Saturday, September 30, 2006

To Test For 'Exploitation' Ask: 'compared to what?

From a comment on Harry’s Place (a political Blog) in a discussion on globalisation and attitudes among ‘white liberals’:

Johan Norberg's book In Defense of Global Capitalism is very good (and readable) on this. His basic argument is distilled here:

Ten years ago, when Nike was established in Vietnam, the workers had to walk to the factories, often for many miles. After three years on Nike wages, they could afford bicycles. Another three years later, they could afford scooters, so they all take the scooters to work (and if you go there, beware; they haven´t really decided on which side of the road to drive). Today, the first workers can afford to buy a car.

But when I talk to a young Vietnamese woman, Tsi-Chi, at the factory, it is not the wages she is most happy about. Sure, she makes five times more than she did, she earns more than her husband, and she can now afford to build an extension to her house. But the most important thing, she says, is that she doesn´t have to work outdoors on a farm any more. For me, a Swede with only three months of summer, this sounds bizarre. Surely working conditions under the blue sky must be superior to those in a sweatshop? But then I am naively Eurocentric. Farming means 10 to 14 hours a day in the burning sun or the intensive rain, in rice fields with water up to your ankles and insects in your face.

Globalisation excites many people and the debate stays stuck at the macro-level. It sometimes helps to get down to the micro-level to get perspective – a device that Smith used throughout Wealth of Nations and against which many neo-classical economists complain, ‘divergences’, etc.
Our predecessors did the same throughout the 19th century – ‘dark satanic mills,’ etc.

They sometimes talks as if, before the factories came, the families of common labourers and servants, spent their short lives as an idyllic life in the sunshine, feasting on nature’s bounty, drinking beer and dancing round May poles, or playing the bagpipes.

Before the factories in India, etc., the lives of the exploited children was as likely to be one of prostitution (hetro and homo), of long days in the fields and of no schooling whatsoever. The well-healed, well-fed, well-educated demonstrators in the West, who spend more to get to G8 summits to vent their spleen against globalisation than the wages of the recently globalised workforces they wish to return to their pre-factory work lives, though they have never worked on a peasant farm or in a factory to understand the differences such developments mean to the 'victims'.

Read the entire piece and the debate at: under ‘Bad to the Bone’ posted by ‘Graham’.

Smith Had Nothing to Say on CSR- for or against!

Corporate Social responsibility (CSR) is a modern proposition. Much of it arising from the problems associated with pollution, or with extractive methods that do not account for the environmental damage a firm’s operations cause to a locality.

Two responses already exist, or can be put under the ambit of laws, namely that polluters pay and that extraction processes must include the cost of restoring the land or sea to the situation before the process commenced. If ‘clean up’ costs make an operation unprofitable, then it should not commence, until technology resolves the clean up requirement.

But CSR that goes beyond these type of requirements, to requiring a firm to engage in social expenditures that do not arise from its operations, when not voluntarily offered, and are really an additional ‘tax’ on its revenues, in addition to the taxes on employee incomes, on local taxes for local amenities provided by local taxpayers, and on its profit taxes and other charges, are problematical. They are also the subject of current debate.

In (‘where your opinion counts’), Wayne H. Winegarden Ph.D., Chief Economist, Economic Solutions, makes a case against CSR in its wider sense. My problem with his article is not his opposition to CSR, but is that he ropes in Adam Smith, quite inappropriately in my view, to suggest that his writings provide ammunition against wider CSR, a line taken by Milton Friedman some time ago.

Wayne H. Winegarden writes:

Economic theory posits that by pursuing one’s self interest, the greater good can be achieved. As Adam Smith famously noted, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” Free markets work because generally, Smith’s observation provides the optimal social outcome.

CSR proponents argue that this is not the case for modern corporations. They claim that private individuals serve their private interests at the expense of the public interest. The solution, which should come as no surprise, is an elaborate CSR scheme that redefines private interests of corporations to include public concerns. This definition contradicts the very foundations of our free market economy and society, and consequently poses a clear and present danger to the health and vitality of our economy.

To require that private company investments should also include public development investments redefines the basic economic principles that are responsible for the unprecedented welfare gains our economy has produced over the past 300 years. These are the benefits that Adam Smith was describing in his famous quote. They are the best way to ensure prosperity now and in the future – for both private individuals and the broader community.”

‘Economic theory’ in its neo-classical form certainly does advance that argument, but Adam Smith did not. The famous reference to the ‘benevolence of the butcher, the brewer, and the baker’ had nothing to do with CSR (a wholly modern phenomenon); it was about the exchange process that enabled trade to function.

Nor did self interest automatically mean that ‘the greater good can be achieved.’ It could as easily, and in Smith’s day often did, mean that an individual’s self interest could have malign, not benign, outcomes for society.

The lifting of only one part of the possible outcomes of the exercise of self interest and transmuting into a universal ‘law’ of ‘the optimal social outcome’, does great disservice to the development of appropriate social policies and to the reputation of Adam Smith, a far more nuanced theorist than presented by the dogmatic school from Chicago.

Wealth of Nations contains many more examples of malign self-interest operating for personal gain at the expense of others, of which the many cases of mercantile political economy are the most well known. Competition was favoured, not because it arises automatically, but it was the only way to ensure that individuals were disciplined by a force they could not subvert.

So unreliable was the motive of self-interest on its own to provide the optimal outcome and so distrusted was the benign nature of self-interest alone, that the power of competition was required to override the monopolizing tendencies of self-interest.

In passages related to the ‘butcher, the brewer, and the baker’ Smith draws attention to the need for the parties to trading transactions to mediate their conflicting self-interests by their addressing the self-interest, not of themselves, but of the other party. Self-interest is not enough! Self-interest brings the parties to the verge of a beneficial trading transaction (you want your dinner, and the butcher, brewer, and baker’ want your payments – to provide their means to other trades); itisin the mediation of their differences, not the unrestrained insistence of their own self-interest, that results in the ‘optimal outcome’, when, that is, both parties reduce their initial demands and raise their initial offers, otherwise known as bargaining.

Only in this Smithian interpretation of what he meant by the ‘benevolence’ passage is it true that “Free markets work because generally, Smith’s observation provides the optimal social outcome” from their transactions. That is why the first requirement of corporate responsibility includes the full costing of a corporation’s impact on the environment (polluters pay; full cost restoration of environmental damage or disruption).

Whether it should go further is a matter of debate, to which Adam Smith had nothing to say. for or against. We must use our own (new) arguments to these ends and not appeal to the authority of a name, and misinterpretations of his legacy, to make a case inappropriately.

Target Euro Regulators But Leave Smith Out of It

Problems in markets that are put down to regulators with political agendas owe much to mercantile policies much criticised by Adam Smith.

An article illustrates this point in ‘The Motley Fool at’, called: “Free Markets? In Europe?” by Rich Smith (TMFDitty) at:

Right No. 2: Shareholders win when regulators step out of the way and permit free markets to work as good old Adam Smith intended, shareholders win. I have little doubt that the CNE imposed stricter conditions on E.ON's bid than on Gas Natural's, in hopes that the former would bow out and allow the latter to proceed with acquiring Endesa. If that had occurred, then Endesa shareholders would have involuntarily paid $7 billion for the "privilege" of keeping Endesa Spanish.

National pride may warm the heart, but it does little to fill the wallet. In contrast, now that the Competition Commission has forced Spain to swallow its pride, E.ON has already upped its bid to $47 billion -- raising the "national pride premium" to a cool $20 billion. Hey, call me a Tory if you want, but if Prince Charles ever offers us $20 billion to buy the Liberty Bell, I'd vote we take the money and run.”

“The more so because the Competition Commission has rudely failed to shake Adam Smith's Invisible Hand in recent years. It
incessantly hounded Microsoft (Nasdaq: MSFT) for competing too effectively, attempted to turn eBay(Nasdaq: EBAY) into a unpaid tax collector, and quashed the merger of two U.S. companies, GE(NYSE: GE) and Honeywell(NYSE: HON), in 2004 (in order to protect Europe's own aerospace industry). Under Ms. Kroes's hegemony, this so-called "Competition" Commission has proven itself no friend to competition from outside the borders of the European Union.”

Why Rich Smith thinks Adam Smith would endorse such a silly ‘sell everything and anything for money’ policy I do not know.

I have no feelings about the ‘Liberty Bell’ one way or another but it seems Smith’s response to such a suggestion would have been to which other use of $20 billion would add the most to annual net revenue. I also suggest you might want to wonder where Prince Charles would get $20 billion from, whether his cheque would bounce and whether he was good for the money! (Historians might wonder for what reason would he want the Liberty Bell?)

As for “has rudely failed to shake Adam Smith's Invisible Hand in recent years”, apart from 9 out of 10 for clichés associated with Adam Smith’s name, although his use of the metaphor had nothing to do with markets, it is a really silly use of it anyway.

Rich Smith is on the right track about the regulators in Europe, but why he needs to bring Smith into the quarrel (as well as the luckless Prince Charles) is beyond me.

Rich Smith is on the right track about the regulators in Europe, but why he needs to bring Smith into the quarrel (as well as the luckless Prince Charles) is beyond understanding.

Friday, September 29, 2006

How Not to Be Invited to Visit Cambridge

Gareth Stedman Jones at Columbia University's ‘Reclaiming Adam Smith Conference’ at the Centre for History and Economic (Cambridge), where he is also Professor Political Science, and a fellow of King’s College. In short, they do not come much higher in British academe.

This he demonstrated eloquently in his paper, ‘When Did Smith Join the Neo-cons?’, which gave a highly competent and ranging analysis of what happened to Smith’s reputation among both left and right in the century and more after his death in 1790, with more focus on the early part of the 19th century.

There is not much more I can say about his contribution without breaching the protocol of the conference against citing or quoting from the conference papers. However, in every other paper this request is included below the title, but in Professor Jones’s paper it is absent. Does this mean I can refer to it or not? This is quite a poser, with caution suggesting not and the recklessness of retirement suggesting otherwise.

However, despite my retirement, and no longer a young academic ‘who lived dangerously’, as a professor-mentor once cautioned me privately at my first promotion, I shall desist from slipping between a busy contributor’s omission and commenting generally (and ‘Ken’ from his heavenly vantage point can smile indulgently that I have finally heeded his advice of 32 years ago).

In so far as I do comment on three minor matters, I shall plead for forgiveness rather than prior permission. After all, the paper is as one expects from a Cambridge Professor and judging by his physical ‘presence’ I take it that Professor Gareth Stedman Jones is well able to look after himself.

The most minor of comments is that his paper was poorly proof read, if read at all. This is not important in Blogs, or at least not as important, as it is in conference papers. The paper was finished on 15 September, probably against a deadline and no doubt Gareth was extremely busy. But I noticed no similar ‘typos’ in the other papers.

The second minor comment relates to the date of Adam Smith’s death. This could be a slip under the pressure of delivery, though among Smith scholars it was bound to be picked up when he first talked of Smith’s death in ‘1792’, instead of 1790. When the same error of his death in 1792 was repeated later in the talk I wondered.

My third and last comment is less than ‘trivial’ but again not earth-shattering. Gareth made three references to the ‘dismal science’ without once drawing the attention of the audience, not many of which were economists, to the literary origins of the term in Thomas Carlyle’s 1849 pamphlet of his defence of slavery and his brutal criticism of John Stuart Mill’s defence of the humanity of negroes taken into slavery in the West Indies and some states of the American Union.

Carlyle dismissed economists for their ‘dismal science’ because J S Mill recognised negro slaves as human beings on the same standing as white Europeans. Carlyle wrote this pamphlet under the title of ‘An Occcasional Discourse on the Negro/Nigger Question’ (depending on which edition is quoted). It had absolutely nothing to do with the economics of Ricardo or Malthus, or Bentham, and, we must note, emphatically nothing to with Smith’s account of economics in Wealth of Nations.

I spoke privately to Professor Jones immediately after he had finished speaking. He noted what I said, or rather what I started to say, and dismissed my concerns, saying he was only quoting the usual relationship credited to ‘dismal science’ and was perfectly aware of Carlyle’s role.

I returned to my seat suitably chastened by the professor’s authority, but was not happy that his reasons for repeating three times without mentioning the same false perspective on the origins of ‘dismal science’ was an appropriate justification for his choice of words to an audience of fellow academics.

● For an authoritative survey of ‘The Secret History of the Dismal science: economics, religion and race in the 19th century’ by David M Levy and Sandra Peart see:

●For a downloadable academic paper on the origins of the ‘dismal science’ in Carlyle’s racist pamphlet see:

●For an acknowledgement of Carlyle’s awful invention of the ‘dismal science’ and a case for keeping it in circulation because Ricardo and Malthus were dismal, see:

● For a recent rebuttal of its wrong use in 18th century economics and its correct origins in Carlyle’s pro-slavery criticism of J S Mill, whiule throwing it back defiantly see:

Need I say more?

I shall discuss Istvan Hont’s contribution tomorrow.

Thursday, September 28, 2006

Poverty is Society's Default Mode - Don Boudreaux

Don Boudreaux, of Café Hayek, one of the liveliest of Blogs from economists, puts his finger on what Adam Smith was about compared to that other giant in the history of the discipline, Alfred Marshall, (before the locus of major advances in economics passed across the Atlantic). I offer an extract, but you should read the rest of his short piece at:

“The Causes of Poverty?” by Don Boudreaux

“[The Wealth of Nations] written just as the booster rockets for humanity’s great wealth explosion were being ignited, Smith inquired into the nature and the causes of wealth. Smith understood that the phenomenon to be explained is wealth. Wealth doesn't just happen; it is not humanity’s default mode. Wealth must be created; therefore, wealth has causes.

Writing a mere 114 years later, another illustrious economist, Alfred Marshall, wrote on page two of his justly celebrated Principles of Economics of “the causes of poverty.” Marshall wrote these words as part of his explanation of why the study of economics is useful. But writing after the fruits of the wealth explosion began raining down widely, even as astute a mind as Marshall missed the fact that poverty has no causes. Poverty is humankind’s default mode. It’s what exists if we do nothing. “Creating” poverty -- causing poverty -- is no challenge whatsoever.

Escaping poverty has causes – that is, wealth has causes.

This point bears repeating. Poverty has no causes. Wealth has causes.

But capitalism has been so enormously successful at producing widespread material abundance that we today -- like Alfred Marshall in 1890 -- regard wealth as innate to our existence, as our default mode. It is not. The set of institutions that will promote the creation of widespread prosperity is minuscule in number compared to those that prevent people from creating material prosperity.”

I like Boudreaux’s designation of poverty as the ‘default mode’ of society. With an economy of a few paragraphs, Boudreaux conveys the most important idea of what creates wealth, which, absent its creative forces, it leaves people in poverty. Where these creative forces of wealth creation are frustrated, or worse, deliberately suppressed, poverty reigns.

That so many of those who are rightly concerned about poverty and its effects on people are themselves wedded to ideas that perpetuate poverty is one of the most remarkable of paradoxes of history.

The 18th-Century Chartered Companies Were Not 21st Century 'International Trading Companies'

Three contributors remain to be discussed in the remaining reports of the Columbia University Conference, ‘Reclaiming Adam Smith’. They all cover political economy in the 18th-century sense, i.e., about politics and economics.

I start with Sankar Muthu (Princeton) who delivered (in first-class teaching form) ‘Adam Smith’s critique of International trading Companies: theorising ‘globalisation’ in the age of Enlightenment’, which was a well-based study of Smith’s thoughts on an aspect of international trade.

The protocols of the conference prohibit my commenting directly on what Professor Muthu said (and wrote in the accompanying paper distributed to participants). This rule is particularly unhelpful on this occasion as there is much I wish to say directly about Professor Muthu’s paper but doing so without citing directly from the paper weakens my comments from the point of view of readers of Lost Legacy, because there were nuances in his actual statements not represented in my comments. I spoke directly to Professor Mutu during Saturday morning’s coffee session about my concerns and he responded positively, without rancour, as typifies a serious and courteous scholar, which he clearly is.

Let me speak generally then about the subject of Smith’s critique of the 18th century ‘international trading companies’. My main point is that we have to be careful in reading Wealth of Nations (Books III and IV) to downplay the limited modern relevance of Smith’s criticism of the nature of the trading companies about which he wrote. The Charetred Companies were not in fact analogous to the modern ‘international companies’ that operate across the world today in many countries (IBM, Microsoft, Boeing, John & Johnson, BP, Shell, Mobil, and so on). ‘Globalisation’ should be used with great care when back-projecting the term to the 18th century.

On the surface they had analogous forms: joint-stock company structures, run by boards of directors on the basis of share capital are prominent similarities, but like the Carronades retrofitted to 74-gun warships of the Royal Navy in Nelson’s time, they are not usefully analogous to satellite-guided cruise missiles fitted to modern warships and nuclear submarines.

Their similarities hide many significant structural and situational differences. In the 18th century the common form of business ownership was ‘co-partnery’, where the owners risked their capital and were liable to the full extent of all their personal property for business debts. The owners managed the business (or risked their capital to someone else’s decisions and behaviour). Overseas trade was similar in investors taking a share in the ‘venture’ that fitted a ship and loaded it with cargo for a single voyage for sale abroad, purchase of return cargoes and a share in the profit of the voyage on its return, whereiupon the venturer's liabilities were dissolved. If the ship sank, was taken by pirates or the captain ‘ran’, they lost their money. In short, overseas business (and domestic) was very risky – investors could lose everything.

The 17-18th centuries joint-stock company alternative was viable (not as in today’s version, a 19th-century legality open to any business, with risk confined to limited liability for the investment in shares), only because of its Chartered status, awarded by the King, which protected the shareholders to the extent of their share capital only. For this reason they raised considerable capital sums for what were risky ventures in foreign lands, aided by the additional proviso that the King’s Charter gave them an absolute monopoly of trade in a foreign country or region. Without their Royal Charters it is most unlikely that these companies would have attracted financial support, except on a much smaller scale of single-ship ventures of little economic significance, except over the very long run.

The East India Company, the salient target of Smith’s biting criticism in Wealth of Nations had a particularly special monopoly of all trade from India (defined as commencing east of the Cape of Good Hope and west of Cape Horn). Bear in mind too, that the Pacific was hardly explored - Cook’s three voyages of ‘discovery’ (Australia, New Zealand, Hawaii, Behring Straits) took place in the third quarter of the 18th century – and the Dutch were extremely secretive (and violent) about protecting the location of, and routes to and from, the Spice Islands in their part of [Indonesia]. The only ships that always passed unhindered in the area under the Royal Charter were ships of the Royal Navy - who would dare try to stop them? (The East India Company made silly efforts after 1788 to prevent the King's new penal colony of New South Wales from trading because this breached, it claimed, the East India Co’s monopoly.)

Hence, when we extrapolate much of the language (and with it the criticism) of Wealth of Nations to modern ‘globalisation’ we must take case to recognise their different contexts.

Meaningful similarities between the Chartered Companies do not include their joint stock structures or the separation of directors from shareholder owners. One of the most powerful ingredients of criminality in the East India Co was the distance in miles and time between London government and Company activities in India. It took seven to nine months to send by sea letters of instruction and similar time to receive replies and reports. For much of the time the Company was independent of supervision and the remedies to the circumstances (largely provoked by Company staff) occasioned by their behaviour. Death rates from disease were high, encouraging Europeans to remove restraints on their appalling and rapacious behaviour of outright plundering to make their money and get out as quick as they could. In short, these were special circumstances that are not attributable to today’s highly mobile communications (24-hour news cycles) and free media, inquisitive governments - and oppositions - and investigative agencies.

Constant use of the nomenclature of ‘international trading companies’, as if Smith was talking of specific traits inevitably associated with 18th century Chartered Corporations could be misleading. Modern corporations may be exposed to critiques today, but such critiques should not be supported by Wealth of Nations as if Smith and today's researchers are talking about the same phenomenon.

Smith criticised the Charter Companies, both when they were committing extreme cases of malfeasance (and worse), like in the East India Co, and when they were just bad loss-making investments from their incompetence or lack of commercial opportunities. The answer was not to apply co-partnery rules to the trading companies, nor to ‘clean up’ the Chartered companies; it was to allow in open competition by private adventurers, and to withdraw from the Chartered companies their monopoly status, and back-up such changes with the resources of the Royal Navy (as with enforcing the end of the slave trade).

This means disconnecting Smith’s perfectly accurate critique of Chartered Trading Co’s from modern debates about ‘globalisation’, by highlighting the differences, and not the nominal similarities. Unfortunately, this was not done at the time in the 18th and 19th centuries and the East India Company slid into the ad hoc adventures of the British Empire, possibly the worst mercantile decision in three hundred years of mercantile political economy.

Sankar Muthu is the author of Enlightenment Against Empire (Princeton 2003) and he is working on a new book, Globalisation in Enlightenment Thought: commerce, communication and crossing borders.

Tomorrow’s report will cover Gareth Stedman Jones and Istvan Hont’s contributions.

Wednesday, September 27, 2006

Out of Context but Still a Good Quote

Not for the first time, nor I suspect for the last time, I refer to John Stossel, a punchy free market US columnist and radio host. On this occasion he is reviewing Timothy Carney’s recent Cato Policy Report, "The Big Ripoff: How Big Business and Big Government Steal Your Money" in Town Hall TalkRadio: ‘Big business loves government’ (27 September 27)

Included is this paragraph:

Another friend of the free market hated the business-government alliance: Adam Smith. In "The Wealth of Nations" Smith wrote, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the publick. . . . But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."

Yes, that’s a fair quotation from Wealth of Nations (WN I.x.c.27 p 145). To be clear, Smith was talking about small tradesmen combing in Guilds to create monopoly privileges in small 18th-century Towns and generally conspiring to raise prices by keeping supplies limited to their own products.

It was one of these Corporate bodies that refused James Watt leave to practise as a mechanic because he had not served the obligatory seven years apprenticeship in 1756. Smith and his fellow professors gave him a post as University instrument mechanic and space in the university to conduct his work. Fortunately for history, Glasgow University grounds were ‘outside’ the city boundaries and the Guild Corporations writ did not cover them.

Today’s big business enterprises had nothing in common with the type of ‘trades’ Smith talked about, but the point is well taken as made in the context Stossel refers to.

Read his article at:

Carlyle, Much Lauded Man of Letters and a Disgrace to Humanity

Brad Delong on his inimitable Blog performs a useful service in revealing more dubious filth from Thomas Carlyle, lauded man of letters, but also a man of appalling views on poor people, black slaves, and economists. Read this short extract:

“Enemies of economics: Thomas Carlyle and his ‘Latter Day Pamphlets’:
[T]o these floods of Irish Beggars, Able-bodied Paupers, and nomadic Lackalls, now stagnating or roaming everywhere, drowning the face of the world (too truly) into an untenantable swamp and Stygian quagmire, has the Chief Governor of this country no word...?... Perhaps... the following...: Speech of the British Prime-Minister to the floods of Irish and other Beggars, the able-bodied Lackalls, nomadic or stationary, and the general assembly, outdoor and indoor, of the Pauper Populations of these Realms.

"Vagrant Lackalls, foolish most of you, criminal many of you, miserable all; the sight of you fills me with astonishment and despair. What to do with you I know not; long have I been meditating, and it is hard to tell. Here are some three millions of you, as I count.... The question, What to do with you? especially since the potato died, is like to break my heart!
"One thing, after much meditating, I have at last discovered.... Vagrant Lackalls, I at last perceive, all this that has been sung and spoken, for a long while, about enfranchisement, emancipation, freedom, suffrage, civil and religious liberty over the world, is little other than sad temporary jargon, brought upon us by a stern necessity,--but now ordered by a sterner to take itself away again a little. Sad temporary jargon, I say: made up of sense and nonsense,--sense in small quantities, and nonsense in very large... no better than fatal infinite nonsense eternally untrue. All men, I think, will soon have to quit this....’

Brad Delong comments:

“We are proud to have such enemies.
Note that this is not cherry-picked. Carlyle has much worse: his "Occasional Discourse on the Nigger Question," for example.”

Need I say more? Congratulations to Brad delong for publicising Carlyle's views on Irish immigration in the 19th century. He has his imitators today who go on about 'threats' of Polish, Romanian and Bulgarian immigration today with equal empty credibility.

I shall return to Brad’s posting and his comment on Carlyle's notorious essay (1849) in my third report of the Columbia University Conference tomorrow.

Reclaiming What From Who?

Report Part 2: Columbia University conference

Immediately under the title of the Columbia Conference, ‘Reclaiming Adam Smith’, the first thing I wrote on my note pad was: ‘from “what” or “who” are we reclaiming him?’ At the end of the conference I was in no better position to answer my question.

About half way through, I concluded, provisionally, that it was about reclaiming Smith from (neo-classical) economists, not because this was made explicit but because I could identify nobody else who was the ‘culprit’ from what I had heard so far, and as I had heard nobody who sounded like an economist, by elimination I concluded they must be the ‘target’. Yet, by the time that contributors began to consider some economic ideas, I was not so sure, because an underlying theme among all contributors was an acceptance of the assertions of neo-classical economists in some fairly clear litmus tests that I apply to views about him in ‘Lost legacy’.

For example, Smith was associated with the theory of ‘the’ invisible hand (not, of course by Emma Rothschild, who demolishes that notion in her magnificent ‘Economic Sentiments’), and all speakers assumed Smithian economics to be synonymous with laissez-faire, despite his not using such a concept in his writings, which, to the contrary, include quite a bit about how ‘merchants and manufacturers’ cannot be trusted to desist from monopolistic practices, hence they cannot be ‘left alone’, as per laissez-faire. There was too little time in the busy agenda for interventions along these lines, and anyway I was there to listen and learn.

But if it is not the economists from whom we must reclaim Adam Smith, then who? At the end of the conference I was none the wiser. A participant who spoke to me at the Warden of Barnard College's reception, as the conference ended, offered, without prompting, the same question with his answer that the English faculty wanted to ease themselves into Smithian studies (‘Lectures on Rhetoric and Belles Lettres’, and Smiith's essays on poetry, plays and dancing, all published posthumously) and reclaim him for ‘literary and cultural history’. Emma Rothschild wondered in her supplementary remarks, about the 'covert agenda, or one of them'(!) behind the conference. I would have liked to ask her what she meant by these innocuous remarks.

Well, in my mind the field is large enough for all disciplines to contribute their perspectives. Two literary contributions from James Chandler, University of Chicago, (‘Smith and Sentimental Mobility’) and Ian Duncan, Berkeley, (‘The Fate of Sympathy’) attracted genuine attention – I certainly was stimulated by them - though it had little to do with political economy; all means to get closer to Smith’s holistic thinking are appropriate, but this was not ‘reclaiming’ as I understood the title.

James Chandler’s linking of sentimental perspectives of ‘players’ – especially his account of ‘stage play’ single view perspectives, and the cinematic techniques of ‘cutting back and forth’ (shot and reverse shot) among talking heads, seemed to strike a chord among those I spoke with about his imaginative allusion to the mediation of moral sentiments.

Along complimentary lines, Ian Duncan, opened discussion of Scottish historical thinking (Walter Scott’s Redgauntlet, 1824, and his many historical novels, and James Hogg’s ‘Private Memoirs and Confessions of a Justified Sinner’, 1824) and the Enlightenment, with Edmund Burke (Philosophical Enquiry into the Origin of our Ideas and the Sublime and beautiful, 1757) thrown in. This was a strong paper and it would have benefited from more time for more elaboration (he lectured well, too). The respondent, Kirstie McClure, UCLA, was enthusiastic about his ideas (she also teaches political science to English students) and was the last person with whom I briefly discussed near the end of the conference (we shared a space during coffee), indicating in my mind that some evening session (informal dinners) would have been most productive if they had been loosely arranged for participants to engage with others to develop their ideas. I certainly would have benefited from hearing her thoughts developed. Where people do not know each other it is difficult to match them by leaving them to their own devices; generally those who already ‘know’ each other make such arrangements; strangers are left to drift off, as I did.

Sam Fleischacker (University of Illinois) was a strong ‘first bat’ on behalf of philosophy, speaking on ‘Hume and Smith on Sympathy’. It was a brilliant technical performance, typical (that is not meant to be derogatory) of a clear thinking, even fastidious, philosopher professor in complete command of his material (I speak after many School Boards and University committee meetings where the association of high intelligence and common sense are rare aberrations). He focussed on the relations between ‘ideas’ and ‘imagination’ in Hume and Smith, but being ignorant of Wittgenstein’s work, and Kant’s significance (I know of the ‘categorical imperative’, however) and I missed aspects of his argument, which may be crucial to his paper’s conclusions; an offence, I suspect, no student of his is allowed to commit.

This was the session much affected by lousy acoustics and poor voice projections from interveners (not Sam Fleischacker), so I missed large parts of the brief discussions from the other side of the room. Unfortunately too, Sam had to leave sharp that afternoon to return home to Chicago for an important family event, curtailing a too short discussion. His book, 'On the Wealth of Nations: a philosophical companion' is high on my list of favourite books on Smith.

Later today, perhaps, but certainly tomorrow, I shall report on themes in papers by Gareth Steadman Jones (Cambridge) and Sankar Muthu (Princeton), and Ivan Hont.

Tuesday, September 26, 2006

Back at Work! Reporting from the Columbia Conference (part 1)

As announced last week, I was in New York until last night, the purpose of my visit was to attend a conference entitled ‘Reclaiming Adam Smith’, organised by the Columbia University Seminar on Studies in Political and Social Thought, the Heyman Centre for the Humanities, the Conference for the Study of Political Thought, and the Office of the Provost, Barnard College. I know, a long intro but academic politeness mandates a full reference.

Taken as a whole it was an illuminating experience. Despite the room changes, I managed to find tmy way to the sessions. Apart from Professor Chris Berry, Glasgow University, I knew nobody who attended, except by the writings of a few of them. In that sense it took some time over the two days before I was spoken to or I spoke to anyone. I went up and introduced myself to some people but felt awkward, I must say, at the cool, not to say, cold reactions. On reflection, perhaps many others were also strangers to each other and my experience was more general than it seemed. Perhaps, though, they thought I was a ‘nutter’ of some kind – well I did have a suit on, which probably worried anybody not from a Business School (er, joke!). I am an economist, of which there seemed to be few, if any others at all.

Let me get some negative comments out of the way. Most of the people attending were experienced and distinguished academics but the absence of elementary speaking skills surprised me. Too many considered that it was an acceptable standard of public performance to speak in a low-level conversational style unsuitable in rooms that were large, had appalling acoustics, and ignored the possible interest in what they were saying among the fairly spread-out audience of 50 others, plus the platform speakers. Even most of the platform speakers (with some notable exceptions) seemed to ignore the microphones, didn’t know how to adjust their height and direction, and also mumbled their responses to questions and interventions, a failing that, frankly, amazed me. Maybe there were not used to such a ‘large’ audience, which might explain the room changes. Hence, I missed much of the interactions in some of the sessions, which was a pity, given the high interest I found in what those floor speakers had to say who spoke loudly and clearly.

All the speakers read their papers (except one, a brilliant theorist of whom I shall report on tomorrow), which were handed out on the second morning and which I have since read carefully. They make excellent reading. All the authors of the printed papers request that they not be quoted from as they represent ‘work in progress’ and I am obliged to respect the authors’ embargoes under the normal rules of academic courtesy. Any comments I do make on what was said will be from my own notes and not from the written papers, and should be treated with caution and not as the final thoughts of the distinguished authors.

I would like to comment first on the ‘joint-star’ of the conference (in fact he slightly edges it), Nicholas Phillipson, Emeritus Reader in History at the University of Edinburgh. Until the conference I had not heard of him or his work (though many other attendees did know him, judging by how warmly they greeted him during the intervals). I found his performance outstanding, as he showed everybody how to lecture, and he clearly followed Adam Smith’s advice in ‘Rhetoric and Belles Lettres’: to know his subject (he does), to be perspicuous (he was) and to be enthusiastic (which he is in spades).

He is writing an intellectual biography of Adam Smith, of which, if his session was but a sample, augurs well for what is coming, to which I certainly await with anticipation of not being other than educated in aspects of Adam Smith, so far untouched by what has been written to date. Meanwhile, I shall look for his previous publications.

His close ‘joint star’ was Emma Rothschild, author of the magnificent ‘Economic Sentiments: Adam Smith, Condorcet and the Enlightenment’ (2001), an excellent example of scholarship. She too spoke clearly, enunciating with perfect pronunciation her English and her French, and gave an account of Smith’s views on Empire and the connections he had with some close friends who had within their households individual slaves from the colonies and Africa. Smith, of course, opposed slavery on both economic (it was less efficient compared to wage labour) and moral grounds (it condemned human beings to the level of ‘the jail refuse of Europe’). It was her command of the detail that was impressive and the way she wove it into her themes of Smith’s views that colonies and empires were a false road to the creation of wealth, upon which he banked his vision of a general opulence, particularly for the labouring poor. The ‘empire’ project took off in earnest after the end of the Seven Years War (1756-63), the real First World (European) War, and its effects were much deeper felt in the British political establishment than I had realised to that point.

I remember taking the ‘Economics of Empire’ as an undergraduate and what Rothschild outlined in her paper fitted with my distant memories of my classes and readings. The ‘loss’ of the American colonies and the rising importance of India drew Britain into Empire, with all of its consequences - wars of conquest, national rivalries, and the waste of blood and treasure, let alone much of the miseries of the populations affected. Empire was a mistake of gigantic historical proportions and a set back for Smithian wealth creation, mitigated marginally by a minority of British colonial officials who did a good job, despite official disinterest and political scheming).

The colonies annexed in the late 19th century, in the main, represented dead losses to Britain and this is underlined by the direction of outward capital flows, not to Africa and India, but mainly to America (no longer a colony), with fewer capital flows to Canada, South America (also independent ex-colonies), South Africa and Australasia, but they were larger than what went to the colonies proper. Lenin’s ‘Imperialism, the highest stage of capitalism’, was totally wrong in seeing colonies as essential to capitalism; the British experience showed differently – they represented net losses, not gains.

I shall return to the second part of my report, plus my conclusions, tomorrow.

Thursday, September 21, 2006

APOLOGIES: while I attend an academic conference in New York

Apologies, but there will be little, if any, Blogging from Thursday (21st) to Tuesday (26th) because I am visiting New York to attend an academic conference, ‘Reclaiming Adam Smith’, at Columbia University (22nd-23rd) (Millbank Hall, 3009 Broadway).

Regular readers may guess why I am interested in what US and European academic colleagues have to say on this subject.

If my wireless laptop works I may be able to connect sometime (I am never that confident about the technology in these matters).

You can read from the archives, back to March 2005, from the buttons on the right of this page, or from the articles and comments from the buttons on the left on the home page.

No doubt, I shall have lots to report about the state of Adam Smith scholarship when I return.

Wednesday, September 20, 2006

An Appreciation of Smithian Economics from India

A ‘strange’ article in News Today (India), not because it includes ideas I disagree with, but because it is not clear what the point is in publishing it. You need to know who Narasimha Rao was to reads it:

Narasimha Rao (
June 28, 1921December 23, 2004) was the ninth Prime Minister of the Republic of India, and led possibly the most critically important administration in national history. A polyglot, Rao could read and write in 17 languages.He could speak and write Urdu, Marathi, Hindi, Telugu and English like a native. He learnt European languages like French and Spanish too. He translated Jnanpith Award winner Viswanatha Satyanarayana's Telugu novel Veyi Padagalu (literally Thousand Hoods) into Hindi as "Sahasr Phan". Rao studied at Osmania University and the Universities of Mumbai and Nagpur, acquiring Bachelor's and Master's degrees in law.Rao was an active young freedom-fighter, and after independence, joined politics full time. Rao served brief stints in the cabinet (1962 - 1971) and chief ministries (1971 - 1973) for the state of Andhra Pradesh. When the Indian National Congress split in 1969, he remained loyal to Prime Minister Indira Gandhi, and stayed so during the national emergency (1974-1977). He then rose to the national level in 1972 by serving in several ministries, most significantly home, defence and foreign affairs (1980 - 1984), in the cabinets of Indira Gandhi and Rajiv Gandhi. He was the first PM from South India and Andhra Pradesh.After the assassination of Rajiv Gandhi and the general elections of 1991, Rao was chosen to lead the Congress party, and when Congress won a plurality in parliament later that year Rao was invited to head a minority government. He was the first person outside the Nehru-Gandhi dynasty to serve as Prime Minister for five continuous years. He was also the first prime minister to lead a minority government for a full term (five years). This is a singular achievement in the stormy, corrupt and torn world of Indian politics.”

Obviously an important person in the dramatic changes in India society who steered through the reforms to set markets free of State management and regulation that have led to massive social changes in India. Tens of millions have been lifted out of abject poverty, no mean task given from whence India began, post-independence. State socialism failed in India as it did elsewhere in Russia, China and Eastern Europe (and Cuba!).

Here is what the author says about Adam Smith in News Today (India 20 Sept 06) where V Sundaram writes:

'The Wealth of Nations' introduces readers to the world of philosophy, politics and business with the sharp, sceptical, yet ultimately optimistic Adam Smith as a guide. Just when the Industrial Revolution explodes in England, Smith confidently points to every player, from farmer to friar to merchant to shipper, masterfully making sense of the social upheaval. Furthermore, Smith approaches economic policy without a biased brief for a particular party or class. No one could accuse him of sycophancy or insincerity. Though he finally endorses the rise of the bourgeois, he warns society not to naively succumb to bourgeois blandishments. In a way, the 1776 publication of 'The Wealth of Nations' brought forth a declaration of independence for economists.
Adam Smith is the father of free market economics. He brilliantly states that individual ambition, effort and choice are guided by an 'invisible hand' ? a term employed by him in his earlier 'Theory of Moral Sentiments' (1759) and mentioned only once in 'The Wealth of Nations' ? to create the highest social benefit: that in order to encourage individuals, government ought not to interfere in economic matters; that efficiency in production will be increased by division of labour (his classic example was a pin factory in which worker specialisation boosts output); that value and price are distinct aspects of economic transactions; that prices and wages are best determined competitively and that 'balance -of-trade' justifications for high tariff walls and other mercantilist protections are hogwash.
The important natural drives or 'propensities' Smith discovers in human nature form the basis of his analysis in 'The Wealth of Nations' and the foundation of classical economics. All humans want to live better than they do. Smith finds 'a desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb and never leaves us till we go to the grave ... Between the womb and the grave, there is scarce perhaps a single instant in which any man is so perfectly and completely satisfied with his situation, as to be without any wish of alteration or improvement of any kind'. Second, Adam Smith points to 'a certain propensity in human nature to truck, barter, and exchange one thing for another. It is common to all men'. Adam Smith called these urges as the invisible hand of enlightened self-interests.
To increase the wealth of a nation, Smith argues that society should exploit these natural drives. Government should not repress self-interested people, for self-interest is a rich natural resource. People would be fools and nations would be impoverished if they depended on charity and altruism. A healthy society cannot rest its future on the noblest motives, but must use the strongest motives in the best possible way.

I am not going to dissect these passages, being pleased to see some articulation of the policies behind the Indian break away from the dead-hand of the state – which has still some way to go. Governments that try to ‘manage’ economies usually make them worse. I shows a very Smithian message, without him dropping into the errors of libertarian extremes.

Jagdish Bhagwati for this year's Nobel!

Nominations are moving up the chattering agenda for this year’s “Sveriges Riksbank (Bank of Sweden) Prize in Economic Science in memory of Alfred Nobel”. Awarded simultaneously with the traditional Noble Prizes (which relate directly to Nobel’s Will), they are seriously contested each year with armies of economists lining up behind their favourites.

I too have been adding my two-pence worth each year and always for the same person, Jagdish N. Bhagwati, whose (difficult) articles I read as an undergraduate student of economics and whenever since I came across them (less difficult). I am now retired.

Greg Mankiv, ever at the forefront of what is going on in the profession, today started the season’s nomination exchange in the Blogosphere, so I thought I would get my nomination in before the ‘big guns’ open fire (from the people, that is, who are probably asked to make their own nominations officially to the committee).

My support for Jagdish Bhagwati does not express disappointment with those who were successfully nominated in the past. I was especially pleased when Amartya Sen was awarded the prize. As a junior lecturer many years ago, I heard him deliver a seminar paper and was most impressed – his theme was moral choice and he used the example of choosing to wipe or not wipe the washbasin on an international flight to make his welfare points. Recently, I re-read his ‘Development as Freedom’ (Oxford, 1999) and it is as fresh as it was some years back, and is noted for its appropriate references to Adam Smith’s economics and moral philosophy.

However, my ‘vote’ today would go for Jagdish N. Bhagwati because he has long had a strong claim on the award. His work continues consistently to influence debate on the major issues of the day, as his analyses cut through the noisy confusion of those aiming to decide these issues on the streets.

Tuesday, September 19, 2006

Smith's and Darwin's Evolutionary Models

The ‘debate’ between religion and science is much sharper in the United States than in the UK. Recently, it became a debate about ‘Intelligent Design’ versus evolution, a subject less fraught here than in North American media. The fact that in the UK the consensus about the validity of evolution has not caused a crisis among Christians or Jews, or a collapse of their religious values, ought to give comfort to those who feel unable to accept any questions about theology in case their religious faith erodes. That the Roman Catholic Church has accepted much of the theory of evolution, without abandoning one iota of its faith, is comforting to those worried on that score.

Michael Shermer, publisher of Skeptic ( and author of ‘Why Darwin Matters’, enters the debate with an article in Scientific American (October 2006): ‘Why Christians and conservatives should accept evolution’. The part of his article that caught my attention deals with evolution and free market economics:

Evolution explains conservative free-market economics. Charles Darwin's "natural selection" is precisely parallel to Adam Smith's "invisible hand." Darwin showed how complex design and ecological balance were unintended consequences of competition among individual organisms. Smith showed how national wealth and social harmony were unintended consequences of competition among individual people. Nature's economy mirrors society's economy. Both are designed from the bottom up, not the top down.

Because the theory of evolution provides a scientific foundation for the core values shared by most Christians and conservatives, it should be embraced. The senseless conflict between science and religion must end now, or else, as the Book of Proverbs (11:29) warned: "He that troubleth his own house shall inherit the wind."

It is a neat argument to link a Conservative economic totem (the free market) to religious belief. Unfortunately, the way Shermer does this is false. Darwin’s natural selection is not ‘precisely parallel’ to Adam Smith’s metaphor of the ‘invisible hand’. Darwin makes a statement, not a metaphor, about an evolutionary process – ‘natural selection’ – while Adam Smith used a ‘metaphor’, not a statement. Darwin’s evolution had content; the metaphor of the so-called invisible hand’ had none.

Of course, Shermer only picks up what US faculty teaches, namely a so-called ‘theory of markets’, wrapped round a metaphor. It helps in this context that Christians (and Jews and Muslims) believe in an invisible God, which must be attractive to believers in ‘invisible hands’. Indeed, several economists have suggested that Smith meant by ‘an invisible hand’ something related to a Deity (see Jerry Evensky, for example, ‘Adam Smith’s Moral Philosophy’, Cambridge, 2005). But it is still a false prospectus because that is not what Smith meant. He was not even writing about ‘markets’ on the two occasions in which he used the metaphor, one each in ‘Moral Sentiments’ and ‘Wealth of Nations’. His use of ‘the invisible hand of Jupiter’ in his essay on ‘Astronomy’ was about pagan religious superstition.

He did not consider that ‘national wealth and social harmony were unintended consequences of competition among individual people’. Wealth – the annual output of the ‘necessaries and conveniences’ of society – did not require social harmony. If society had to enjoy ‘perfect liberty’ to produce goods, no society in the history of the Earth would have done so, yet they did, despite regimes showing degrees of disharmony from mild to tyrannical for almost the entire history of the human species. Perfect liberty has never, yet, been experienced; Smith opined that it was unlikely that they would ever do so.

Social harmony arose, not from competition between peoples, but precisely the opposite. Individuals learned about acceptable moral behaviour from within those elements of society to which they were exposed from the family, childhood and the ‘great school of self command’, i.e., interactions with others as they grew up to adulthood, and their exposure to ‘impartial spectators’ of their conduct.

There is a major difference between biological evolution, what Shermer forces into a statement called ‘Nature's economy’, and ‘ society's economy’. Biological evolution takes a vastly greater amount of time to work through, while social evolution in society is vastly quicker. Human language and knowledge is capable of speeding up social evolutionary processes. Perhaps, one day in the future, science may ‘speed up’ biological evolution but for the present is remains slower.

Economic change shows characteristic of biological change. It is undirected, undesigned, and uncontrollable. The most economists can do is remove inhibitions that slow down growth towards opulence. That was Smith’s purpose in writing his report on what caused the creation of wealth. His model had many elements in it of a social evolutionary model. He looked backwards in history for his data. Darwin looked around him from his Beagle voyage and collected reports and samples from a vast array of correspondents from around the world on the flora and fauna, while evolutionary geologists, such as Smith’s friend, James Hutton, looked at where rock formations were in late 18th-century Britain and thought about how they got into their then present states.

I cover the Smithian social evolutionary model in my forthcoming book, ‘Adam Smith’, Palgrave, 2007. You can also read a positive contribution on the social evolutionary model in Jim Ottesons’ ‘Market Place of Life’, 2002.

Monday, September 18, 2006

A Conservative Case for Adam Smith

Conservatives, and people described as ‘rightwing’, have long claimed propriety ownership of Adam Smith, a claim that has been challenged recently by Gordon Brown, British Chancellor of the Exchequer, and by Professor Iain McLean, Oxford University, whose recent book, ‘Adam Smith, Radical and Egalitarian, an interpretation for the 21st century’ (Edinburgh University Press) will be the subject of my review shortly.

I read an article this morning published by Human Events online: ‘National conservative weekly’ (since 1944), “How to Win the Climate Change Debate by Alex Bozmoski, Sept 18, 2006, which contains some interesting comments on Adam Smith:

“Conservatives are lucky. Despite our recent intra-movement bickering, we have a strong, consistent, and viable philosophical tradition. We are a movement grounded in ideas; liberalism today is more or less just emotion. We, of course, used to be rather artificially divided -- Adam Smith's libertarian disciples vs. Edmund Burke's traditionalist disciples. Thanks to Frank Meyer and other "fusionists," conservatives realized that in fact the ends of traditionalism and libertarianism were shared, and the resulting movement grew into an intellectual and political powerhouse, fueled by the minds of conservatives we all admire like William F. Buckley Jr. and Barry Goldwater, and eventually articulated into practical policy that the average American can understand and relate to by Ronald Reagan.”

“Adam Smith's libertarian disciples vs. Edmund Burke's traditionalist disciples.” I can only guess what is meant by “Adam Smith's libertarian disciples” but I presume this has something to do with Smith’s Chicago reputation as an advocate of laissez-faire, of which there has been plenty of critical comment by me in earlier Blogs on ‘lost legacy’.

The Kirkcaldy Smith does not fit that image of Adam Smith. That does not, of course, mean he fits Gordon Brown’s (or Iain Mclean’s) image as a sort of social democrat, or, in extremis, some version of 18th-century ‘socialist’. It does mean that Smith was a far more complex philosopher than right and left wing commentators sometimes present him to be.

Smith had a friendly relationship with Edmund Burke for much of his life (the latter admired his 'Moral Sentiments' book and said so) but their intellectual compatibility cooled somewhat as Burke distanced himself from Smith (and quite violently in the early 1800s) as the French Revolution displayed its violent passions and the French Terror erupted from 1793. By then Smith was dead. His friends and supporters felt the force of the government and its repressive legislation (various men were hanged and others were transported; a few were ruined) as suspicions fell on some of them (e.g., Dugald Stewart) who were associated with Smith’s political economy, or rather, interpretations made of it by a frightened elite, still smarting from the American defeats and fearsome of imaginary French-like Mobs running amok in Britain.

Alex Bozmoski applies his thought to the “Free Market”:

"I often worry that conservatives confuse favoring the free market with favoring business. Perhaps the distinction would be inconsequential if business actually lobbied for free-market reforms, but that is not always the case. Business today is often a well-endowed driver of protectionist trade-barriers and government hand-outs. (Cotton is surely not grown in Arizona because market pressures.) Conservatives’ embrace of free enterprise isn’t even grounded in the resulting prosperity of a free system. Such reasoning would in fact counter conservatives’ disdain of materialism and the “soulless corporation,” to again borrow from Professor Kirk. Rather, the free market is a venue for individuals to exercise freedom with minimal government interference. That freedom should only be limited when it may impede the freedoms of others, as is the case when the market itself cannot value the negative societal externalities of trade, such as traffic congestion or pollution. Even Milton Friedman acknowledged a proper place for the government in internalizing negative externalities or “neighborhood effects.” The conservative recognizes the societal cost of greenhouse gas emissions, and should focus on the most efficient way to determine and then internalize their price. Command and control regulation is the liberal way, not our way.”

This seems clear enough and I find parallels with Smith’s thinking (though he did not explicitly state the case for 'Pigovian' taxation - see Greg Mankiv's Blog). He did, however, state a clear case in Book V for the users of publicly-funded roads, bridges, harbours and canals, to pay for their benefits of accessing them. From that principle, providing it meets his ability-to-pay canon on taxation, as it does with commercial users who can charge their customers, but not with the children of the very poor whose parent(s) cannot pay for their education, it follows that the polluters should be charged for the disamenities they cause.

On favouring business and not consumers (the ultimate purpose of production said Smith), we have common ground. Pro-business advocates and pro-union advocates have that in common; they both ignore the consumers; Smith didn’t and neither should we.

Ever Wondered of What an Invisible hand Consists?

A Union view of the price mechanism and the ubiquitous ‘invisible hand’ of the market contrasts with my other piece today stating a rightwing view of markets and environmentalism (from

“Wouldn’t a Bush administration powerful enough to control gas prices — a power that has escaped every administration before it — be powerful enough to clean up New Orleans in 12 months?

Some people believe that everything must be controlled by some powerful hand. They’re right. But it is not the hand of government or big corporations. It is what Adam Smith called “the invisible hand” — the end result of millions of individual choices working independently in the marketplace.”

Gas prices are set by ‘the market’ (preferably: ‘markets’) and they are “he end result of millions of individual choices working independently”. True, but no ‘invisible hand’ is involved.

And Smith did not refer to ‘the’ invisible hand; it was ‘an invisible hand’, and he was not referring to markets but to the consequences of individual unintentional actions, in the sole case in Wealth of Nations he spoke about individual fears of the security of their capital causing them to prefer to invest locally rather than out of their sight.

This leads to the usually unasked questions: Of what does an invisible hand consist? Why is such a metaphor considered to be necessary to explain markets? Why do people believe Smith used the metaphor in the manner they do, but which he did not?

Sunday, September 17, 2006

Smith's True Legacy

India has a lively print medium that promotes considerable discussion of economics as an historical subject (mentions of Adam Smith, David Ricardo and John S. Mill abound) and as an analytical subject (the neo-classical abstraction). There is far more public as opposed to professional discussion of economics than commonly found in UK media. The quality of the discussion is not always authoritative, but it is more often than not, at least in the level of discourse, evidence of a widely read authorship and, presumably, of the readership too.

C T Kurien, writing on development provides an example of what I mean in Frontline (‘India’s National Magazine’: vol 23, issue 18, 22 September). Here is an extract:

There are two broad approaches to economics. One of them puts the emphasis on its formal and logical aspects and its general applicability as a science. The other is more concerned with its substantive subject matter. Those who adhere to the former position trace its ancestry to Adam Smith's classic work The Wealth of Nations (1776). Although in it Smith had dealt with a wide range of issues, what have subsequently been elaborated are his observations of exchange as an innate human activity and the market as the automatic functioning (the much celebrated `invisible hand') mechanism facilitating it. The `universal laws of economics' have been premised on these observations. By the middle of the 20th century, those who followed this tradition claimed to have built up economics as the universal science of choice under conditions of scarcity.

But this has been essentially an Anglo-American tradition passed on to the former British colonies, including India. (Those who are interested in a detailed exposition of this tradition and a critique of it may consult my Rethinking Economics, Sage Publications, 1996.) That Smith was not the founder of economics can be seen from the fact that half a century before the publication of The Wealth of Nations, professorships in economics were established in Germany in 1727 (see page 57 in the second volume). It is a contested issue whether even in the U.K. Smith's work was the first major writing on economics, or political economy, as it was then known. A strong case has been made (by Colin Clark, Arthur Lewis and Amartya Sen among recent writers on economics and developmental economics) that in the U.K. the first major writings on economic issues were by William Petty (1623-1687) whose A Treatise of Taxes and Contributions (1662), Political Arithmetic (1671-72) and other contributions dealt with a number of important economic issues.”

I am not so sure that Adam Smith can be pigeon-holed in this manner. First of all Wealth of Nations is not a textbook on economics as a science. It was a report of his inquiry into a major social question, namely, what was the nature and cause of the wealth of nations (you get exactly what it says in its title).

Yes, he did assert that exchange (‘truck, barter, and exchange’) was a human ‘propensity’ (OK, ‘innate’ if you must, but only loosely), arising he said from the faculties of ‘reasoning’ and ‘speech’. I am not so sure, however, that we can say with confidence that modern economics owes anything to ‘elaborating’ on that assertion; quite the reverse – economists tended to ignore Smith’s assertion and thereby neglect exchange relationships in favour of ‘automatic’ price determination over bargaining, the former well defined mathematically and the latter still a hopeless mess because neoclassical theory is still stuck where Francis Ysidro Edgeworth left as the "
indeterminacy of contract" (bargaining) in 1881.

The situation is no clearer when we consider what C T Kurien describes as “the market as the automatic functioning (the much celebrated `invisible hand') mechanism facilitating it.” For a start, in Smith’s view the relationship was the reverse: it was not the market that facilitated exchange, but the propensity to exchange that facilitated the division of labour and the market.

As for the ‘much celebrated “invisible hand” being the ‘automatic functioning mechanism’, I have expressed my doubts (indeed, my conviction) that Smith’s use the metaphor, apparently forever to be associated with his name, was not a ‘law’, and most certainly not a ‘theory’, but, as any metaphor is ever used, merely to give ‘colour’ to his prose, a purely rhetorical device in fact, that has been promoted without any real basis into something ‘wonderful’ or (even) ‘miraculous’, as if there is something as ‘universally’ mysterious as there is ‘universally’ applicable about how markets work when there isn’t anything we do not know about markets.

If, as C T Kurien, asserts that by ‘the middle of the 20th century, those who followed this tradition claimed to have built up economics as the universal science of choice under conditions of scarcity’, we should note that those who ‘followed this tradition’ were not following anything remotely relatable to Adam Smith’s ideas in his report. After the marginalists (Walras, Edgeworth, Marshall), neo-classical economics completely broke with Adam Smith, though they stayed in touch (only just) with Ricardo.

If Smith was not related to what C T Kurien calls ‘the Anglo-American tradition’ how does he stand alongside the approach which is ‘more concerned with its substantive subject matter’? I can only refer readers to Wealth of Nations. If that book is not concerned with ‘substantive matters’, specifically with how wealth (the annual production of goods that supply the ‘necessaries and conveniences of life’) is created and how it applied to 18th century Europe, I cannot think of another word that would accurately describe what he was about.

To suggest he wrote a ‘principles of political economy’ falls at the first fence. He did not write a comprehensive treatise (compare Sir John Steuart, 1767; David Ricardo, 1817; J. S. Mill, 1848; A. Marshall, who all wrote what we call textbooks). Smith’s reputation for including many detailed ‘diversions’ within Wealth of Nations arose from people who expected a treatise and found a specific report, highly focussed on adressing his title only; his so-called diversions were actually the data and evidence suppoting his report about his title, not about political economy generally.

Whether Smith was the ‘first’ economist or not is less important than what his posterity has accorded him. To make him the ‘first’ economist it has been necessary for his actual work to be transmuted into what it was not – a metaphor, for instance has been promoted to a theory and his theory of exchange has been ignored. This 'deception' has been successful because few people read Wealth of Nations - their copies grace their shelves only - and those who do tend not believe what their tutors told them.

Nobody before him, I suggest, produced the devastating critique of general government policy, served up to gullible legislators by special interest groups, in the manner achieved by Adam Smith.

That is his true legacy.

Saturday, September 16, 2006

Nonsense Alleged About Adam Smith in Harvard Crimson

New students attending Harvard University receive all kinds of information from other students on the available courses they can take. Much of it’s amusing, some of it scurrilous, and some a bit OTT in a bid to ‘shock’ the ‘Freshers’ (were students ever different?).

At Harvard the print medium is dominated by Harvard Crimson (daily since 1873), and one item caught my eye on Friday

“Social Analysis: food, money, power (sorry no sex) 14 Sep

“Social Analysis isn’t the sexiest of Core categories, but it ain’t the dreariest either. (Hello, Moral Reasoning.) Besides, many of you won’t have to worry about it to begin with. Social Analysis 10 = Ec 10 = Harvard’s most popular freshman class. For those who foresee a high-flying life in finance—or for those who have no idea what they want to do with their lives and hey, economics could be interesting, right? right?—this is the easiest shopping choice you’ll ever make. One year of Adam Smith and N. Gregory Mankiw (guess which one worked in the Bush administration!) and you’ll be able to justify all manner of evil. It’s practical, painless, and potentially profitable. Best of all, you’ll be done with Social Analysis, right off the first-year bat. BAM!”

Greg Mankiv
is probably one of the most famous of professors in the economics in the US today. His textbooks are the 21st century’s equivalent of the 20th century’s ‘Samuelson’, which were popular in the 1960s when I was a student, in terms of sales, usage and teaching aids. The main difference is that Mankiv has made it a business proposition on a grander scale than Samuelson. Instead of just one text and a workbook, Mankiv has several texts, workbooks and teacher’s aids.

They are also expensive too, and, like Samuelson’s series, they are regularly changed by new editions, which frustrate the second-hand market (the author only gets royalties from new sales). Add in companion web sites and there is a double bind; class exercises change with each new edition.

That is by way of introduction for those (few, I presume) who do not know of the Greg Mankiv phenomenon. Mankiv writes a widely read Blog each day (bookmark it at: which includes his perspective on issues of the day (he states he is Republican party affiliations, though I would not say he was dogmatic or remotely ‘neo-con’), and he has polite spats with Brad Delong’s blog (bookmark it:

Delong's lively Blog is written from a Democratic Party perspective. He is rabidly anti-Bush, with hints of a social democratic tinge, perhaps from his youth; he wants practically the whole Bush cabinet, including the President, to be impeached and he wants all of them to be ‘impeached now!’

From the ‘students’ report on ‘Ec 10’ I think the sentence, ‘One year of Adam Smith and N. Gregory Mankiw (guess which one worked in the Bush administration!) and you’ll be able to justify all manner of evil’, is disturbing. I take it that the view expressed about ‘all manner of evil’ is a student’s twisted perspective and not representative of anything Greg Mankiv teaches.

How students could attend lectures on Adam Smith and read his books, Wealth of Nations and Moral Sentiments, and come to associate anything about Smith that would label him with anything ‘evil’, let alone ‘all manner of evil’, is so incredible as to defy understanding of the word or the phenomenon of evil. Smith could be wrong about his philosophy and his political economy, but nothing he wrote or taught was ever 'evil'.

The student author must have been attempting provocation by shock, not from considered judgement. If the student believes what he or she has written then that is a great pity (I thought one had to be in the top percentile of the educable population to get into Harvard).

In Greg Mankiv’s Blog today he comments on the Harvard Crimson report but does not mention the contents of the paragraph reported above. He leaves the allegation of ‘all manner of evil’ on the record. I find that strange.

Perhaps Mankiv is indifferent to notoriety about what he teaches, or rather is alleged to teach, coming from patently suspicious sources. Certainly, reading his Blog daily, as I do, I am not persuaded that he does other than teach clearly about economic theory and its history.

Still, I would like to have seen a repudiation of the nonsense published on this occasion in Harvard Crimson.

A Welcome Trickle of Re-Appraisals of Adam Smith

We are in the British season for party political conferences where the party leaders parade their policies and their internal party concerns, and the public looks on, if inclined, increasingly, so we are told, with disdain for politics in general.

The spin hacks are already hard at work, doing what they do, and aspirants within each party jostle for attention, some to seize a public mood, others to put markers down as a ‘big ideas’ politician. The problem with the first gambit is that moods among the public are fickle; the problem for the second gambit is that there are not many people in or out of politics who have mindsets conducive to intellectual enthusiasm.

One of the latter kind caught my eye this week from David Lidington MP (Conservative) issued a press release of his speech on ‘Social Enterprise and Government’. Among other things he opined:

But too often we talk about the central political challenges of how best to create wealth and relieve poverty in terms of models of how society works which are intellectually coherent but which also present a misleadingly simple picture of how people organise their individual and collective lives.

On the one hand, there are those who argue that all that needs to be done is to break the fetters of free market capitalist enterprise and all manner of things shall be well. The beneficent "invisible hand" of the market will ensure not only that virtue and hard work are fairly rewarded but that the benefits will trickle down to everyone in society. Capitalism will inevitably harness to the common good the natural propensity of men and women to seek reward and profit for the work that they do. There is a great deal of truth in this analysis. But, as Adam Smith himself recognised, human beings are motivated by more than just the hope of material gain. You have to read the "Wealth of Nations" in the light of Smith's other great work, "The Theory of Moral Sentiments". There is such a thing as society. Capitalism is the best means that human beings have so far discovered to create wealth and spread prosperity, but there are and always will be people who, for a variety of reasons, find it difficult or impossible to thrive amid the rigours of the market. If we are serious as a country or as a city about the aim of life, liberty and happiness for all, then we have to find ways of doing politics which take those people into account

Ignore the myth of the ‘beneficent “invisible hand” of the market’ and focus on ‘human beings are motivated by more than just the hope of material gain’. That is a step forward.

All references, and there have been many recently (and long may that continue) to the need to read Wealth of Nations and Moral Sentiments are most welcome at Lost Legacy. It’s as if the past focus solely on Smith as a political economist has been widened by a proverbial ‘trickle down’ effect from the, as yet small, stream of re-appraisals of Adam Smith published in the past few years, such as:

Andrew S. Skinner. 1996: A System of Social Science: papers relating to Adam Smith, Clarenden Press, Oxford (and his Introductory essays, 1999, to the Penguin Edition of Wealth of Nations, 1999. volume I and II);
Emma Rothschild, 2001. Economic Sentiments: Adam Smith, Condorset, and the Enlightenment, Harvard;
Jim Otteson, 2002. Adam Smith’s Market Place of Life, Cambridge
Eli Ginzberg, 2002 [1934]. Adam Smith and the Founding of Market Economics, Transaction
Sam Fleischacker, 2004. On Adam Smith’s Wealth of Nations: a philosophical companion, Princeton
Gavin Kennedy, 2005. Adam Smith’s Lost Legacy, Palgrave
Jerry Evensky, 2005. Adam Smith’s Moral Philosophical: a historical and contemporary perspective on markets, law, ethics, and culture, Cambridge
James Buchan, 2006. Adam Smith and the Pursuit of Liberty, Profile Books
Ian McLean, 2006. Adam Smith Radical and Egalitarian: an interpretation for the 21st century, Edinburgh University Press

Readers of the books, plus readers of the reviews, plus readers of press articles that include single lines picking up on the themes in the books (if only ‘Smith wrote Moral Sentiments as well as Wealth of Nations’), gradually creates a different environment to the monolithic ‘Chicago Adam Smith’ that has dominated campus comment for so long.

Readers who are interested in following the reappraisal of Adam Smith that is now underway should start with the books on the above reading list.

'Hard Core' Adam Smith?

It is a trifle extreme to describe Adam Smith as the ‘man behind hard-core capitalism. What exactly does that mean? Don’t get me wrong, I am all in favour of a degree of literary license, but ‘hard-core’ is a statement loaded with intent.

Some statements about Adam Smith emanating fro the environs of Chicago create an image of the Adam Smith of Kirkcaldy wildly at variance with the historical man who lived from 1723 to 1790, who wrote Moral Sentiments (1759) and Wealth of Nations (1776), and who gave the Lectures in Jurisprudence (1762-4).

Here is an extract from the piece by Christopher Koch in Change Management (published by CIO of Framlingham, Mass, USA):

“The New Science of Change
Nothing is more frustrating than trying to get people to alter the ways they do things. New research reveals why it’s so hard and suggests strategies to make it easier.

“Think the man behind hard-core capitalism, Adam Smith, didn't have a touchy-feely side? Check out his writings about the power of self-determination and the "impartial spectator" in changing human behavior. Find links to both of these stories.”

See what I mean: ‘a touchy-feely side’? It grabs your attention, for sure, but I am less sure the language is appropriate to describe the alternative to something called ‘hard core capitalism’, allegedly found in Moral Sentiments (the clue being a mention for the ‘impartial spectator’).

If it gets people to click through, fine. If they read what they find when they arrive, even better. And if they read the complete volume, better still.

See the article at: CIO, Framingham, MA:

Friday, September 15, 2006

From Kirkcaldy to New York

Apologies for light posting Thursday and Friday of this week. I have spent two days working in Kirkcaldy, home town of Adam Smith from 1723-1737; 1746-48; and 1766-73, with short trips to Edinburgh and London.

I could not help but reflect on how Kirkcaldy has changed since the 18th century. The town has expanded northwards and east and west along the shores of the Firth of Forth, and the countryside around it is cut through with modern roads and the town conected by a railway line to Edinburgh (40 minutes) and Dundee, passing close to St Andrews University in the town of that name about 20 miles away. ST Andrews university was there in Smith's time, but he never went there, though it was his nearest university, and was one of the four universities (the others were Glasgow, Edinburgh and Aberdeen) established in Scotland at the time when England had only two universities (Oxford and Cambridge).

Over the weekend I hope to do some catching up with postings.

Next week I shall be in New York from Thursday for four days attending a conference, 'Reclaiming Adam Smith', at Columbia University on 22-23 September.

Should any readers wish to contact me in New York and, if it is convenient, I can be contacted via Lost legacy at: gavin At ['web site name'] DoT com

More Praise for James Buchan's Book on Adam Smith

From The New York Times, 15 September, another highly deserved and splendid review of James Buchan’s, ‘The Authentic Adam Smith’ (US title) or 'Adam Smith and the Pursuit of Perfect Liberty' (UK title), written by William Grimes:

“Wealth of Notions: Adam Smith’s True Legacy”:

“Great books can obscure their creators. A prime example is “The Wealth of Nations,” a work whose influence can be measured by the extent to which modern-day readers, and nonreaders, have distorted its meaning and reinvented its author, Adam Smith. As the title suggests, “The Authentic Adam Smith,” James Buchan’s concise, literate introduction to the man and his work, tries to undo the damage, “to draw Smith out of the mystifications of the economists and the simplifications of politicians and place him in view of the public.”
... Or should we? Mr. Buchan begins with a highly amusing account of last year’s annual Adam Smith powwow in Kirkcaldy, Scotland. ...
Gordon Brown, Britain’s chancellor of the Exchequer, made a case for Smith as a proto-socialist who believed as much in “the helping hand” (a phrase Smith never used) as the invisible hand (a phrase that Smith famously used, but only three times).

Smith was neither the one nor the other, Mr. Buchan argues. The great theorist of foot-to-the-floor capitalism never once used the term “laissez-faire,” supported all manner of limitations on free trade, and slept through the only lecture on political economy that he ever attended. At the same time he would have loathed the intricate state interventions beloved of Mr. Brown, the sort of top-down tinkering Smith dismissed as “systems of preference and restraint.” He was not, Mr. Buchan writes, a “brash Liberal with a large ‘L,’ ” but a “cautious, voluminous, virtuous, qualified, liberal with a small ‘l.’ ”

… He also happened to be one of the century’s towering geniuses, with a restless mind, a powerful imagination and the desire, widespread in the age of the French Encyclopedia, to bring order and system to all branches of human knowledge. His first philosophical essay dealt with astronomy, and his two great works, “The Theory of Moral Sentiments” and “The Wealth of Nations,” were intended as mere installments in a series of disquisitions on law, politics, science and the arts.

Mr. Buchan loves “The Theory of Moral Sentiments,” which he regards as a great work of economics as well as philosophy. The sentiments come first, as Smith explains the way that sympathy allows human beings to make judgments about what is right and wrong.
The economics come later, in a section dealing with luxury, a subject of obsessive philosophical interest in the 18th century. In it Mr. Smith touches on the strange way in which the rich, pursuing their own selfish interests, inadvertently share their wealth with the poor in the form of wages and social improvements. It is here that the invisible hand makes an appearance and points the way toward “The Wealth of Nations.”

Mr. Buchan offers an admirably clear and well-organized account of Mr. Smith’s masterwork, starting with his theory of the division of labor, expressed in the famous example of a pin factory, and moving along to specie-flow theory, circulating and fixed capital, protection of markets and taxation.

… Mr. Buchan is not shy about zeroing in on the weaknesses in Smith’s theory, noting “the unsound commercial anthropology” and “the disdain for mere fact.” Among other shortcomings, “The Wealth of Nations” fails to address the economic effects of population change, unemployment or entrepreneurship.

… The astonishing thing is not that Smith failed to envision 21st-century capitalism in all its particulars, but the immediate and permanent influence of his ideas, and the imagination behind them. In Mr. Buchan’s able hands, Smith and his words come across as they should, in all their lucidity and elegance

Absolutely spot on target. Read the book, now. It will enlighten you without tears, or a temptation to skip bits, and you cannot say that about many books on economics, or indeed about many books. I thoroughly recommend it.