about donations (which wise lawyer showed them how?), their latest proposal is to propose state funding for political parties. Hence, the conservative Daily Telegraph’s comments.

I suggest one major difference between what Adam Smith critiqued and the conduct of political parties in the ‘loans’ for ‘Honour’s’ fudge. The restrictive practices of the corporations and guilds in the 16th and 18th century in Britain were all perfectly legal. Their monopolistic powers were backed by law and were not hidden from public knowledge – that is why Smith critiqued them as part of his attack on mercantile political economy. He suggested the law was changed and monopolists exposed to competition.

In the cash for parties at the taxpayers’ expense proposal, having been caught out, all three parties want to replace private donations in the million pound range to be replaced with millions from the public. Whatever the sums start at and whatever the restrictions, the rules are bound to change (even be ‘bent’?) and the sums will get larger for the bigger parties.

How do I know? Well, eventually the monopolist guilds were broken in the UK, but the behaviour of ‘merchants and manufacturers’ and their successor business companies in the 19th and 20th centuries continued to meet secretly for ‘merriment and diversion’ and conspire against their customers to rig their markets, charge higher than competitive prices and act against the public interest in this area. This is why Smith did not approve of laissez faire.

[Read the article at:]

Friday, April 21, 2006

Just a Thought

A Canadian Econoview: ‘What Would Adam Smith Say?”

BSF quotes from “Wealth of Nations” (book V) in the course of an excellent article:

The teacher, instead of explaining to his pupils himself, the science in which he proposes to instruct them, may read some book upon it; and if this book is written in a foreign and dead language, by interpreting it to them into their own; or, what would give him still less trouble, by making them interpret it to him, and by now and then making an occasional remark upon it, he may flatter himself that he is giving a lecture. The slightest degree of knowledge and application will enable him to do this without exposing himself to contempt or derision, or saying anything that is really foolish, absurd, or ridiculous.” (WN V.i.f.14)

BSF concludes (tongue in cheek I presume):

Smith thought that the system at Glasgow, where professors were paid directly from the fees paid by students who took their courses, created a much stronger incentive to diligence in teaching than the system at Oxford, where professors were essentially tenured and on salary. He would have preferred all universities be organized along the lines of Glasgow.It's not often I say this about Adam Smith, but on this point I thank God that nobody listened to him.”

I comment on only one aspect of Econoview’s contribution.

First, Smith was contrasting the appalling state of England’s two universities which, at the time he wrote in the 18th century, were Oxford and Cambridge, in comparison to the practices of Scotland’s four universities.

He also drew attention to other defects in the provision of education for boys; girls were not formally taught but were put to work for pennies, or to learn from their female seniors about modesty, chastity and household management.

The sons of the very rich left school after six or more years schooling and went on a tutor-guided tour of the Continent, which Smith considered turned the worst of them into wastrels. A few of them went to university and a few of these attended Glasgow College, and Smith attended diligently to the education of several aristocratic sons destined for careers in government.

For all his criticism of Continental tutor-led tours, Smith, of course, resigned his professorship in 1764 to take the 15 year-old Duke of Buccleugh to France on his tour (1764-66) and we must assume that none of his structures about the effect of these tours applied to the young duke.

However, I think there is another important consequence of the quoted paragraph. I have long suspected the educational credibility of the British habit of including the writing of dissertations in management degrees, undergraduate and in many MBAs, comes within Smith’s strictures about reading from books instead of lecturing. These ‘projects’ give lecturers ‘still less trouble’ than the above practices at Oxford in the 18th century.

By requiring students to conceive of a ‘project’ and to research (also known as plagiarise, or at least ‘to Google it’) and write it up, saves lecturers from yet more lecture hours, while charging them tuition fees for it too! Their students do not see them assessing it, so they cannot judge if they approach the task with a modicum of diligence.

Moreover, given the obsession of ranking systems with the criterion of the proportion of ‘completions’ in expensive MBA degrees programmes, these ‘projects’ are a useful safety-valve to maximise examination passes. Top-graded students do not need to do well in the ‘project’ to pass; failing students can be eased through to a 'pass' by upping the grade awarded for their ‘projects’ whether they deserve it or not (who's to know?).

Different centuries, but the motivation is the same; poor teaching accommodates to the easier life (and so-called tenure does not make it easier to cut-out the dull-wood) of faculty, who, as Smith explained, choose to neglect their students’ interests, where they conflict with what is 'vulgarly' their own.

Thursday, April 20, 2006

An Erudite Speech Marred by a Problematical Assertion

Ambassador J. Thomas Schieffer Addresses The Research Institute of Japan, Tokyo, 19 April 2006:

Finally, I think Adam Smith was right. There is an invisible hand that moves markets, and that hand generally moves, as Smith said, out of self-interest. As Smith wrote so many years ago, "It is not from the benevolence of the butcher, the brewer, or the baker, that we [can] expect our dinner, but from their regard to their own interest."

[GK: delete 'can' in square brackets.]

Ambassador Scheiffer’s speech and the Q and A session that followed it presents a coherent account of economics, economic policy, USA-Japanese relations, some interesting comments on comparisons between Texas and Australia's economic prospects, and, in the round, gives a credible exhibition of an intelligent spokesman for his country.

However, his comments on Adam Smith were disappointing and problematical. Regular readers will already know which aspects of the paragraph quoted are contrary to Smith’s ideas in “Wealth of Nations”, though they conform to the commonly expressed views of much of academe.

For new readers, the transposition of the isolated metaphor of the invisible hand, which was about human motivation and its unintended consequences and not about how markets work (there being nothing invisible 'moving' Smithian markets) and the singular one-way interpretation of the motives of the ‘butcher, brewer and baker’ that draws them into a market exchange with their customers in which both parties to transaction mediate their self interest by serving the other party’s self interest.

Ambassador Scheifer is clearly an accomplished diplomat, educated and erudite as the best diplomats of any nation aspire to be. He should read a little wider, perhaps by reading ‘Wealth of Nations’ for himself, and think carefully about what Smith was getting at in his famous quotation. In exchange, we serve our own self interests best by serving the self interests of others.

[Read Ambassador Scheifer's speech and the Q&A session answers at:]

Wednesday, April 19, 2006

In the Right Direction but Straying

"The Twilight of Capitalism" by Natylie Baldwin in Peace Journalism (New Jersey, USA) April 2006:

The market was not originally intended to be organized as the money-worshipping corporate nightmare it has become. Adam Smith, widely credited as the godfather of market economics, also wrote and lectured extensively on human ethics. His Theory of Moral Sentiments opens with the recognition that humans have an inclination toward concern for their neighbors as well as self-interest.

Contrary to popular mythology, “the invisible hand” is only mentioned once in the 900-page Wealth of Nations. The term “capitalism” does not appear at all. Furthermore, Smith made it clear that his ideas about market economics and their consequent benefit to society could only be realized if certain prerequisites were met.

These prerequisites include favorability of small human-scale enterprises over large monopolies, a responsibility of each economic player to avoid harming others, and restraint of those who disregard such principles.”

Natylie Baldwin’s references are all secondary sources; she would benefit from reading the originals, though she is almost correct in her account of Smith on ‘sympathy’ for others (Moral Sentiments) and the much touted, so called, invisible hand.

However, she misses and important thing about markets – they were not and are not ‘intended’ to do something, beneficial or otherwise. Markets emerged long before Adam Smith in the 18th century. He did not ‘invent’ them or produce a ‘plan’ for them. He was not a ‘godfather’ or ’high priest’ of markets or capitalism.

Factually, many others wrote about markets before Adam Smith. He certainly provided an analysis of how markets work, but was not the first to do so, though he provided some useful insights. Markets evolved gradually and continued to develop in human societies because they worked, much like languages developed and were adopted by individuals not by a sort of 'tribal' vote in pre-history (any more than teenage slang is today) because they were found to work for individuals (see Smith on 'Languages').

He didn’t favour large monopolies because they worked against the interests of consumers, who do better if there is competition among producers (who also do better if there is competition among consumers). He pointed to the benefits of competition in a system of Natural Liberty, but did not require from this a programme to change the way the world (i.e., society) was evolving. Indeed, he remained pessimistic about prospects for free trade and shied away from becoming a ‘man of system’, fanatically insisting that everything changed immediately, if not sooner.

Natylie Baldwin falls into the trap of the ‘change-now-propagandist’; she sees disaster on the horizon awaiting to swallow up the world unless it changes her way soon. Capitalism, of which Smith knew nothing in the mid-18th century, is not in a ‘twilight’ zone, terminal decline or a state of impending catastrophic collapse.

Smith never saw upwards-only progress ahead; he was too much of an historian to ignore history. The first human experiments in markets in the age of commerce (Smith's ‘Fourth Age of Man’) were followed by the collapse of Rome and the thousand-year interregnum, known as the ‘Dark Ages’, in which Europe relapsed into barbarism. All his writings are imbued with the shadow of that millennium and the ghosts of the classical scholars of ancient Greece and Rome (they provide the largest source of quotations and references in ‘Moral Sentiments’ and ‘Wealth of Nations’).

Just as the revival of markets in Western Europe from the 16th century, restored the lapsed Commercial Age from the 18th century in Britain, a ‘collapse’ of the unique era of capitalism that began in the 19th century, should it occur, would be followed some centuries ahead by a revival of markets and of capitalism out of the barbarism that would takes it place. Adam Smith would have taken a stoical view of such a prospect. We should too. The task for philosophers is not to change the world, but to understand it.

Big Producers in Alliance with Regulators Squeeze Small Producers

“Toxic Regulation” by David Schoenbrod in City Journal, Spring 2006

"The FDA [Food and Drug Agency, established 1906] had gotten involved with cider …. when an infant in California had died because of E. Coli contamination in bottled fruit juice. The juice had come from Odwalla, at that time a large West Coast company, but the FDA began to consider regulating all producers of fruit juices, down to small cider makers.

E. Coli can get into cider because deer and mice, which are among its carriers, have a taste for apples. One response is to pasteurize the juice, which also brings the commercial benefit of longer shelf life. Odwalla, however, had taken pride in not pasteurizing; it advertised its products as tasting better because they were only minimally processed. After the E. Coli outbreak, it installed equipment that pasteurizes by heating and cooling the juice in such a flash that the taste is not much affected.

The Apple Processors Association, dominated by large companies, urged the FDA to require that all juice be pasteurized. That would have been ruinous for small cider producers. At that time, equipment that pasteurizes in a flash cost upward of $70,000. Even budget pasteurizers cost $25,000, but they are prone to cook the taste out of cider and require extra employees to operate. Cider that tasted like canned apple juice, plus higher operating costs, spelled bankruptcy. Not so for the members of the Apple Processors Association.

They already pasteurized, and stood to pick up the sales of the small producers driven out of business.

In any event, the FDA proposed to decree that juice be put through a sanitizing process that would cut bacteria levels at least 100,000-fold. Culling the apples and then washing them would probably have accomplished that, but the rule required that the cut take place in one step. The only way to do that was pasteurization. While still pondering this proposal, the FDA promulgated another rule that the Apple Processors Association wanted. Any unpasteurized juice must carry a label with this chilling warning: this product has not been pasteurized and, therefore, may contain harmful bacteria which can cause serious illness in children, the elderly, and persons with weakened immune systems.”

[Read the whole article by David Schoenbrod about how the FDA, in alliance with large scale producers of cider, affected one small cider producer, despite its owners and friends actually inventing another proven scientific method to achieve a reduction level of bacteria to at the least 100,000 level, but at costs small producers could afford and therefore survive:]

The is a sorry example of how big producers gang-up, in this case in a dubious alliance with the regulating body (whose proud claim to fame appears to be how many regulations they can legally impose in businesses), on smaller companies to reduce competition and re-carve markets in their favour.

Adam Smith said a lot about the proclivity of 18th-century ‘merchants and manufacturers’ to descend into the ‘spirit of monopoly’ in ‘Wealth of Nations’. It remains a wonder that many upholders of competition have not grasped the fact that many so-called competitive players in markets have a predilection in favour of reducing competition, even in eliminating it. All conspiracies against competitors end in actions against the interests of consumers.

In this case the Apple Processors Association (an ‘Agri/Washington Managed Association’, i.e., Washington based lobbyists) followed the tragic death of a child with a policy, adopted by the FDA, that dealt a mortal blow to small traditional apple juice producers, which had the beneficial (for its members) consequence that the small producers’ share of the cider market became available for redistribution, and, as important, the barriers to entry of new players in this market were raised.

The alternative technology used ‘ultra-violet’ light to sanitise the juice to the required standard and cost $12,000 in place of pasteurisation equipment at $75,000. But by adopting only one method (pasteurisation) for approval, on the recommendation of the hired Washington lobbyists, the FDA declined to even test the alternative ultra-violet equipment for months. This conforms to the prejudices of input only methodologies common to bureaucrats, when the true scientific methodology, and the one that boosts innovation, should always be to test outputs in preference to inputs.

Agri/Washington has been in business in Washington, D.C. since 1982. During the past twenty years, the firm has provided management to nearly a dozen associations, and completed hundreds of programs and projects, including food and nutritional conferences, crisis management and personnel consulting. Agri/W a s h i n g t o n is as much at home in the field with producers, as it is in the halls of government with elected officials and policymakers.”
(see its web site:

Apple Processors Association “was founded on July 20, 1987, and is a national association of companies that manufacture quality apple products from whole apples. Members are either apple grower/processor cooperatives, or proprietary firms. They each grow a portion of the apples processed in their plants. APA members produce a majority of the nation's applesauce, apple juice, and specialty products.

All members of APA stress quality and safety in their food processing operations. They pasteurize their juice products, and hotfill their food containers, reinforcing their commitment to quality and safety during their food processing operations.”

(see its web site:

Tuesday, April 18, 2006

Mr Prime Minister: Sack Your Researchers!

Prime Minister John Howard addresses the Menzies Research Centre at Parliament House last night (presumably his speech writers have access to the best of Australia’s researchers) - from The Australian, Canberra, Australia, 19 April):

Cut & paste: Lean but not mean government for Australian families”

“Earlier this year, I described government in Australia as lean but not mean. Our people seem to like it that way. A limited and prudent state, yes. A nanny state, definitely not. But Australians have always believed in something more than Adam Smith's nightwatchman state. And in an age when civilised nations are engaged in a global struggle against terrorism, when comprehensive health and school systems are every citizen's birthright and when that citizen is living more than twice as long as one born when The Wealth of Nations was published, I dare say Smith would not be surprised.”

Given that Adam Smith didn’t believe in a ‘night-watchman state’ either, I am not surprised that John Howard’s believes in ‘something more’ than this view he ascribes wrongly to Adam Smith.

Smith believed in a an expanded role for the 18th-century British state and one that was much bigger than the grossly over-interfering state he lived under. Some careless readers in the 19th century attributed to him the ‘night watchman’ image of the state, presumably from secondary quotations from his severe critique of the mercantile policies of British (and before 1707, English) governments in which he expressed views uncompromisingly advocating in Book IV of ‘Wealth of Nations’ that the state stopped legislating for policies that intervened in labour, capital-stock markets and the activities of merchants and manufacturers in commercial society.

But that is only one half of his views on the appropriate role of the state in the economy. In book V of ‘Wealth of Nations’ he went on to support the traditional role of the state in the defence of the people from the violent oppressions of neighbouring states, which cost 5 per cent of national income in Marlborough’s time and 15 per cent by the end of the 18th century.

To defence he added what would have been an enormous increase in government expenditure in his suggestion for the construction, staffing and maintenance of a school in every UK parish educate a literate and numerate population, even with a contribution levied on parents according to their income (from a penny per poor child upwards). He also saw the need to fund a justice system to allow for trial by jury, habeas corpus, and an independent judiciary, with appropriate jails (including penal colonies like New South Wales) for those in breach of the law, as legislated by a parliament under the separation of powers.

Perhaps his biggest item for public expenditure (with, where appropriate, private management) was the building of a transport infra-structure in the form of passable roads, canals, bridges and harbours, partly funded by tolls on users. He took almost for granted that local councils would manage street pavements, lighting and refuse collections and disposal (these last items were known quaintly in Smith’s time as ‘police’).

Now these items may not cause much comment in the 21st century but the 18th century was a whole lot different. There was no way that such a public investment and maintenance agenda could be funded without a substantial investment and, thereby, a substantial increase in public expenditure and, consequently, in taxation revenue. None of this squares with the notion of Smith supporting the false image of it being a ‘night-watchman’ state.

Mr Howard, or his many researchers, should have known these facts about Adam Smith before he delivered his speech.

[Read Prime Minister Howard’s speech at:,20867,18854164-7583,00.html]

Top Ten/One Hundred Lists are a Waste of Time

There is a letter in today’s Herald (Glasgow) berating Melvin Bragg’s selection of his 10 top people in British history. The sub-editor adds a headline: ‘Instead of the usual English suspects’ (The Herald, 18 April 2006).

Its author, Ian Anderson, from Dingwall, writes:

Let me demonstrate my own prejudices: Adam Smith's An Enquiry into the Nature and Causes of the Wealth of Nations; a friend and contemporary of Smith's, James Hutton and his The Theory of the Earth which showed that Earth had evolved over millennia, challenged the Church's view that it was 4000 years old, and which strongly influenced Charles Darwin in his unoriginal Origin of the Species; and last but not least, A Treatise on Electricity and Magnetism by James Clerk Maxwell.”

Lists of anything to do with almost anything are controversial, which is why I seldom take them seriously. A list of the top ten Scottish books would provoke controversy, just as the recent public voting on the most illustrious Scots men and women.

This produced votes for William Wallace over Robert Bruce, who actually won Scotland its independence from the English, but his film role in Brave Heart was not too favourable (each film must have only one hero). Even Donald Dewar, the first of Scotland’s First Ministers, did well, and a very personable man he was too and a giant compared with the present First Minister and the one before him, he was not by any standards (and I suspect, including his own from what I knew of him – a paragon of modesty with no reason at all to be modest) in a serious top ten list .

David Hume and Adam Smith did not do well comparatively.

However, Melvin Bragg’s list was designed and selected I suspect more for his television series and the associated book on those included. Hence, should we take it seriously? I do not think so, especially when the medium determines the message.

I did like the letter writer, Ian Anderson’s, inclusion of James Hutton, the geologist and friend of Adam Smith (he was one of his literary executors). It is always nice to see forgotten giants re-discovered from their obscurity.

Read Ian Anderson’s letter at:

Would Adam Smith Vote Labour?

Gordon Brown, the British Chancellor, has written a forward to a new book on Adam Smith that is to be published in June. Its author is Professor Iain McLean, from Oxford University. Chancellor Brown is of the opinion that Adam Smith would have felt more ‘at home’ as a supported of ‘New Labour’, the successor to the old Labour Party.

Meanwhile, the Conservatives opine that this shows that Margaret Thatcher has ‘won’ the argument about economics with the ‘old left’. Ian Johnston of The Scotsman writes (18 April) about this latest development in Gordon Brown’s flirtation with Adam Smith, perhaps born as much from his sense of mischief in embarrassing the Tories as much as his (formidable) intellectual convictions.

I have penned a short letter about this to The Scotsman newspaper:

“The Editor

Adam Smith’s reputation (Scotsman, 18 April) with Left and Right is an unreliable guide to his legacy. Smith disdained 18th-century politicians and their proclivity for ‘faction’, ‘system’ and ‘wooden chess piece’ tyrannies.

He was ‘Hanoverian’ in his politics (a beneficiary of the patronage of the Duke of Argyle), and a supporter of Natural Liberty - the rule of law; the separation of civil powers, and of church and state; of powers of impeachment; trial by juries; impartial judges; habeas corpus, and regular elections.

Smith never supported ‘laissez faire’ economics, nor did he consider markets operated by people as being ‘basically selfish’; he advocated an increase public spending in education; he praised benevolence (and was aware of its limitations); he mocked the public’s attention to the petty affairs of the very rich, and he questioned adventures in ‘Empire’.

He tried to persuade people of the benefits of free international trade (he would never have subscribed to the Common Agriculture Policy), of the need to deregulate markets and end all subsidies to commercial activities, and of the imperative to dismantle private monopolies, he would have replaced all nationalised monopolies (the Mint and the Post office excepted) with competition, but not with privatised monopolies, and he would not have been sympathetic to giant trade unions.

In that mix there is room for New Conservatives and New Labour. Hopefully, Gordon Brown’s interest will induce people to make their own minds up by reading Smith’s works. Meanwhile, I look forward to reading Iain McLean’s, Adam Smith, Radical and Egalitarian.”

Read Ian Johnston’s article in The Scotsman at:

Monday, April 17, 2006

Peanuts and the Markets

This article by Jim Blasingame is an excellent (and overdue) example of the correct use of Adam Smith’s legacy and worth reading in full from,1426,MCA_440_4626139,00.html)

Connecting the division of labour (which, incidentally, was not invented or first high-lighted by Adam Smith and he never claimed it was) to a basic example of its effects on economic development through the gradual extention of markets. The woman in question, Biutou Doumbia, humble station in life and illiterate, going about her small-scale business, does more to illustrate how markets grow in power to change the lives for the better of those touched by them.

The makers of the diesel powered grinder do their bit too (as do the maintenance workers and repairers). Scores of others besides Biutou Doumbia will add the services of the grinder to their processes, saving enormously on using their energies, physical strength, and above all time, which has opportunity costs on family life and obligations. So will the suppliers of the diesel fuels, the tranporters of the fuel, and back through its own supply chain and processes.

A small example, as the one that Smith borrowed from Diderot’s Enclyclopedia (1755), the pin factory he made famous in ‘Wealth of Nations’ (1766), carries significance if it educates general readers and students to understand an aspect of commercial societies than is important in Mail, Africa, and in developed capitalist societies in North America and Europe.

Congratulations to Jim Blasingame - potential April winner of the "Lost legacy Monthly Prize" for excellence in promoting the real Adam Smith - for providing this example of good writing - and for for publishing it.

Outsourcing savings may be peanuts by Jim Blasingame (in in Memphis, Tennessee, USA (©. All Rights Reserved) [,1426,MCA_440_4626139,00.html]

"Biutou Doumbia lives in a tiny village in the West African country of Mali. Biutou (sounds like Bee-oo-too) and her family live in poverty, very close to the line between survival and, well, you know.

Oh, one more thing: Biutou is a small business owner. She makes and sells peanut butter.
In Mali, as Roger Thurow reports in a Wall Street Journal article, peanut butter is made the same way African women have made other staples for millennia: by grinding the seeds on a rock with a large wooden pestle.

You might say that Biutou's operation is vertically integrated: She grows the peanuts, and then manufactures, sells and distributes her product.

Over two centuries ago, in "The Wealth Of Nations," Adam Smith explained how markets are made by the division of labor. And free markets created capitalism, which Ayn Rand called, "the only system geared to the life of a rational being."

Biutou doesn't know Smith or Rand from a warthog -- she's illiterate.

But she is one of Rand's rational beings. And as such, she recognized the efficiencies offered by the division of labor when a diesel-powered grinder/ blender became available. Now for 25 cent and a 10-minute wait, the sack of peanuts Biutou carries to the central grinding location turns into better peanut butter than she could make pounding all day with a pestle.

So Biutou now practices intermediation -- a fancy modern-day word for division of labor -- which is the process of employing contractors to create efficiencies. It's a valid business strategy, as is its opposite -- you guessed it -- disintermediation, the process of removing vendor layers, usually to get closer to our customers

(Jim Blasingame is the award-winning host of "The Small Business Advocate Show," and author of "Three Minutes to Success." Find Jim at

Sunday, April 16, 2006

Good Reception to Buchan's Book on Smith

James Buchan’s new book, Adam Smith And The Pursuit Of Perfect Liberty, (Profile Books, London) was published on 13 April and it has received a number of good reviews in the Sunday papers today. One such is by Paul Stokes in Scotland on Sunday (15 April): “Invisible hand just out of reach”. Its opening paragraphs caught my eye for obvious reasons:

Adam Smith is a philosopher more written about than read these days. In the past few years, a veritable industry has grown up, revealing what the works of this great Scottish thinker actually say. Of course, this is something of which the man himself could only approve. As a firm believer in the individual's right to pursue his own interest he could hardly do other than applaud the emergence of a thriving trade in ideas about his ideas.

Smith would be flattered that, more than 200 years after his death, people still care enough about his writing to dispute its meaning so often in print, although, he might also feel perplexed that his prose apparently allows so much room for disagreement.
Last year saw the publication of Adam Smith's Lost Legacy, a brief, accessible work by the Edinburgh economist Gavin Kennedy, which argued that Smith's ideas had been hijacked and misused by modern-day capitalists and adherents of the doctrine of laissez-faire. Now novelist and historian James Buchan offers a short, sharp, polemical biography of Smith which covers many of the same arguments, but in a style that is less scholarly, and with language that is considerably more robust

Paul Stokes exhibits familiarity with the work of Adam Smith in his review and is worth reading on those grounds alone. Of course, it is worth reading James Buchan’s book too, as he has some fresh ideas about Smith. Stokes picks up on one of them, for instance:

Buchan's big idea is that Smith's search for a guiding force in human relations, his famous invisible hand, was inspired by the death of his father before his birth. Here we enter the realms of psycho-history, and one person's view is as good as any other's. It is equally plausible that this significant event caused Smith to understand that life progresses best without direction from authority figures, which is what he actually said.”

I agree with Stokes that this assertion has the status of an ‘opinion’ – a conjecture, as Dugald Stewart, Smith’s first biographer (1793) would have put it – but it is from informed opinions such as Buchan’s that we make progress when sifting through the sparse details of Smith’s life.

On this occasion I would raise the issue that while Smith was brought up alone by his mother, she had a massive influence on his life because of her religious convictions. He was totally devoted for her throughout his adult years until she died in her 90th year. Such was his commitment to never upsetting her by his views on religion – he grew more and more dissatisfied with institutional Christianity as he grew older and witnessed the whinning behaviour of pompous Christian believers – he held back until she died from overtly attacking religion, except in coded language. I suggest if he was absent on authority figure, his father’s, he was very much aware of his mother’s authority towards whom he was devoted and which he regarded as a blessing.

This returns us to the single use in ‘Wealth of Nations’ of the metaphor of the invisible hand, which I have suggested in ‘Lost Legacy’ and this Blog many times, has been blown out of all proportion by commentators, scholars, journalists and politicians. Nevertheless, we should keep Buchan’s suggestion in mind.

Read the review at:

From Nice People to Totalitarian Monsters

I was surprised to listen to a BBC radio discussion (‘Five Live’) on what was described as Britain’s ‘Ecological Footprint’ from the ‘New Economics Foundation’ ( in which Andrew Simms argued that Britain should stop importing what it could and with substantial economic investment produce for itself. The basis for this suggestion is research from the Global Footprint Network which appears from its flash website to be well funded (

Alex Singleton (Globalisation Institute) commented (

Personally, I think we should celebrate our ability to buy from around the world, not just because it gives jobs and prosperity to other, less developed countries, but because it also gives us experience of a very wide range of varieties of fruit and vegetables, products and services.”

I assume most economists would agree with him. Tim Worstall also commented in two trenchant guest pieces on the Adam Smith Institute blog ( by referring to the report as being from what he renames ‘Non Economics Foundation’ from its self-proclaimed title: ‘New Economics Foundation’.

He asks, seriously, if the reports are ‘spoofs’ because they cannot be serious. He claims that the source of the research is the unusually secretive (for scholarly) research work in that the methodology of their basic model is not publicly available, so that other scientists could analyse and run the programs and try to replicate the results. If they find the model is flawed or the results cannot be replicated, this normally ends by discrediting the model. The Global Footprint Network states:

With over 4,000 data points and 10,000 calculations per country per year, national Footprint accounts document the natural resources (e.g., cropland, pasture, forests and fisheries) available within the country as well as the country’s demand on these resources.”

Its broad point is that if the rest of world consumed the same amounts of natural resources as Britain they would consumer 3 ½ World’s worth of resources (if the USA’s annual consumption of natural resources were consumed by the rest of the entire world it would use up over 5 World’s worth). I am not sure that this is a spoof; it is more likely that its authors and its fund suppliers believe it all to be true.

For broadly ‘leftwing’ sponsors such as Michael Meacher, MP (a former Labour Minister), Rhodri Morgan (Welsh labour leader) and various Green party activists and distinguished scholars, the implications are more than a trifle authoritarian, even scary, and certainly extremely, er, rightwing.

The world population as a whole must find the will and the means to enforce policies that could save the world from what they imply (predict?) will be a catastrophic calamity – read: mass starvation, ecological collapse, and terminal decline into barbarism – which would involve many highly controversial and draconian policies that must be introduced soon, if not sooner.

At root this means undoing the dependence of people on each other – that is overturn an important insight of Adam Smith that the basis of human harmony is the inter-dependence of each on all. In what the researchers see has the problem – the interdependence of disparate peoples on each other – Smith saw as the solution.

The division of labour lifted humanity out of the pre-stone age (absolute self-sufficiency) into inter-dependency (absolute self-insuficiency). The long march, by no means inevitable or secure – from the near absolute poverty of the first c.200,000 years of humanity (life spans of 25 years, local rates of birth near to below natural population replacement rates, fatal minor bodily injuries, species-threatening disease pandemics, and absolute ‘affluence’ at absolutely low living standards) to the agricultural and commercial societies from 11 - 13,000 years ago was often tenuous, nearly always violent and totalitarian, and thoroughly unpleasant for most people, particular women and children, but also for most subordinate men too.

To prevent you living on resources outside your own nation’s territory, and to end exporting and importing anything, is a formidable agenda. If the need is serious enough – and the doomsters never have doubts that it is – there would be an early resort to measures of enforcement if they could get into power or the power to influence those in power. If people will not voluntarily stop consuming goods from elsewhere, naval and land blockades would be needed to ensure that their edicts were carried out (‘Death to importers of lettuces and Belgian chocolate!).

What a picture the nice research scientists have of how the world actually works! People do not do what others decide is good for them. They do what they think is good for themselves - that’s why there is a (violent) trade in illegal drugs. On the scale they envisage for an end to international trade, do they realise that the simpler way than persuasion to stop large amounts of such trade would be to blockade, first, the ‘dispensable’ people around the world, i.e., those unable to resist being violently isolated by those powerful enough to isolate them, and later those peoples consuming anything that the powerful covet. It has ever been thus in human history.

The people who would thrive in such a world (dis)order would combine the evil ‘talents’ of men such as Stalin, Hitler, Mao, Pol Pot, and Mugabe. They would not include – for long – the nice researchers at the ‘Footprint’ project.

To reverse Smith’s insight into the growing dependence on others being the broad road to liberty, justice and opulence for the poorest orders in society, would never be easy or bloodless, and neither would it be ‘for our own good’. In Smith’s vision lies the solution to the world’s problems; ‘Footprint’ fantasies create much worse problems than the original problem.