Wednesday, April 11, 2007

Mountain Men Should Stick to the Plain Facts

Some articles on Adam Smith in the media start off on the wrong foot, and only get worse. It is not the fault of their authors at all (they seem to be sincere and, probably, are nice people) but it is the fault of those teachers who portray Adam Smith as a caricature of what he was like and for what he articulated in the 18th century on moral philosophy and the causes of wealth creation.

Take this example for example. Gary Demlack writing in the Asheville Citizen Times – ‘voice of the mountains’ in North Carolina (surely it means ‘voice of people in the mountains’?) on 10 April, writes:

In 1776 Adam Smith published “An Inquiry into the Nature and Causes of the Wealth of Nations.” In this book, Smith outlined the basic tenets of modern capitalism.".

Smith wrote about the basic tenets of markets, not capitalism, a phenomenon of which he (nor anybody else in mid-18th century) knew anything, it being a phenomenon from the 19th century.

Wealth, he said, is created when each individual strives to become wealthy “intending his own gain.” By exchanging his products or services with other like-minded people who are focused on their self-interest, wealth is created and the public interest is advanced.”

Gary Demlack confuses ‘wealth’ with money when he fixes on ‘becoming wealthy’, a view that Smith criticised the mercantile-minded governments for confusing (Book IV, Wealth Of Nations). Smithian wealth was about the annual production of the ‘land and labour’ or specifically the ‘necessaries, conveniences and amusements of life’. Money in itself was not wealth; it was the means to purchase real wealth and had no intrinsic value in itself.

Gary Demlach continues:

“This process, he [Smith] said, is “led by an invisible hand to promote an end which was not part of his intention” (that is — to benefit society). Smith concludes: “By pursuing his own interest he frequently promotes that of [the] society more effectually than when he really intends to promote it. I have never known much good done by those who affected [to] trade for the public[k] good.” [typos corrected in square brackets: WN IV.ii9: p 456].

Smith was not referring to the creation of wealth or of markets. He was referring to the motive of security among individuals, who preferred the domestic industry to foreign trade because of the risks of losing their cargoes at sea (wind and waves, piracy] and fraud committed by foreign traders, and dubious legal decisions in cases of disputes.

The interest of society was to maximise domestic industry and its output of real wealth; if local traders invested more locally, instead of sending some abroad, then domestic industry would produce a higher annual output of goods and services. The whole is the arithmetical sum of the constituent parts. That is all this paragraph means. For my comments on the metaphor of an invisible hand, see scores of my posts in the archives.

Gary Demlack continues:

For the “Invisible Hand” to function effectively, Smith noted there had to be mechanisms in place, such as strong property rights and protection against theft and misrepresentation. Being devoutly religious, he said that moral norms are necessary for orderly exchanges to proceed: enforceable contracts, good access to information about products and services and enforceable laws.”

Yes, success in markets depends on ‘strong property rights’ and ‘justice’.
But what’s this about Smith being ‘devoutly religious’? His mother certainly was and so were most people in Scotland in the mid-18th century, but the evidence for Adam Smith being religious, even ‘devoutly’, is ambiguous at the very best, and doubtful at the very least.

His friendship with David Hume, a philosopher accused by many devout Christians of being an atheist and treated as a danger to society. Hume’s proven, historic, status of being Britain’s most talented philosopher, as well as a humanist and gentle person who would decorate any society with his manners, kindness to all, and a model of what some Christians claimed to aspire for themselves while denying it in all others not of their faith, was in Smith’s mind an outrageous slur on Hume and those who knew him well (including many devout Christians who remembered that Christ walked with sinners and were glad they knew David Hume as a friend).
Smith avoided the zealots – a Christian equivalent of today’s Taliban – and sought not to provoke them. He conformed to the rules but in his writings he wrote in code that showed his lack of faith in Church doctrine.

Gary Demlack ends with:

Aversion to subsidies
Smith disliked subsidies of any kind because it meant benefiting one person at the expense of another. As practiced today, Adam Smith would not look favorably upon tax breaks and other laws passed to benefit corporations who donate to political campaigns

Yes, a view of Smith that is correct. However, this extract and most of those above could well be re-written to take references to Adam Smith away and stick to contemporary statements that justify Gary’s views. He does not need to seek endorsements for his views no doubt sincere on capitalism, about corporations or the limitations of subsidies from inappropriate presentations of the views of Adam Smith.

My advice to Gary Demlack is to keep writing trenchant and articulate articles from the Mountains on your preferred economy, but do so on their own merits and leave Adam Smith out of it. He deserves better.

And for teachers of economics who influence media authors in later years, my advice is read Adam Smith and stop repeating the mantras you learned from your teachers on the Chicago University conveyor belt about Homo economicus, wholly fabricated concepts of human behaviour that had nothing whatsoever to do with the Adam Smith born in Kirkcaldy in 1723 and who wrote Wealth Of Nations and Moral Sentiments.


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